Conservation Easements Being Audited

In recognition of our need to preserve our heritage, Congress allowed an income tax deduction for owners of significant property who give up certain rights of ownership to preserve their land or buildings for future generations called Conservation Easements.

The IRS has seen abuses of this tax provision that compromise the policy Congress intended to promote. We have seen taxpayers, often encouraged by promoters and armed with questionable appraisals, take inappropriately large deductions for easements.

In some cases, taxpayers claim deductions when they are not entitled to any deduction at all. For example, when taxpayers fail to comply with the law and regulations governing deductions for contributions of conservation easements.

Taxpayers have used or developed these properties in a manner inconsistent with section 501(c)(3). In other cases, the charity has allowed property owners to modify the easement or develop the land in a manner inconsistent with the easement’s restrictions.

Another problem arises in connection with historic easements, particularly facade easements. Here again, some taxpayers are taking improperly large deductions. They agree not to modify the facade of their historic house and they give an easement to this effect to a charity.

However, if the facade was already subject to restrictions under local zoning ordinances, the taxpayers may, in fact, be giving up nothing, or very little. A taxpayer cannot give up a right that he or she does not have.