William Byrnes' Tax, Wealth, and Risk Intelligence

William Byrnes (Texas A&M) tax & compliance articles

Conservation Easements Are Having a Difficult Time Qualifying

Posted by bonddad on October 22, 2017

The Service made certain conservation easements a listed transaction in Notice 2017-10.

Now we’re seeing conservation easements that aren’t subject to reporting requirements run into aggressive judicial analysis.  From Bloomberg Law:

In BC Ranch II, LP v. Commissioner, the Fifth Circuit recently reversed the Tax Court in holding that a taxpayer qualified for a charitable contribution deduction for the donation of a conservation easement. The main issue involved whether the easement in question violated the in perpetuity requirement of §170(h)(2)(C). In BC Ranch, two limited partnerships donated one conservation easement each to a qualified donee and, subsequently, sold limited partnership interests. Each limited partnership interest entitled the limited partner to one five-acre homesite parcel. Pursuant to the deed of easement, the property covered by the easements could be amended, but only to the limited extent needed to modify the boundaries of the five-acre homesite parcels. Further, any modification could only be done within the ranch property subject to the easement. The modification provision also prohibited any amendment that would increase any homesite parcel above five acres. For any such a modification to occur, the donor, the donee, and the owner of the homesite parcel in question would have to agree and the modification would be permitted only if the boundary line modification did not, in the donee’s reasonable judgment, directly or indirectly result in any material adverse effect on any of the conservation purposes.

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