Blog By: Joseph White
Tax breaks can be a powerful way to promote change. They can be used to further innumerable policy goals, whether noble or mundane; controversial or unobjectionable. Clearly, not all tax breaks are created equal. In the case of conservation easements—an increasingly popular type of tax break—some have begun to question whether the good promoted by these arrangements is truly worth the accompanying costs.[i] Such skepticism is warranted when considering the impact that tax policies can have on limited resources such as land.
To understand the controversy surrounding this kind of deduction, it is helpful to first explain what a conservation easement is and the associated benefits and costs. Conservation easements are a form of tax deduction[ii] granted to parties who agree to permanently forego at least some of the development prospects of their land, thereby prioritizing the natural and environmental value of that land through conservation.[iii] According to the United States Fish and Wildlife Service, landowners can secure a conservation easement by forming the agreement with either a government agency[iv] or a “qualified conservation organization,”[v] such as a nonprofit land trust.[vi]
Although conservation easements constitute a restriction on a landowner’s enjoyment of land, they do not constitute a restraint on alienation nor do they alter the property’s ownership; they merely enable landowners to permanently decide their land’s future.[vii] Using this legal mechanism, landowners can curate the kinds of uses that are consistent with their desires for the land in question[viii] and prevent the land from being used in certain ways.[ix] These restrictions, however, can result in undesirable constraints if not done carefully.
These easements are not problematic—at least facially. So, what is it about this arrangement that could be a cause for concern? The answer to that question is not immediately obvious, but it involves a concept that has been subjected to strong bipartisan criticism in recent years: easement syndicates.[x] The term “easement syndicates” refers to groups of typically wealthy individuals that partner to buy parcels of untouched land for the sole purpose of procuring and selling conservation easements; after the sale, the tax deduction resulting from the easement is then extended all the members of the syndicate, benefitting the investors.[xi] The land, now burdened by an easement, is subject to the terms included in the easement agreement and is normally “locked,” or prevented from being developed.
Though there is nothing inherently wrong with the practice of forming easement syndicates, the IRS has identified a problem with the motive behind some syndicates that could have disastrous consequences for communities in which these syndicates are active.[xii] The agency reports: “We have seen taxpayers, often encouraged by promoters and armed with questionable appraisals, take inappropriately large deductions for easements.”[xiii] Journalists have likewise picked up on this trend, elaborating on this observation by arguing that such syndicates are “claim[ing] . . . large deduction[s] on land with questionable environmental value[]”[xiv] by purchasing “land that was likely never going to be developed anyway.”[xv] If these arguments are correct, the easements procured by these syndicates serve primarily as a tax write-off and only secondarily to protect land—land that does not need to be conserved.
In December of 2022, Congress passed a law that, among other things, addressed this practice.[xvi] The law placed a ceiling on tax write-off eligibility for conservation easements, limiting eligibility to properties appraised at a value of 2.5 times the purchase price.[xvii] Though easement syndicate investors may prefer for their investment strategies to be left intact, this bill represents a step in the right direction.[xviii] There are at least two important benefits that support this policy.
The first benefit is that the law will help prevent groups of private investors from “wasting” land in impoverished areas. When easement syndicates purchase land in rural or low-income areas only to reap tax benefits from an easement, it prevents locals from buying and using that land for purposes better suited to the needs of the surrounding community.[xix] This, in turn, hinders the community from growing even at its naturally slow pace. Under the new law, syndicate investors will not be as free to prey on smaller communities because they will be much less motivated to purchase cheap land and receive a tax deduction of only 2.5 times more than the land’s purchase price.[xx]
The law further redirects the focus of easement syndicates toward high-value properties that might also contain ecosystems or features that warrant protection.[xxi] The purposes of conservation might be better served under the new provision because investors seeking large tax deductions would look for more valuable properties to protect, the price of which would increase proportionate to factors such as the land’s acreage and proximity to major urban centers. In simpler terms, the new law aligns criteria of successful conservation efforts (such as general protection of large swaths of property and reduction of urban sprawl) with property characteristics that would increase easement value.[xxii] This reduces the risk that syndicates will target less commercially valuable land.[xxiii]
Ultimately, this solution might not be comprehensive, but it is a productive step. Privatized land protection is a brilliant legal innovation that can accomplish much good, but this useful idea is vulnerable to abuse when left completely unchecked. Laws such as the one recently passed can help guide conservation easements in the right direction.
[i] See Haisten Willis, Wealthy investors seem to be exploiting land-conservation tax breaks, and the Senate is taking notice, The Wash. Post (Oct. 23, 2020, 9:00 AM) https://www.washingtonpost.com/business/2020/10/23/land-conservation-tax-break-deals/ [https://perma.cc/2GH9-SD5X].
[ii] Id.
[iii] See conservation easement, U.S. Fish and Wildlife Serv., https://www.fws.gov/glossary/conservation-easement [https://perma.cc/4V7Z-WCTP].
[iv] Id.
[v] Id.
[vi] Dominic Parker, Congress limits conservation easement write-offs—that’s good for conservation and taxpayers, The Hill (Jan. 11, 2023, 7:00 AM) https://thehill.com/opinion/energy-environment/3806213-congress-limits-conservation-easement-write-offs-thats-good-for-conservation-and-taxpayers/ [https://perma.cc/FLF3-XERM].
[vii] See Conservation, N. Am. Land Tr., https://northamericanlandtrust.org/conservation/ [https://perma.cc/H2KM-5B9C].
[viii] Id.
[ix] Id.
[x] Willis, supra note i.
[xi] Parker, supra note vi.
[xii] Conservation Easements, IRS, https://www.irs.gov/charities-non-profits/conservation-easements (last visited Apr. 16, 2023) [https://perma.cc/X79E-2Y6Z].
[xiii] Id.
[xiv] Parker, supra note vi.
[xv] Willis, supra note i.
[xvi] See Parker, supra note vi.
[xvii] Id.
[xviii] Id.
[xix] See, e.g., Jayne Thompson, Community Agriculture Alliance: Conservation easements in Routt County: What they are and how they benefit you, Steamboat Pilot & Today (Apr. 6, 2021), https://www.steamboatpilot.com/news/community-agriculture-alliance-conservation-easements-in-routt-county-what-they-are-and-how-they-benefit-you/#:~:text=Conservation%20easements%20support%20rural%20communities%20in%20particular%20by,habitat%20that%20draw%20in%20recreation%20and%20tourism%20dollars. [https://perma.cc/Y9AA-JN99]; See generally Gerald Korngold, Solving the Contentious Issue of Private Conservation Easements: Promoting Flexibility for the Future and Engaging the Public Land Use Process, Utah L. Rev. 1039-84 (2007).
[xx] Parker, supra note vi.
[xxi] See Private Land Conservations, The Nature Conservatory, https://www.nature.org/en-us/about-us/who-we-are/how-we-work/private-lands-conservation/ [https://perma.cc/82XY-JTT5].
[xxii] See Sandra Kenrick, Right of Way Easements and How They Affect Property Value, moneytips (May 5, 2022), https://moneytips.com/right-of-way-easements-and-how-they-affect-property-value/ [https://perma.cc/4597-VFVE].
[xxiii] See Alex Brown, Private Lands Are the Next Battleground in State Conservation Policy, Pew (Apr. 16, 2022), https://www.pewtrusts.org/en/research-and-analysis/blogs/stateline/2022/04/26/private-lands-are-the-next-battleground-in-state-conservation-policy [https://perma.cc/6LQB-JSKR].