Conservation Easements and Appraisals

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Conservation Easements and Appraisals
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Congressional Hearings on Conservation Easements

• Joint Committee on Taxation issued proposals in a
  report January 2005
• Senate Finance Committee Hearing on Tax Code
  Proposals for reforming Conservation Easement tax
  treatment June 8, 2005
• House Ways and Means Committee Hearing to review
  the tax deductions on Façade Easements June 23,
  2005

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What is the Issue?

• Concern is that fraud and abuse is occurring with
  the current tax deduction for conservation
  easement donations.
• Overvaluation of the Appraisal
• Is there an actual conservation value to the
  property or is it for the benefit of the
  landowner
• Enforcement and Monitoring by Land Trusts on the
  donated lands.

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First action

• IRS issued a revised Form 8283 in December 2005
  requiring more information that answers the
  issues that the Congressional Committees are
  concerned about.

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Revised IRS Form 8283

• The new instructions require that conservation
  easement donors attach to their 8283 a statement
  that
• Identifies the conservation purposes furthered by
  your donation,
• Shows, if before and after valuation is used, the
  FMV of the underlying property before and after
  the gift
• States whether you made the donation in order to
  get a permit or other approval from a local or
  other governing authority and whether the
  donation was required by a contract, and
• If you or a related person has any interest in
  other property nearby, describes that interest.

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Revised IRS Form 8283

• The new instructions also stateThe donee must
  be a qualified organization as defined in section
  170(h)(3) and must have the resources to be able
  to monitor and enforce the conservation
  easement...  To enable the organization to do
  this, you the donor must give it the donee
  organization documents, such as maps and
  photographs, that establish the condition of the
  property at the time of the gift."

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Revised IRS Form 8283

• If the donation has no material effect on the
  real propertys FMV, or enhances rather than
  reduces its FMV, no deduction is allowable. For
  example, little or no deduction may be allowed if
  the propertys use is already restricted, such as
  by zoning or other law or contract, and the
  donation does not further restrict how the
  property can be used.

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IRS Examination of Appraisals

• The IRS found in its examination that some
  appraisals
• are based on unrealistic assumptions about the
  highest and best use ofthe land,
• are based on an assumption that the entire assets
  are already in place,
• are conducted without regard to current zoning
  law, or
• are conducted pursuant to inadequate professional
  standards.

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Appraising Easements

• From Form 8283 in line with IRS examinationThe
  FMV of a conservation easement cannot be
  determined by applying a standard percentage to
  the FMV of the underlying property. The best
  evidence of the FMV of an easement is the sales
  price of a comparable easement. If there are no
  comparable sales, the before and after method may
  be used.

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Appraising Easements

• For ALL appraisal methods
• Attach a statement that
• Identifies the conservation purposes furthered by
  your donation,
• Shows, if before and after valuation is used, the
  FMV of the underlying property before and after
  the gift,
• States whether you made the donation in order to
  get a permit or other approval from a local or
  other governing authority and whether the
  donation was required by a contract
• If you or a related person has any interest in
  other property nearby, describes that interest.