Conservation Easements: Defending IRS Challenges, Overcoming Audits, Structuring Deed Language for Perpetuity

Description

Conservation easements are as varied in purpose as the land they protect. The easements are tailored to specific conservation objectives as well as the needs of the landowner. The conservation objective can be as narrow as protecting a particular body of water or animal habitat or structured broadly to more generalized preservation efforts, like safeguarding farmland or ensuring unobstructed views.

In the case of donated conservation easements, the benefit to donor-landowners can be myriad, not the least of which are the considerable tax advantages available. Recent IRS attacks on those benefits have been rooted firmly in challenging the issue of perpetuity.

Practitioners structuring conservation easements must be wary of the IRS' most common methods of attack and careful to employ language capable of deflecting those challenges. The proceeds clause, for example, provides the agency with a multi-tiered opportunity to unseat landowners' deduction rights based on a violation of the perpetuity requirement.

IRS assertions include: the proceeds allocation formula fails to protect conservation purposes, reserving proceeds attributable to post-easement improvements frustrates perpetuity, and land trusts must have a vested interest in proceeds of third-party contracts like insurance coverage. IRS actions are increasingly causing attorneys to craft deed language that preserves easement deductions for donors.

Listen as our panel of attorneys discusses how to structure conservation easements to withstand IRS attacks, and offers practical guidance on overcoming challenges once presented.