Conservation Easements: Design Flaws, Enforcement Challenges, and Reform

Abstract

The charitable deduction for conservation easements promises a conservation benefit, lasting forever. Millions of acres have been protected by deductible conservation easements. On average over $1.5 billion are claimed in easement contributions each year, not including corporate contributions. The deduction, however, has serious problems. As use of the incentive has grown, doubts about the public benefit conveyed by conservation easements and significant enforcement difficulties have led to increased scrutiny of land trusts and to a growing chorus of calls for reform of the tax benefit and state laws governing easements. This Essay argues that it is because the tax incentive was born as an exception to the normal charitable deduction rules that many of the problems have resulted. In order to make the deduction fit within the charitable contribution framework, three special rules were enacted: that there be a qualified donee, a conservation purpose, and perpetuity. Although each requirement was intended to protect the promise of conservation, each requirement fails. This largely is because the charitable deduction framework does not contemplate an ongoing enforcement role for the IRS to police contribution use or donee effectiveness, either at the level of the charitable deduction or at the level of tax exemption. These design flaws have thus led the way to a retinue of wide-ranging reform proposals. The Essay suggests that the proven challenges of using the charitable deduction for partial interest conservation contributions warrant a comprehensive reform – either through elimination of the tax incentive, or conversion to a tax credit.

Keywords: conservation easement, qualified donee, conservation purpose, perpetuity, conservation credit, tax reform

JEL Classification: H2, H20, H4, L3, L31