Source: https://esdlawfirm.com/conservation-investigation-2019/
Timestamp: 2019-04-20 18:18:08+00:00

Document:
Over the last 14 years or so, Senator Chuck Grassley has been one of the primary players in Congress with regard to discussion of and proposed changes to conservation easement programs, with a particular eye towards reforming the programs such that preservation and conservation may still occur but in a manner that avoids what Senator Grassley views as significant abuse of such programs.
2005 – Senator Grassley convenes a hearing on the Senate Finance Committee’s report on The Nature Conservancy and a report prepared by the Department of Interior’s Inspector General regarding the Department of Interior’s (“DOI”) proposed acquisition of mineral rights from Collier Resources Company (“Collier”).7 The Inspector General’s report indicated that the DOI was willing to facilitate tax avoidance by agreeing to accept the inflated value that Collier placed on the mineral rights in order to consummated the acquisition.8 In his opening and closing statements, Senator Grassley voiced his support for the conservation aspect of such easements but also shared his concerns over the potential for abuse of such programs. Specific issues targeted for discussion following the report were valuation (with emphasis on appraisal requirements), adequate monitoring and enforcement of easements, ensuring conservation purposes of the easements, proper reporting and limitations on modifications of easements, accreditation of land trusts, and greater transparency and reporting by land trusts.
From 2008-2015 – Congress continuously extended the increased percentage limits and extended carry-forward period introduced by the Pension Protection Act of 2006 .
Around December 23, 2016, the IRS released Notice 2017-10 which caused the syndicated conservation transactions to become a “listed transaction” under IRC § 6011. This requires that both participants and material advisors report their involvement in the transactions.
In December of 2008, just a few days before Christmas, the Department of Justice left a lump of coal for a few people when it filed is Ecovest action.11 In its filing, the Department of Justice is seeking to enjoin certain parties from organizing, promoting, or selling investments in purported syndicated conservation easements. Furthermore, the Department of Justice is requesting a disgorgement of the income derived from such transactions.
There have been several runs in both the Senate and House of Representatives pushing a version “Conservation Easement Program Integrity Act” with little changes from proposal to proposal. Most recently, Congressman Mike Thompson(D-CA) and Mike Kelly (R-PA) pitched another in the House of Representatives for this year. 12 This being on the heels of Senator Daine’s bi-partisan re-proposal of last year’s Senate Bill.13 The two most recent Daines-bills seem to be mostly mirror image.
The Conservation Easement Program Integrity Act was initially pitched as a 5-year holding period requirement for taking deductions in excess of 2.5 times the investment. Currently, the proposal would require a 3-year holding period before a taxpayer is able to enjoy a deduction on any value in excess of one’s investment. Each version of the proposed legislation has had an exception for certain family partnerships.14The target of such proposed legislation is easy to identify, syndicated conservation easements. Of particular importance and a worthwhile note, the 2.5 multiple came historically back in the 2016 year when the Notice 2017-10 was released. At the time, the top marginal income tax rate was 39.6% (almost 40%). 2.5 times 40% is 100%. So, in getting a deduction in excess of 2.5, the taxpayer would receive more in tax offset than the acquisition value of the contributed property. Following Senator Grassley’s inquiries to the identified parties, the Conservation Easement Program Integrity Act, with bi-partisan support yet again, may finally gain some traction.
Well, Senator Grassley seems to be less than happy with progress of curbing what he considers to be the abuse of the conservation easement deduction. Based on information received by the Brookings Institution, on March 27, 2019, Senator Grassley along with Ranking Member Ron Wyden sent out a flurry of letters to many parties inquiring into and requesting significant information with respect to several syndicated conservation easement transactions. The questions asked by Senator Grassley included much information that would be in Form 8886 (Reportable Transaction Disclosure) and Form 8918 (Material Advisor Disclosure).
For a list of the questions, see the letter to Robert McCullough here.
It is refreshing to see the alleged issues being addressed by Congress instead of aggressive auditing by the IRS, court intervention, or, as we saw recently, saber rattling by the Department of Justice. Instead of a piecemeal approach, and in light of some tough words in Summa Holdings v. Comm’r in 2016, an investigation followed by statutory reform is likely the appropriate mechanism for change, should any change be necessary. Looking at the trajectory of Congress (and Senator Grassley) over the last (at least) 14 years, Congress is very interested in maintaining the opportunities for conservation. If Congress believes syndicated conservation easement transactions have been used abusively, it will be interesting to see what Congress proposes beyond the Conservation Easement Program Integrity Act. Senator Grassley has a strong history of support for the conservation program, but seems to have an equal concern that such a well-intended provision is not abused.
The takeaway here, at least from the words of the members of Congress involved, is that conservation is an appreciated and valued program and Congress wants to ensure is not abused. To avoid any potential abuse, Congress intends to investigate some of the believed-to-be largest actors they are aware of currently and find out if and how the program is being abused. From there, based on Senator Grassley’s and Wyden’s comments, legislative changes could follow.
Joshua W. Sage, J.D., LL.M.
Josh is a partner at ESD Law. Josh practices in the areas of tax, business, and estate planning. View Full Profile.
Staff of S. Comm. on Finance, 109th Cong., Finance Committee Report on The Nature Conservancy pt. 2, at 11 (2005) (available at https://www.finance.senate.gov/imo/media/doc/tncPart%20Two_final.pdf).
The Tax Code and Land Conservation: Report on Investigations and Proposals for Reform: Hearing before S. Comm. on Finance, 109th Cong. 1 (2005) (statement of Sen. Charles Grassley, Chairman, S. Comm. on Finance) (https://www.finance.senate.gov/imo/media/doc/40617.pdf).
The Tax Code and Land Conservation: Report on Investigations and Proposals for Reform: Hearing before S. Comm. on Finance, 109th Cong. 9-11 (2005) (statement of Earl E. Devaney, Inspector General, U.S. Department of Interior) (https://www.finance.senate.gov/imo/media/doc/40617.pdf).
Pub. L. No. 109–280, § 1206, 120 Stat 780.
Consolidated Appropriations Act of 2016, PL 114-113, § 111(a), 129 Stat 2242.
See S.170 § 2(a)(7)(B) referencing partnerships held by individuals who are related within the meaning of IRC § 152(d)(2).

References: § 6011
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 § 1206
 § 111
 § 2
 § 152