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9. NON-CASH CONTRIBUTIONS continued
B. CONSERVATION AND HISTORIC FAÇADE Recommendations for Congressional Action
EASEMENTS In addition to changes in qualified appraisal standards
recommended for all gifts of appreciated property,
Introduction Congress should amend federal tax laws to:
A conservation or historic façade easement is a legal 1. Enact into law the current regulatory requirement
agreement between the owner of a building or land and that deductions for conservation or historic façade
a charitable organization or government agency that easement donations be reduced by any financial or
restricts permanently how the land can be used to serve economic benefits the taxpayer receives as a result of
specific conservation purposes. The easement may be the donation, including any increase in the value of
designed to protect agricultural resources, forest, his- other property owned by the taxpayer or any person
toric buildings or property, or open space. The owner related to the taxpayer.
gives up certain specific rights to the land, such as the 2. Allow deductions for conservation or historic façade
right to build new structures on the land or make modi- easement donations only if they are made to a quali-
fications to the appearance of a historic building and its fied charity or government entity under the terms of
surroundings, but retains ownership of the property, a written agreement specifying the restrictions on
which can later be sold or left to heirs. The charitable the future use of the property once the donation is
organization or government agency that receives the accepted. Congress should direct the Secretary of the
donation of a conservation easement is thereafter Treasury to amend regulations to define a qualified
responsible for monitoring and enforcing adherence to charity as a publicly supported 501(c)(3) organiza-
the terms of the easement by current and future owners tion with a primary purpose of environmental
of the property. The donation of an easement fre- protection or historic preservation and that has
quently lowers the value of the property because it a commitment and the resources to manage and
restricts the development potential of the land or build- enforce the easement restrictions with appropriate
ing. To qualify for a tax-deductible contribution, the procedures for certifying that a charity meets this
donation must protect permanently specific conserva- definition.
tion resources and meet other requirements set forth in 3. Impose penalties on charities that fail to enforce
federal tax laws. conservation or historic façade easement agreements
in proportion to the nature of the violation and the
Statement of Problem damage to the resources that were to be protected
Donations of conservation or historic façade easements under the easement agreement. Authorize the
present a number of problems for tax administrators. Secretary of the Treasury to waive the penalty when
There is a lack of clear standards and qualifications for a change in the conditions surrounding the property
appraisers in establishing the difference in the value of makes it impractical to enforce the easement
the property before and after the easement restrictions restrictions.
are imposed, and such measures may be subject to
highly speculative assumptions. The standards used by Recommendations for
various governmental agencies to establish appropriate Internal Revenue Service Action
conservation purposes can vary substantially and are The Internal Revenue Service should require any chari-
often so broad that the specific public benefit is not table organization that accepts donations of conserva-
clear. The charitable organizations that accept partial tion easements to:
interest contributions of land for conservation purposes 1. Certify annually on its Form 990 that it has estab-
are not regulated with regard to oversight of conserva- lished and implemented reasonable written proce-
tion easement donations, and there are no clear mecha- dures for monitoring compliance with the terms of
nisms for ensuring that the land continues to be used the conservation easements it holds and that it has
for the restricted conservation purposes on which the adequate resources to enforce those restrictions.
tax deduction was based.
56 Report to Congress and the Nonprofit Sector on Governance, Transparency, and Accountability
2. File with its Form 990 a list of all donations of con- financial or economic benefits the taxpayer receives as
servation easements it holds, setting forth the loca- a result of the donation, including any increase in the
tion of the property, the acreage, the purpose of the value of other property owned by the taxpayer or any
easement, the year the easement was donated, and person related to the taxpayer. If the land may be put to
whether there has been any modification in the ease- a use that is inconsistent with the conservation purpose
ment. of the gift, no deduction is permitted.
Background Rationale
Conservation easements are contracts that are enforce- Tax deductions for contributions of full or partial inter-
able under state laws. A model Uniform Conservation est in land provide significant incentives for taxpayers
Easement Act was adopted by the National Conference to preserve that land for the benefit of the public rather
of Commissioners on Uniform State Laws in 1981, and than sell all or part of the land for commercial or resi-
21 states and the District of Columbia have adopted dential development. At the same time, it is essential
laws regulating conservation easements based on this that these tax benefits be accorded only for donations
law. Twenty-seven other states have drafted and that serve valid conservation interests and are not
enacted their own conservation easement laws.1 granted to taxpayers who receive financial or economic
Federal tax regulations encourage taxpayers to donate benefits from the donation that are greater than the
partial interest in property to ensure that such property value of the donated property. The IRS has recently
will be used in perpetuity for the following conserva- strengthened enforcement of laws governing deductions
tion purposes: for contributions of conservation easements2, and this
1. Land that will be used on a substantial and regular effort should be encouraged. The Panel recommends a
basis by the public for recreation or education. number of ways in which Congress should strengthen
2. Land that serves as a significant natural habitat for an tax laws governing appraisals and appraisers to justify
endangered or other protected class of fish, wildlife, claims of deductions for contributions of appreciated
plant community, or similar ecosystem. property that should apply to conservation easements
3. Land that serves as “open space” (including farmland as well. In addition, the tax code should be amended to
and forests) that is preserved for the scenic enjoy- specifically delineate that any tax deduction claimed for
ment of the general public pursuant to a specific fed- a conservation easement as a result of a decrease in the
eral, state, or local government conservation policy. value of the property must be reduced by any resulting
4. Land or a certified historic structure (including the increase in the value of other property owned by the
façade of a certified historic structure) that is deemed taxpayer and individuals related to the taxpayer and
to be “historically important” under the National strengthen penalties on taxpayers who violate the terms
Register of Historic Places Evaluation Criteria. of a conservation easement donation.
The taxpayer is permitted to take a tax deduction for
such contributions that is generally equivalent to the 1 Uniform Law Commissioners, National Conference of
difference between the fair market value of the property Commissioners on Uniform State Laws.
before and after the permanent restriction of the con- 2 Mark W. Everson, Commissioner of Internal Revenue,
servation or historic façade easement is put into effect. testimony before the U.S. Senate Finance Committee,
The amount of the deduction must be reduced by any June 22, 2004, and April 5, 2005.
57 Report to Congress and the Nonprofit Sector on Governance, Transparency, and Accountability
9. NON-CASH CONTRIBUTIONS continued
Charitable organizations that receive donations of C. CLOTHING AND HOUSEHOLD ITEMS
conservation easements must have sufficient expertise,
systems, and resources to determine whether a particu- Introduction
lar donation will serve a valid conservation interest, to Contributions of clothing and household items are a
establish appropriate terms for permissible activities on vital source of support for many charitable organiza-
the donated property, and to monitor adherence to the tions both in the faith and secular community, includ-
terms of the easement agreement. The cost of such ing those working with low-income and disabled
enforcement may not necessarily be prohibitive given individuals and families. Some contributions are used
that current law allows the court to require costs directly by the charitable organizations in their service
incurred by a charity to enforce an agreement to be programs or given to individuals in need. Others may
paid by the party violating the agreement. The be resold through thrift stores, while still others may
Secretary of the Treasury must develop appropriate be resold by the charity through charity auctions and
methods for ascertaining whether a charity is eligible to similar activities with the proceeds devoted to support
receive donations of conservation easements. Efforts are the program activities of the organization.
underway within the land trust and conservancy com-
munity to develop a strong system of standards of prac- Statement of Problem
tice that would lead to accreditation of organizations Contributions of clothing and household items present
qualified to receive and manage donations of conserva- unique problems for taxpayers and tax administrators in
tion easements. The Panel will continue to examine determining the fair market value for tax deduction pur-
proposals for requiring appropriate certifications from poses. Clothing and household items are generally con-
appraisers, donors, and charitable organizations sidered to be “loss property;” that is, the fair market
involved in conservation easement agreements on the value is substantially less than the original purchase
forms used by taxpayers to support tax deductions for price. These items are often of low value, and there are
conservation easement donations. no uniform standards for taxpayers for establishing the
value of such items, although some charitable organiza-
tions have attempted to guide donors with a standard-
ized “value list” to assist them in determining the value
of their donations.1 Donations of clothing and house-
hold items may be particularly susceptible to overstate-
ment of the fair market value because of the sentimental
value a taxpayer may place on such items.
1 The average price range of items sold by Goodwill and
Salvation Army is listed at www.goodwillpromo.org or
www.taxwizzard.com/donated.html. Information is also
provided at many donation collection sites.
58 Report to Congress and the Nonprofit Sector on Governance, Transparency, and Accountability
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