July 22, 2004 | Read Time: 1 minute
Following news accounts that raise questions about some easements donated to environmental and historic-preservation groups, the Internal Revenue Service says it will disallow such deductions if it finds they are being abused.
“We’ve uncovered numerous instances where the tax benefits of preserving open spaces and historic buildings have been twisted for inappropriate individual benefit,” Internal Revenue Commissioner Mark W. Everson said in a statement. “Taxpayers who want to game the system and the charities that assist them will be called to account.” The IRS may revoke the tax-exempt status of charities that have facilitated such deals, he said.
At issue are “conservation easements,” which limit development of land or property. Environmental and historic-preservation groups see the easements as a good preservation tool. But news accounts have questioned their value and have reported that some donors are claiming excessive charitable tax deductions for easements, which reduce the taxable value of the properties.
The IRS did not identify any organizations involved in such deals. The Washington Post reported last year that the Nature Conservancy bought land, added conservation easements, and then sold the land to top officials in the organization for less than it had paid. The officials donated the difference back to the Nature Conservancy, claiming a deduction for the gifts.
The Nature Conservancy says it did nothing wrong, but has since stopped making such transactions.
Other news accounts have cited examples such as a developer who builds a golf course, donates an easement for “open space” to a nonprofit, and claims a deduction.
The IRS’s position on the matter, Notice 2004-41, is available online at http://www.irs.gov/pub/irs-drop/n-04-41.pdf.
