On November 10, the Land Trust Alliance issued a much-welcomed letter to Karin Gross and Marc Caine of the IRS Office of the Chief Counsel. LTA is a national organization representing 1200 land trusts that receive and preserve donations of conservation easements. The letter protests a crucial position taken by the IRS, and confirmed by IRS officials at an October 2015 LTA conference, that a general amendment clause in a conservation easement deed would disqualify any deduction for the donation. General amendment provisions typically provide that the easement can be amended by mutual agreement of the landowner and the land trust that holds the easement.
The specific position taken by the IRS is that a conservation easement with a general amendment provision fails the requirement that the easement's conservation purposes be “protected in perpetuity.” The IRS fears that the landowner and land trust may agree to eliminate critical restrictions that protect the easement, in spite of the land trust's fiduciary and statutory duties to preserve and protect the easement and its conservation purposes. On the contrary, the land trust community generally believes that the ability to amend conservation easement deeds improves the chances that an easement will be protected in the long term by allowing the parties flexibility to adjust the terms of the easement to reflect unanticipated circumstances.
The Land Trust Alliance encourages its member land trusts to include amendment clauses in their deeds. LTA's guidance states: “We consider it prudent to set the rules governing amendments, both to provide the power to amend and to impose appropriate limitations on that power to prevent abuses.” LTA recommends amendment clauses “to allow amendments that are consistent with the overall purposes of the easement, subject to the requirements of applicable laws. Doing so clarifies up front for all parties that there are circumstances under which conservation easements may be modified.” Land trusts accredited by LTA are required to have a written policy on amendments.
We have recently tried two separate Tax Court cases in which the IRS has taken this astonishing position, and we have been warning land trusts of the IRS's unannounced (indeed, some would say secretive) position on this issue. Land trusts and the Land Trust Alliance understandably found it hard to believe the IRS would take this position, because of its devastating impact on donation of conservation easements. In the recent past, the IRS has said that certain amendments were permissible.
Although the IRS official tried to deflect this question at the recent LTA conference, our partner, Ronald Levitt of Sirote & Permutt, pressed him for a specific answer. Finally, the official acknowledged the IRS position, and this prompted a collective gasp from the attendees at the meeting. The audience recognized immediately that the IRS position, if it prevails, would effectively end conservation easement donations. Moreover, previous donations of conservation easements would be nondeductible, and the donors subject to hefty tax penalties for claiming deductions. This follows because, under most state laws, it is legally impossible to grant an easement that cannot be amended by agreement of the parties, even if the deed is silent about amendments. As the Land Trust Alliance's letter to the IRS says, “[I]t is hard to imagine that the framers of the federal law providing the deduction intended that landowners would be denied a deduction because the document has an amendment clause.”
A copy of the Land Trust Alliance letter on this issue is attached HERE.