Scholars discuss regulations that provide tax deductions for environmental conservation on private lands.
The United Nations Convention on Biological Diversity, leading conservation scientists, and President-elect Joe Biden all agree: To preserve wildlife and wilderness amid climate change, governments and private actors must protect 30 percent of the world’s lands and waters must by 2030.
In the United States, the federal, state, and Native governments will help reach this goal through conservation protections on large swaths of public lands. Private actors will also play an important role through conservation easements.
A conservation easement is “a bundle of restrictions on the development and use of land designed to protect the land’s conservation or historic values.” These specialized agreements currently protect about 40 million acres of land in the United States.
Conservation easements preserve land by dividing ownership rights. To create a conservation easement, a landowner sells or donates the right to develop the land to a nonprofit organization or governmental agency. Although the landowner retains rights to use, live on, and even transfer the land, the easement owner can permanently enforce the promise not to develop against the current and future landowners.
Landowners who donate a qualified conservation easement can receive federal income tax deductions from the Internal Revenue Service (IRS). Deductions are “equal to the value of the easement,” which the tax code defines as the difference between the fair market value of the land before and after the easement takes effect. Scholars estimate that conservation easements cost taxpayers about $600 million each year.
The U.S. Department of the Treasury outlines three requirements that conservation easements must meet to qualify for a tax deduction.
First, the land must be “protected in perpetuity,” which requires that restrictions be permanent and binding on current and future owners.
Second, the land must preserve natural habitats, open spaces, places of historic value, or land for outdoor recreation or education of the public.
Finally, a qualified organization must receive the easement. A qualified organization is a government or nonprofit organization with “a commitment to protect the conservation purposes of the donation and have the resources to enforce the restrictions.”
The IRS enforces the Treasury Department’s conservation easement qualification regulations by auditing taxpayers who claim deductions.
This week’s Saturday Seminar examines the environmental benefits of conservation easements and possible improvements to Treasury Department regulations and IRS enforcement.
- State and federal governments must “reform their methods for valuing conservation easements for tax purposes,” the University of South Dakota’s Sean M. Kammer and Sarah E. Christopherson argue in a Columbia Journal of Environmental Law article. Kammer and Christopherson advocate replacing conservation easements’ market-based valuation with an evaluation that considers the easements’ contribution to human welfare. Such a model would assess how much conserving a specific parcel of land “stems the flow of wide-scale resource depletion, pollution, and long-term environmental damage,” they suggest. By finding the “true conservation value” of a property, conservation easements will reflect better the benefits the public gains under these deals, according to Kammer and Christopherson.
- Abuses of the “obscure tax provision” that governs conservation easements impede conservation goals and burden taxpayers, according to Adam Looney of the David Eccles School of Business at the University of Utah. In a Brookings Institution report, Looney outlines policy changes to the easement system that could generate more conservation for the deductions that taxpayers expend. To ensure that deductions provide a public benefit, Looney recommends strengthening the standards that organizations must meet to receive the benefits of conservation easements and modifying the definition of “conservation purposes” to require that easements better advance a government conservation policy.
- Providing tax deductions only for perpetual conservation easements protects the “public’s investment in conservation,” according to Nancy A. McLaughlin of the University of Utah S.J. Quinney College of Law. In an article in the Virginia Tax Review, she argues that enforceable perpetuity requirements are “essential to ensuring that tax-deductible easements will actually protect” the land that they intend to preserve. When conservation easements do not comply with perpetuity requirements, she encourages the IRS to deny deductions without allowing landowners to remedy their error. To facilitate compliance with perpetuity requirements, McLaughlin contends, the Treasury Department should issue “straightforward guidance” to explain the standard to landowners.
- Publicly funded conservation easements on private lands should be more transparent and accountable to the public, writer Richard Conniff argues in a Yale Environment 360 article. Although conservation easements on private land cost taxpayers hundreds of millions of dollars every year in tax deductions, information on the locations of these lands, and how they receive protections, is not usually available to the public. Conniff recommends that regulators administering conservation easement programs keep better records and share that data more openly. More accountability is necessary, Conniff claims, because a lack of attention devoted to conservation programs could leave investments in private land vulnerable to abuse and present significant public health consequences such as polluted drinking water from agricultural runoff.
- Perpetual conservation easements are not actually everlasting, according to an empirical study in the New York University Environmental Law Journal. Gerald Korngold of New York Law School, Semida Munteanu of the Lincoln Institute of Land Policy, and Lauren Elizabeth Smith of MetLife analyzed modifications to easements held by 49 land trusts over a six-year period. They found that “amendments are actually taking place” on about 1 percent of easements, which may not be a significant proportion but contradicts “the paradigm of perpetuity.” Because parties are already altering easements, Korngold, Munteanu, and Smith recommend that policymakers develop “a range of procedural and substantive rules” to govern the process of altering easements.
- In an article published in the Denver Law Review, Jessica Owley of the University of Miami School of Law and her coauthors outline potential solutions to enhance conservation outcomes in light of developments from climate change. They recommend that conservation organizations meet the challenges of climate change by shifting land acquisition priorities, considering more flexible conservation tools in addition to perpetual conservation easements, and providing for more active stewardship of conservation lands. Owley and her team argue that reimagining conservation easements and strategies through these policy proposals will ensure improved conservation outcomes over the long term while accounting for future impacts of climate change.
The Saturday Seminar is a weekly feature that aims to put into written form the kind of content that would be conveyed in a live seminar involving regulatory experts. Each week, The Regulatory Review publishes a brief overview of a selected regulatory topic and then distills recent research and scholarly writing on that topic.