II 

109TH CONGRESS 

2D SESSION S. 2187 

To amend the Internal Revenue Code of 1986 to provide economic incentives 

for the preservation of open space and conservation of natural resources, 

and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

JANUARY 25, 2006 

Mr. ISAKSON introduced the following bill; which was read twice and referred 

to the Committee on Finance 

A BILL 

To amend the Internal Revenue Code of 1986 to provide 

economic incentives for the preservation of open space 

and conservation of natural resources, and for other purposes. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE. 

4 (a) SHORT TITLE.—This Act may be cited as the 

5 ‘‘Paul Coverdell Homestead Open Space Preservation and 

6 Conservation Act of 2006’’. 

7 (b) AMENDMENT OF 1986 CODE.—Except as other8 wise expressly provided, whenever in this Act an amend-
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1 ment or repeal is expressed in terms of an amendment 

2 to, or repeal of, a section or other provision, the reference 

3 shall be considered to be made to a section or other provi4 sion of the Internal Revenue Code of 1986. 

5 SEC. 2. FINDINGS AND PURPOSE. 

6 (a) FINDINGS.—Congress finds the following: 

7 (1) Tax and economic policies have for a sus8 tained period of time inadvertently created financial 

9 difficulties for our Nation’s farming and ranching 

10 families that, among other negative impacts, has 

11 forced a significant number of them to liquidate 

12 their land holdings. 

13 (2) This has particularly been the case in areas 

14 surrounding growing urban centers and resort des15 tinations. 

16 (3) This has fragmented many of our Nation’s 

17 large landscapes and disrupted many communities 

18 that historically derived their cultural and economic 

19 identities from the land. 

20 (4) The impact of this has been to deprive 

21 many areas of open green space, which in turn has 

22 not only negatively affected our human settlements 

23 through the resulting sprawl, but has also dramati24 cally reduced the amount of sustaining habitat for 

25 our natural communities of plants and animals. 
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1 (b) PURPOSE.—The purpose of this Act is to provide 

2 an economic mechanism that will restore and conserve our 

3 Nation’s natural estate in the form of forests, farms, 

4 ranches, and wetlands while protecting our waterways and 

5 our forests and open space in a manner that keeps them 

6 subject to private ownership and supportive of our sur7 viving but threatened natural communities of plants and 

8 animals. 

9 SEC. 3. QUALIFIED CONSERVATION CREDIT. 

10 (a) IN GENERAL.—Subpart B of part IV of sub11 chapter A of chapter 1 (relating to other credits) is 

12 amended by adding at the end the following new section: 

13 ‘‘SEC. 30B. QUALIFIED CONSERVATION CREDIT. 

14 ‘‘(a) GENERAL RULE.—There shall be allowed as a 

15 credit against the tax imposed by this chapter, in the case 

16 of a qualified conservation organization, the amount of the 

17 taxpayer’s qualified conservation expenditures for the tax18 able year. 

19 ‘‘(b) QUALIFIED CONSERVATION EXPENDITURES.— 

20 For purposes of this section— 

21 ‘‘(1) IN GENERAL.—The term ‘qualified con22 servation expenditures’ means the sum of the quali23 fied conservation organization’s— 

24 ‘‘(A) acquisition costs, plus 

25 ‘‘(B) reserve funds. 
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1 ‘‘(2) ACQUISITION COSTS.—The term ‘acquisi2 tion costs’ means the sum of— 

3 ‘‘(A) the lesser of— 

4 ‘‘(i) the total of the amounts that a 

5 qualified conservation organization paid 

6 during the taxable year to acquire qualified 

7 real property interests exclusively for con8 servation purposes, or 

9 ‘‘(ii) the aggregate appraised value of 

10 the qualified real property interests re11 ferred to in clause (i), plus 

12 ‘‘(B) so much of the transaction costs rea13 sonably incurred during the taxable year in con14 nection with the acquisition of qualified real 

15 property interests as do not exceed 2 percent of 

16 the amount determined in subparagraph (A). 

17 ‘‘(3) RESERVE FUNDS.— 

18 ‘‘(A) IN GENERAL.—The term ‘reserve 

19 funds’ means amounts permanently set aside by 

20 a qualified conservation organization as an en21 dowment to fund the future costs of enforcing 

22 and maintaining qualified real property inter23 ests acquired by the qualified conservation orga24 nization exclusively for conservation purposes. 
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1 ‘‘(B) ENDOWMENT.—The term ‘endow2 ment’ means a restricted fund held in a seg3 regated account, the income and realized appre4 ciation of which may be expended solely for the 

5 purposes designated under this section, and 

6 which may be invested solely in qualified invest7 ments (as defined in section 501(c)(21)(D)(ii)). 

8 ‘‘(C) LIMITATION.—The amount of reserve 

9 funds which may be taken into account under 

10 paragraph (1)(B) for the taxable year shall not 

11 exceed 8 percent of the acquisition costs for 

12 that taxable year. 

13 ‘‘(c) QUALIFIED CONSERVATION ORGANIZATION.— 

14 For purposes of this section, the term ‘qualified conserva15 tion organization’ means, with respect to any taxable 

16 year— 

17 ‘‘(1) an organization which— 

18 ‘‘(A) is described in section 170(h)(3), 

19 ‘‘(B) has been in existence for at least 2 

20 calendar years immediately before the taxable 

21 year, and 

22 ‘‘(C) was organized to serve primarily con23 servation purposes (as defined in section 

24 170(h)(4)), 
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1 ‘‘(2) a limited partnership, all the general part2 ners of which are organizations described in para3 graph (1), or 

4 ‘‘(3) a limited liability company, all the man5 agers of which are organizations described in para6 graph (1), 

7 with respect to which neither the seller of the qualified 

8 real property interest nor any party related or subordinate 

9 to the seller (within the meaning of section 672(c)) would 

10 be a disqualified person (as defined in section 4946) if 

11 the organization were a private foundation. 

12 ‘‘(d) QUALIFIED REAL PROPERTY INTEREST.—For 

13 purposes of this section, the term ‘qualified real property 

14 interest’ has the meaning given such term by section 

15 170(h)(2)(C). 

16 ‘‘(e) EXCLUSIVELY FOR CONSERVATION PUR17 POSES.—For purposes of this section, the term ‘exclusively 

18 for conservation purposes’ has the meaning given such 

19 term by section 170(h)(5), except that an acquisition shall 

20 not be treated as exclusively for conservation purposes un21 less the instrument conveying the qualified real property 

22 interest expressly provides that the conservation purposes 

23 may be enforced by both the attorney general of the State 

24 in which the real property is located and the qualified con25 servation organization. 
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1 ‘‘(f) APPRAISED VALUE.—For purposes of this sec2 tion, the term ‘appraised value’ means the fair market 

3 value as determined by a qualified appraisal (as defined 

4 in section 155(a)(4) of the Deficit Reduction Act of 1984). 

5 ‘‘(g) LIMITATION BASED ON AMOUNT OF TAX.—The 

6 credit allowed under subsection (a) shall not exceed the 

7 taxpayer’s liability for income tax (including unrelated 

8 business income tax) for the taxable year. 

9 ‘‘(h) LIMITATION ON AGGREGATE CREDIT ALLOW10 ABLE WITH RESPECT TO ACQUISITIONS OF QUALIFIED

11 REAL PROPERTY INTERESTS LOCATED IN A STATE.— 

12 ‘‘(1) CREDIT MAY NOT EXCEED CREDIT

13 AMOUNT ALLOCATED TO ACQUISITION OF QUALIFIED

14 REAL PROPERTY INTEREST.— 

15 ‘‘(A) IN GENERAL.—The amount of the 

16 credit determined under subsection (a) for any 

17 taxable year with respect to the acquisition of 

18 any qualified real property interest shall not ex19 ceed the conservation credit dollar amount allo20 cated to such acquisition under this subsection. 

21 ‘‘(B) TIME FOR MAKING ALLOCATION.—An 

22 allocation shall be taken into account under 

23 subparagraph (A) only if it is made not later 

24 than the close of the calendar year in which the 

25 qualified real property interest is acquired. 
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1 ‘‘(C) ALLOCATION REDUCES AGGREGATE

2 AMOUNT AVAILABLE TO AGENCY.—Any con3 servation credit dollar amount allocated to the 

4 acquisition of any qualified real property inter5 est for any calendar year shall reduce the ag6 gregate conservation credit dollar amount of the 

7 allocating conservation credit agency for such 

8 calendar year. 

9 ‘‘(2) CONSERVATION CREDIT DOLLAR AMOUNT

10 FOR AGENCIES.— 

11 ‘‘(A) IN GENERAL.—The aggregate con12 servation credit dollar amount which a con13 servation credit agency may allocate for any 

14 calendar year is the portion of the State con15 servation credit ceiling allocated under this 

16 paragraph for such calendar year to such agen17 cy. 

18 ‘‘(B) STATE CEILING INITIALLY ALLO19 CATED TO STATE CONSERVATION CREDIT AGEN20 CIES.—Except as provided in subparagraphs 

21 (F) and (G), the State conservation credit ceil22 ing for each calendar year shall be allocated to 

23 the conservation credit agency of such State. If 

24 there is more than 1 conservation credit agency 
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1 of a State, all such agencies shall be treated as 

2 a single agency. 

3 ‘‘(C) STATE CONSERVATION CREDIT CEIL4 ING.—The State conservation credit ceiling ap5 plicable to any State for any calendar year shall 

6 be an amount equal to the sum of— 

7 ‘‘(i) the lesser of— 

8 ‘‘(I) an amount equal to the ag9 gregate annual credit multiplied by a 

10 fraction, the numerator of which is 

11 the amount of land located in such 

12 State that is either used for agricul13 tural purposes or constitutes private 

14 forest land and the denominator of 

15 which is the amount of land in all 

16 States that is either used for agricul17 tural purposes or constitutes private 

18 forest land, or 

19 ‘‘(II) an amount equal to 4 per20 cent of the aggregate annual credit 

21 for that year, 

22 ‘‘(ii) the amount (if any) allocated 

23 under subparagraph (D) to such State by 

24 the Secretary, 
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1 ‘‘(iii) the unused State conservation 

2 credit ceiling (if any) of such State for the 

3 preceding calendar year, 

4 ‘‘(iv) the amount of the State con5 servation credit ceiling returned in the cal6 endar year, plus 

7 ‘‘(v) the amount (if any) allocated 

8 under subparagraph (e) to such state by 

9 the Secretary. 

10 ‘‘For purposes of clause (i), the aggregate an11 nual credit is determined in accordance with the 

12 following table: 

‘‘For the calendar The aggregate 

year ending: annual credit is: 

December 31, 2006 ....................... $4,000,000,000 

December 31, 2007 ....................... $4,500,000,000 

December 31, 2008....................... $5,000,000,000 

December 31, 2009 ....................... $5,500,000,000 

December 31, 2010 ....................... $6,000,000,000. 

13 ‘‘For purposes of clause (iii), the unused State 

14 conservation credit ceiling for any calendar year 

15 is the excess (if any) of the sum of the amounts 

16 described in clauses (i), (ii), and (iv) over the 

17 aggregate conservation credit dollar amount al18 located for such year. For purposes of clause 

19 (iv), the amount of State conservation credit 

20 ceiling returned in the calendar year equals the 

21 conservation credit dollar amount previously al22 located within the State to any proposed acqui-
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1 sition of a qualified real property interest which 

2 is not acquired within the period required by 

3 the terms of the allocation or to any proposed 

4 acquisition of a qualified real property interest 

5 with respect to which an allocation is canceled 

6 by mutual consent of the conservation credit 

7 agency and the qualified conservation organiza8 tion receiving the allocation. 

9 ‘‘(D) UNUSED AGGREGATE ANNUAL CRED10 IT.—Any portion of the aggregate annual credit 

11 for a calendar year that is not allocated to a 

12 State’s conservation credit ceiling because of 

13 the 4 percent limitation under subparagraph 

14 (C)(i)(II) shall be allocated by the Secretary 

15 among the remaining States, subject to such 4 

16 percent limitation, in proportion to their respec17 tive land used for agricultural purposes and pri18 vate forest land. 

19 ‘‘(E) UNUSED CONSERVATION CREDIT

20 CARRYOVERS ALLOCATED AMONG CERTAIN

21 STATES.— 

22 ‘‘(i) IN GENERAL.—The unused con23 servation credit carryover of a State for 

24 any calendar year shall be assigned to the 
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1 Secretary for allocation among qualified 

2 States for the succeeding calendar year. 

3 ‘‘(ii) UNUSED CONSERVATION CREDIT

4 CARRYOVER.—For purposes of this para5 graph, the unused conservation credit car6 ryover of a State for any calendar year is 

7 the excess (if any) of the unused State 

8 conservation credit ceiling for such year 

9 (as defined in subparagraph (C)(iii)) over 

10 the excess (if any) of— 

11 ‘‘(I) the aggregate conservation 

12 credit dollar amount allocated for 

13 such year, over 

14 ‘‘(II) the sum of the amounts de15 scribed in clauses (i), (ii), and (iv) of 

16 subparagraph (C). 

17 ‘‘(iii) FORMULA FOR ALLOCATION OF

18 UNUSED CONSERVATION CREDIT

19 CARRYOVERS AMONG QUALIFIED

20 STATES.—The amount allocated under this 

21 subparagraph to a qualified State for any 

22 calendar year shall be the amount deter23 mined by the Secretary to bear the same 

24 ratio to the aggregate unused conservation 

25 credit carryovers of all States for the pre-
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1 ceding calendar year as such State’s land 

2 used for agricultural purposes and private 

3 forest land for the calendar year bears to 

4 the land used for agricultural purposes of 

5 all qualified States for the calendar year. 

6 ‘‘(iv) QUALIFIED STATE.—For pur7 poses of this subparagraph, the term 

8 ‘qualified State’ means, with respect to a 

9 calendar year, any State— 

10 ‘‘(I) which has adopted a state11 wide conservation plan designed to 

12 preserve the natural estate in the 

13 form of forests, farms, ranches, and 

14 wetlands located within the bound15 aries of that State, 

16 ‘‘(II) which allocated its entire 

17 State conservation credit ceiling for 

18 the preceding calendar year, and 

19 ‘‘(III) for which a request is 

20 made (not later than May 1 of the 

21 calendar year) to receive an allocation 

22 under clause (iii). 

23 ‘‘(F) SPECIAL RULE FOR STATES WITH

24 CONSTITUTIONAL HOME RULE CITIES.—For 

25 purposes of this subsection— 
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1 ‘‘(i) IN GENERAL.—The aggregate 

2 conservation credit dollar amount for any 

3 constitutional home rule city for any cal4 endar year shall be an amount which bears 

5 the same ratio to the State conservation 

6 credit ceiling for such calendar year as— 

7 ‘‘(I) the land used for agricul8 tural purposes and private forest land 

9 within a 25-mile radius of such city, 

10 bears to 

11 ‘‘(II) the land used for agricul12 tural purposes and private forest land 

13 in the entire State. 

14 ‘‘(ii) COORDINATION WITH OTHER AL15 LOCATIONS.—In the case of any state 

16 which contains 1 or more constitutional 

17 home rule cities, for purposes of applying 

18 this paragraph with respect to conservation 

19 credit agencies in such State other than 

20 constitutional home rule cities, the State 

21 conservation credit ceiling for any calendar 

22 year shall be reduced by the aggregate con23 servation credit dollar amounts determined 

24 for such year for all constitutional home 

25 rule cities in such State. 
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1 ‘‘(iii) CONSTITUTIONAL HOME RULE

2 CITY.—For purposes of this subparagraph, 

3 the term ‘constitutional home rule city’ has 

4 the meaning given such term by section 

5 146(d)(3)(C). 

6 ‘‘(G) STATE MAY PROVIDE FOR DIF7 FERENT ALLOCATION.—Rules similar to the 

8 rules of section 146(e) (other than paragraph 

9 (2)(B) thereof) shall apply for purposes of this 

10 paragraph. 

11 ‘‘(H) LAND USED FOR AGRICULTURAL

12 PURPOSES AND PRIVATE FOREST LAND.—For 

13 purposes of this paragraph— 

14 ‘‘(i) LAND USED FOR AGRICULTURAL

15 PURPOSES.—The term ‘land used for agri16 cultural purposes’ means the number of 

17 acres classified as land in farms in the 

18 1997 Census of Agriculture conducted by 

19 the United States Department of Agri20 culture. 

21 ‘‘(ii) PRIVATE FOREST LAND.—The 

22 term ‘private forest land’ means the num23 ber of acres classified as private forest 

24 land in the 1997 Forest Inventory and 

25 Analysis conducted by the United States 
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1 Forest Service, excluding any acres so clas2 sified therein that are also included as land 

3 in farms in the 1997 Census of Agriculture 

4 described in clause (i). 

5 ‘‘(I) SECRETARY.—For purposes of this 

6 paragraph, the term ‘Secretary’ means the Sec7 retary of Agriculture and the Secretary of the 

8 Interior, acting pursuant to jointly established 

9 rules and procedures. 

10 ‘‘(3) SPECIAL RULES.— 

11 ‘‘(A) INTERESTS MUST BE LOCATED WITH12 IN JURISDICTION OF CREDIT AGENCY.—A con13 servation credit agency may allocate its aggre14 gate conservation credit dollar amount only 

15 with respect to acquisitions of qualified real 

16 property interests located in the jurisdiction of 

17 the governmental unit of which such agency is 

18 a part. 

19 ‘‘(B) AGENCY ALLOCATIONS IN EXCESS OF

20 LIMIT.—If the aggregate conservation credit 

21 dollar amounts allocated by a conservation cred22 it agency for any calendar year exceed the por23 tion of the State conservation credit ceiling allo24 cated to such agency for such calendar year, the 

25 conservation credit dollar amounts so allocated 
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1 shall be reduced (to the extent of such excess) 

2 for acquisitions of qualified real property inter3 ests in the reverse order in which the alloca4 tions of such amounts were made. 

5 ‘‘(4) CONSERVATION CREDIT AGENCY.—For 

6 purposes of this subsection, the term ‘conservation 

7 credit agency’ means any agency authorized to carry 

8 out this subsection. 

9 ‘‘(i) REGULATIONS.—Except as provided in sub10 section (h)(2)(I), the Secretary shall prescribe such regu11 lations as may be necessary to carry out the purposes of 

12 this section. 

13 ‘‘(j) TERMINATION.—Subparagraph (A) of subsection 

14 (h)(1) shall not apply to any amount allocated after De15 cember 31, 2010.’’. 

16 (b) RECOGNITION OF GAIN.—Section 1001 (relating 

17 to determination of amount of and recognition of gain or 

18 loss) is amended by adding at the end the following new 

19 subsection: 

20 ‘‘(f) QUALIFIED REAL PROPERTY INTERESTS.—Gain 

21 shall be recognized on the sale of a qualified real property 

22 interest (as defined in section 30B(d)) to a qualified con23 servation organization (as defined in section 30B(c)) ex24 clusively for conservation purposes (as defined in section 

25 30B(e)) only to the extent that the amount realized on 
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1 the sale exceeds the taxpayer’s adjusted basis in the entire 

2 property to which the qualified real property interest re3 lates.’’. 

4 (c) BASIS ADJUSTMENT.—Section 1016 (relating to 

5 adjustments to basis) is amended by redesignating sub6 section (e) as subsection (f) and by inserting after sub7 section (d) the following new subsection: 

8 ‘‘(e) ADJUSTMENTS TO BASIS OF CERTAIN REAL

9 PROPERTY.—If the taxpayer has sold a qualified real 

10 property interest in a transaction to which section 1001(f) 

11 applies, then the taxpayer’s basis in the remaining prop12 erty shall be reduced (but not below zero) by the amount 

13 realized on the sale.’’. 

14 (d) CONFORMING AMENDMENTS.— 

15 (1) PASSIVE LOSS RULES INAPPLICABLE.—Sec16 tion 469(d)(2)(A)(i) is amended to read as follows: 

17 ‘‘(i) subpart D (other than section 

18 30B) of part IV of subchapter A, or’’. 

19 (2) UNRELATED BUSINESS INCOME TAX.—Sec20 tion 511(a)(1) is amended by striking ‘‘section 11.’’ 

21 and inserting ‘‘section 11, less any credits to which 

22 the organization is entitled under section 30B.’’. 

23 (3) DENIAL OF CHARITABLE CONTRIBUTION

24 DEDUCTION.—Section 170(e) is amended by adding 

25 at the end the following new paragraph: 
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1 ‘‘(7) SPECIAL RULE FOR CONTRIBUTIONS OF

2 INTERESTS IN QUALIFIED CONSERVATION ORGANIZA3 TIONS.—No deduction shall be allowed for the con4 tribution of an interest in a qualified conservation 

5 organization (as defined in section 30B(c)) that has 

6 acquired 1 or more qualified real property interests 

7 in transactions to which section 30B applies.’’. 

8 (4) CLASSIFICATION AS PARTNERSHIP.—Sec9 tion 761(a) is amended by adding at the end the fol10 lowing new sentence: ‘‘Such term also includes an 

11 organization described in either section 30B(c)(2) or 

12 section 30B(c)(3).’’. 

13 (5) CLERICAL AMENDMENT.—The table of sec14 tions for subpart B of part IV of subchapter A of 

15 chapter 1 is amended by adding at the end the fol16 lowing new item: 

‘‘Sec. 30B. Qualified conservation credit.’’. 

17 (e) EFFECTIVE DATE.—The amendments made by 

18 this section shall apply to taxable years beginning after 

19 December 31, 2005. 

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