Making the Enhanced CE Tax Incentive Permanent

Making the Enhanced CE Tax Incentive Permanent
A bill has been proposed in the Senate that would make the enhanced conservation easement tax incentive permanent and prohibit charitable deductions for the donation of conservation easements on golf courses.

By: Breana Behrens
March 19, 2013

The enhanced conservation easement tax incentive, which raises the amount a taxpayer can deduct from 30% to 50% of their adjusted gross income (AGI), has received widespread bi-partisan support since it was first enacted in 2006. This incentive is incredibly effective in encouraging land conservation. The Land Trust Alliance has predicted that the enhanced tax incentive has increased conservation easement donations by about a third. However, the provision provides an even greater incentive for qualified farmers and ranchers, who can deduct up to 100% of their AGI, rendering conservation easements a powerful tool in preserving family farms and ranches.

Almost annually, private landowners and land trusts wait anxiously for Congress to extend the enhanced tax incentive and are left to hope that it does not get lost in political horse trading. In the past, it has not been uncommon for the enhanced incentive to be reenacted at the tail end of the year or even well after the end of the tax year. When this happens the tax incentives are applied retroactively to donations made in the previous year. This is not effective in incentivizing land conservation and requires that private landowners take an unnecessary risk when considering whether to place a conservation easement on their property.

On March 12^th Senators Baucus (D-MT) and Hatch (R-UT) reintroduced the Rural Heritage Conservation Extension Act (S.526), which would make the enhanced conservation easement tax incentive permanent. This bill also includes a provision that prohibits deductions for conservation easements on golf courses. If passed, this piece of legislation would strike the expiration dates of the current tax incentives and create certainty for private landowners who are seeking to keep their agricultural, ranch, or forestlands viable resources in perpetuity.

The second part of the bill is a blanket prohibition for tax deductions for conservation easements on golf courses. Placing conservation easements on golf courses has been a highly contentious issue. In some cases it is clear that preserving a golf course in perpetuity has substantial conservation benefits, such as maintaining open space and prohibiting development. But, others have argued that golf courses are not valid conservation areas and have only been used to fraudulently reduce the golf course’s tax liability.

The issue had been settled legally in Kiva Dunes, which is the notorious case that establishes a golf course may qualify for a charitable contribution deduction for donating a conservation easement. However, the court was careful to state that eligibility for the deduction should be determined on a case by case basis, stressing that it must meet the requirement that it be exclusively for a conservation purpose. If a golf course can prove that the donation of development rights would serve at least one of the four conservation purposes required by the IRS, it can receive a charitable deduction.

Allowing tax deductions for the donation of a conservation easement on a golf course is a good incentive for golf course managers to restore and keep native and natural habitats on the property. It may also encourage golf course managers to reserve additional space or limit development of these areas. However, a blanket prohibition, such as the one proposed in S.526, would go a long way in minimizing tax fraud and ensuring federal tax dollars are not going to preserving areas with questionable conservation interests.

Representatives Gerlach (R-PA) and Thompson (D-CA) are also considering reintroducing a bill in the House to make the enhanced conservation easement tax incentive permanent, but have not done so as of the writing of this article.