We recently provided thoughts on Tim Lindstrom’s article in the Summer 2015 issue of Saving Land, relating to that article’s discussion of donations by syndicated partnerships. This is a follow up response that concerns the article’s discussion of a land trust’s role in the valuation of an easement and execution of the Form 8283. The valuation/8283 issue has been discussed at length at Rally in years past, but seems very timely considering comments by IRS that regulations are now contemplated that would place specific responsibilities upon land trusts signing the Form 8283 relating to valuation of the easement donation.
The current Form 8283 expressly negates any responsibility of the land trust concerning the value placed on the easement. The Form requires only an acknowledgement that the land trust is a qualified organization and that it received the property. It states: “This acknowledgement does not represent agreement with the claimed fair market value.” Neither the Instructions for the Form nor the regulations provide further illumination.
IRS certainly would welcome assistance in policing easement donation deductions. But the idea that a land trust should have a specific responsibility to provide policing assistance for fair market value raises serious problems. Most obvious is the lack of valuation expertise within most land trust organizations. Staffing up to provide that expertise would be expensive. Acquiring a second opinion of the taxpayer’s appraisal, while possible, is also expensive. Having the taxpayer provide or pay for a second opinion suggests issues with independence and fiduciary duty. If the concern about the deduction arises from the structure of the donor entity (e.g., a syndicated partnership), additional expertise in complex tax law would be required to make appropriate evaluation. Congress clearly assigned to land trusts the role of gatekeeper relating to conservation values and purpose, and not over appraisals of fair market value.
No one thinks a land trust should participate knowingly in a fraudulent scheme. Land trusts should encourage compliant behavior and provide resources to donors to aid in compliance. However, the suggestion in the article that a land trust undertake evaluation and due diligence concerning various appraisal, tax and legal issues is impractical and inappropriate. Impractical because of the degree of expertise and investigation required (e.g., distinguishing an improper syndication from a legitimate partnership). Inappropriate because the role suggested is well beyond that imposed by Congress and threatens the fundamental relationship between donor and donee. It is unreasonable to expect land trusts to perform technical evaluation within the role of IRS, especially when IRS is well-suited and well-staffed to perform the evaluation itself.
Fundamentally, land trusts acting as auxiliary policemen places them in unfamiliar roles, strains relationships with donors, and potentially leads to lawsuits, adverse publicity, and a decline in good conservation donations. The sequence of donation transactions is instructive. A donor offers the easement, and the land trust accepts. The donation is executed before year-end. The Form 8283 is prepared and filed with tax returns around April of the next year. Appraisals are sometimes done prior to the donation, but more often are done afterward. Many donations are made near year end, in which case appraisals are more like to be completed the next year.
The typical result: The land trust accepts and receives the easement before the appraisal is prepared. When the land trust reviews the appraisal, the easement is in place and cannot be rescinded. Generally, the taxpayer’s deduction is dependent upon a fully executed Form 8283. If, at that point, the land trust has qualms about signing the Form 8283, the donor’s deduction is imperiled but the donor cannot rescind the easement to achieve, at least, status quo ante. An impasse will be ripe for recrimination and probably litigation. While we all love our lawyers, does anyone really welcome being placed in this position?
Congress created the role of the land trust under Section 170(h) and expressed confidence that land trusts would do their job. But Congress did not contemplate the role expanding into the realm of appraisals, much less that of auxiliary IRS auditors. None of the recent legislation involving substantiation of donations, qualified appraisals, etc., has suggested any expansion by Congress of the land trust’s role in those areas. Expansion of the role by IRS in the manner suggested is a bridge too far.