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 and the needs of the landowner. The conservation objective can be as narrow as protecting a particular 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. Until recently, IRS attacks on those benefits have been rooted firmly in challenging the issue of perpetuity, particularly proceeds upon extinguishment.

The Eleventh Circuit Court of Appeals recently rejected an IRS interpretation of the proceeds clause, while a dispute over the allocation formula of that clause is awaiting decision in the Sixth Circuit Court of Appeals. Despite the setback, the IRS continues to challenge deductions based on the perpetuity of the gift.

Other IRS assertions challenging perpetuity include merger of title and deemed consent to exercise reserved rights. The IRS is also now more carefully scrutinizing conservation purposes and valuation as more cases are headed to litigation.

Practitioners structuring conservation easements must be wary of the IRS' most common challenges and the still uncertain drafting landscape. Meanwhile, Congress has yet to approve proposed legislation to change the terms of previously executed conservation easements retroactively.

Listen as our panel of attorneys discusses how to approach conservation easement donations going forward and offers practical guidance on overcoming IRS challenges once presented.