Thursday, April 21, 2022
Feld, Sims & Nielsen: A Recent Perspective On the Valuation Of Conservation Easements
Alan Feld (Boston Univ.), Theodore S. Sims (Boston Univ.) & Jacob Nielsen (Boston Univ.), Inexperienced, or Greed? A Recent Perspective on the Valuation of Conservation Easements:
Charitable contributions of “conservation easements” have since 1980 allowed high-income taxpayers to shelter earnings from taxation by means of overvalued deductions. Overvaluation has elevated dramatically previously 20 years: a 2016 research of all easement selections since 1980 reported that whereas overvaluation had averaged by an element of two earlier than 1994, it averaged by an element of ten for selections between 1994 and 2016. SOI knowledge disclose that mixture easement contributions deducted on Schedule A grew from $2.26 billion in 2015 to $6.5 billion in 2018 (the latest 12 months out there). A latest report by supporters of conservation easements acknowledges that “neither the [IRS] nor the courts have ample sources to successfully police valuation abuse.”
A lot of the concern has been with “syndicated conservation easements” (“SCEs”), and most proposed treatments to easement overvaluation concentrate on SCEs. We present, nevertheless, that precisely the identical traits that produce overvalued SCEs — permitting charitable deductions based mostly on “honest market” worth, which sanctions deducting unrealized appreciation with out taxing the corresponding acquire, mixed with the unavoidable must worth contributed easements by means of as manipulable a course of as appraisal — have facilitated abusive overvaluation of non-syndicated easements too.
That mixture can depart an easement contributor higher off than if she had executed anything with the land, together with promoting it for its (true) honest market worth. The one efficient resolution to easement overvaluation is to limit the deductibility of easement contributions attributable to unrealized acquire. To that finish we suggest limiting charitable contributions of easements granted with respect to lately acquired property initially to price, a lot as Congress has beforehand executed with different contributions of appreciated property which can be weak to abuse, whereas permitting that limitation to evolve with actual property values over time. We additionally suggest an upfront excise on unrealized appreciation in contributed easements, to extend the salience to potential contributors of the dangers of overvaluation.
https://taxprof.typepad.com/taxprof_blog/2022/04/feld-sims-nielsen-a-fresh-perspective-on-the-valuation-of-conservation-easements.html
