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Senate Finance Committee Holds Hearing on Land Donations
At its June 8, 2005 hearing on “The Tax Code and Land Conservation: Report on Investigations and Proposals for Reform,” the Senate Finance Committee heard testimony from two panels of witnesses. The first panel consisted of Dean Zerbe and Jonathan Selib, Republican and Democratic Committee tax counsels, who testified about the Committee report on The Nature Conservancy, and Earl Devaney, the Inspector General of the Department of Interior, who testified about his investigation into the Interior Department’s proposed purchase of mineral rights in Florida from a politically prominent Florida family. The witnesses in the second panel were Steven J. McCormick, President and CEO of The Nature Conservancy, Rand Wentworth, President of the Land Trust Alliance, Timothy Lindstrom of the Jackson Hole Land Trust, Burnet R. Maybank, Director of the South Carolina Department of Revenue, and Steve Miller, IRS Commissioner of the Tax Exempt and Government Entities Division.
The Committee staff testimony and report about The Nature Conservancy raised concerns about the size of tax deductions for land donations, enforcement of conservation easement requirements, and insider transactions. In addition, the report makes a number of recommendations, some of which would apply to all tax-exempt organizations. (Learn more from IS's summary of the report recommendations).
Committee Chair Charles Grassley (R-IA) praised The Nature Conservancy for reforms it has made, but expressed a hope that the organization will go further. Amplifying the staff report and testimony, he also cited a need to reform existing laws governing tax-exempt organizations and charitable donations in general.
Several Senators praised The Nature Conservancy for the reforms it had voluntarily implemented and raised concerns about some of the proposed reforms. Senator Schumer expressed concern about the Joint Tax Committee’s proposal limiting property donations to cost basis only, which Committee staff acknowledged may go too far but indicated should be part of the Committee’s discussions on potential reforms. Senator Santorum (R-PA) expressed concern that some of the reforms being proposed, such as an accreditation system for conservation organizations, would have a chilling effect on small community land trusts.
In general, the witnesses of the second panel suggested several changes including: improved reporting to the IRS on the Forms 990 and 8283 (on which donors report property donations of over $500) to provide more specific information about donations of land; mandatory standards for appraising conservation easements, accreditation or continuing education for appraisers, best practices guidance, and establishing a panel of experts on conservation easements similar to the existing Art Advisory Panel that advises the IRS on art appraisals.
Steven J. McCormick, President and CEO of The Nature Conservancy, gave the Committee an overview of the two-year internal review and reform process that his organization has gone through, offered lessons that he said may be of value to others in the charitable sector, and made specific recommendations in a number of areas including appraisals, enhanced monitoring, and enforcement of conservation easements.
One witness testified that sufficient reforms can be enacted without new legislation. Timothy Lindstrom, Director of Protection & Staff Attorney for the Jackson Hole Land Trust, said that current law is adequate to address abuses in conservation easements, which he believes are rare. He recommended that enforcement could be enhanced by establishing a group within the IRS that is trained to evaluate conservation easements and by mandating continuing education programs for appraisers, and by creating a specific form for reporting conservation easements to the IRS.
Burnet R. Maybank, Director of the South Carolina Department of Revenue, countered that enforcement would be insufficient without enactment of new legislation. He suggested that the IRS have a conservation easement advisory committee similar to the art advisory panel, specific self-dealing rules for land trusts, and a specialized Form 8283 for transactions involving conservation easements.
A combination of voluntary efforts, enhanced enforcement, and new legislation was called for by Rand Wentworth, President of the Land Trust Alliance. He recommended the Committee undertake reform in three areas for conservation easements: 1) standards, training and accreditation; 2) enhancing federal and state enforcement, including modifications to Forms 8283 and 990; and 3) passing reform legislation addressing a number of areas including appraisals prohibiting use of conservation easements on golf courses or similar properties. Wentworth also discussed the efforts of the Land Trust Alliance to facilitate increased compliance with current law through its training, certification, and accreditation programs.
The Committee also heard from Steve Miller, Commissioner of the Tax Exempt and Government Entities Division of the IRS, who reviewed existing law on property and easement donations, and discussed the various steps the IRS has taken to investigate possible abuses. Miller also indicated that the IRS is currently modifying Form 8283 to provide a new checkbox to identify donors of conservation easements and modifying the instructions to better describe what is permissible. He also suggested imposing significant penalties on any charity that removes or fails to enforce a conservation restriction. In response to a question from Chairman Grassley, Mr. Miller expressed concern about requiring charities to verify the validity of appraisals before signing the Form 8283 to be submitted by the donor.
In closing the hearing, Chairman Grassley said he is hopeful that in the next few weeks he and Senator Baucus will be able to propose reforms in the area of conservation easements. The issues they will look at include: “valuation, especially improving appraisals; adequate monitoring and enforcement of easements; ensuring conservation purposes of easements; proper reporting and limitations on modifications of easements; accreditation of land trusts; and greater transparency and reporting by land trusts.” |
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