Tax Blotter Oct. 18, 2018: Conservation Easements

The tax law permits the donor of a “conservation easement” to claim a charitable deduction for protecting or preserving land. Because these are “big-ticket items,” the IRS often challenges such deductions … and usually prevails in court.

Par for the course. A limited liability company (LLC) owned a private golf course in Georgia. The course can be accessed only through a security gate. To help with its finances, the golf club arranged an easement for various conservation purposes, including preservation of open space for the public’s scenic enjoyment. But only club members could get through the gate, so the deduction was disallowed (Champions Retreat Golf Founders, LLC, TC Memo 2018-146, 9/10/18).

Is it forever? In another new case, the taxpayer, owner of a country club in South Carolina claimed a deduction of $15 million for donating an easement for conservation purposes over certain land. After the IRS disputed the deduction, the Fifth Circuit eventually concluded that the easement met the basic tax requirements. The catch: The easement deed contained an extinguishment provision. Under the regulations, the donation must be “in perpetuity”—in order words, it has to last forever (PBBM-Rose Hill, Lmtd., CA-5 No. No. 17-60276, 8/14/18).

Quid pro quo. The taxpayer, a partnership, purchased a large real estate tract in North Carolina. It planned to build a community with residential areas, commercial spaces, a school and a park. The partnership donated a conservation easement on the land designated for the park and then the county purchased the property. Because the easement effectively benefitted the taxpayer, due to resulting increase in value of the planned community, the deduction was denied (Wendall Falls Development, LLC, TC Memo 2018-45, 4/4/18)