In this Issue:
- What Will Unified Republican Control Mean for Land Conservation?
- IRS and Conservation Easement Amendments
- Tax Shelter Advisory Guidance Coming
- E-Bulletin Information
What Will Unified Republican Control Mean For Land Conservation?
If Donald Trump and Congressional Republicans were your candidates of choice, then congratulations, and may you be correct in placing your faith in them. On the other hand, if you view last month’s election results as alarming, then read on for more reasons to be concerned. In particular, what does the new regime mean for land conservation? With the caveat that everything here is speculation, and that a Trump presidency is going to be wildly unpredictable, here are some initial thoughts, all of them rather sobering.
- Lowered tax rates will likely hurt all nonprofit charities. Both Trump’s tax plan and the House Republican plan call for lowering tax rates on the wealthy (from a current top rate of 39.6% to 33%). Likewise, the proposed elimination of the estate tax would reduce incentives for end-of-life giving. Although not all experts agree, most consider it likely that charitable giving will decline due to decreased incentives. The nonpartisan Tax Policy Center estimated that Trump’s overall tax plan would reduce individual charitable giving by 4.5 percent to 9 percent ($13.5 billion and $26.1 billion) in 2017. On the other hand, if Trump’s environmental policies prove as abominable as feared, one small consolation is that land trusts could see increased charitable giving in response.
- Limits on charitable deductions are in the mix. Trump’s tax plan and the House Republican plan call for very different treatment of charitable deductions. Trump’s plan would cap all itemized deductions — including for charitable donations — at $100,000 for single people and $200,000 for married couples. In contrast, the House plan would eliminate all deductions except for the charitable deduction and the mortgage interest deduction. Trump’s plan would be devastating for land trusts, as it would substantially erode the tax incentives that support many fee land and conservation easement donations. On the bright side, it seems intuitive that Trump will cede these sorts of policy details to Paul Ryan and the House Republicans. Then again, it’s Trump, so who knows what will happen. Capping the charitable giving deduction is not an inherently partisan idea; Obama proposed a similar plan in some of his earlier budgets. But deduction limits coupled with lower tax rates would be a double blow for land trusts. In any event, whether to impose charitable deduction limits could be a significant policy matter as a tax bill winds its way through Congress, and land trusts should be on the alert for opportunities to influence their representatives. All of Maine’s members of Congress are probably persuadable on this issue.
- Spending cuts will affect all charitable sectors, including land trusts. It should come as no surprise that significantly reduced tax revenues will lead to all sorts of pressures on the spending side. Any and all domestic discretionary spending is at risk of substantial cuts in the coming years. This will mean reduced direct outlays from the federal government, as well as increased need for nonprofit services as federally funded programs contract.
- Public conservation lands will face substantial threats – Trump’s nomination of Montana Congressman Ryan Zinke as Secretary of the Interior is not a propitious sign for the administration of federal conservation lands. Zinke has received a three percent rating from the League of Conservation Voters over his two terms in Congress, and generally favors expansive fossil fuel and other natural resource extraction on public lands. Meanwhile, the rumor is that Trump is eyeing North Dakota Democratic Senator Heidi Heitkamp to head the Department of Agriculture. Although Heitkamp has a middling 49% lifetime score from the League of Conservation Voters, the land conservation community could do a lot worse. To boot, the roster of climate deniers in Trump’s cabinet (starting with EPA nominee Scott Pruitt) does not bode well for the long-term health of our public and private conserved lands or our planet.
- Greater leeway to lobby and campaign? On the campaign trail, candidate Trump discussed repealing or scaling back the limitations on lobbying and campaigning activities by 501(c)(3) organizations. See here for more details. In particular, churches have pressed for such loosening of the rules over the past several years. I don’t support these changes and am skeptical that they would become law, but stranger things have happened (see, e.g., the 2016 election).
The point of this discussion is not to depress anyone further, but rather to be clear-eyed about the challenges facing us as land conservationists. I, for one, intend to remain on the front lines at the local, state, and federal levels to continue to advocate for all that I hold dear. I hope you will join me.
One step you can take right this minute: Sign up to become a Land Trust Alliance Advocacy Ambassador to receive timely prompts to assist with federal land conservation lobbying efforts.
IRS and Conservation Easement Amendments
In recent Tax Court cases and through statements at the Land Trust Alliance Rally, the Internal Revenue Service has signaled its continuing interest in conservation easement amendments. Let’s take a closer look at each of these developments and see what’s going on.
First, to the Tax Court. In four pending cases, the IRS has challenged the deductibility of conservation easements based in part on what it contends is an overly broad amendment provision. The IRS argument is sweeping and vague, and seeks to link these provisions to the holdings in the recent decisions in Belk, Balsam Mountain, and Bosque Canyon. However, the amendment provisions in these four pending cases are easily distinguishable from those three earlier cases, which dealt with very non-traditional substitution provisions. In fact, the currently disputed amendment provisions are typical of those found in well-drafted conservation easements throughout the nation, as they prohibit the easement holders from approving an amendment unless it is consistent with the easement’s conservation purposes. The Land Trust Alliance is currently considering filing a friend-of-the-court brief in the pending cases.
Meanwhile, at the Rally in October, Karin Gross, a senior attorney at the IRS who has focused on conservation easements for many years, announced her intention to undertake a process in 2017 to issue regulatory guidance around the subject of amendments. She solicited feedback from the land trust community as to what should be included in this guidance. It is unclear at this point if the guidance would be issued as a full-blown regulation, or something less formal, and whether the incoming Trump administration could delay or upend this new initiative. Gross indicated that possible topics to be addressed by the guidance would be whether and how to implement third party review of amendments, how to ensure that amendments do not result in impermissible private benefit, and ensuring that amendments keep faith with the perpetuity requirement of § 170(h).
Whatever the IRS comes up with, it is certain to significantly impact how we draft and administer conservation easements in Maine and throughout the country. A poorly conceived product could do much damage to land conservation efforts, so it’s important that the IRS gets it right and does not overreach. Some in the land trust community believe that the IRs should be dissuaded from issuing any guidance at all. If you or your land trust would like to offer feedback to the IRS, including whether to proceed with this guidance initiative, please e-mail me for the relevant contact information.
Tax Shelter Advisory Guidance Coming
Another issue that has received IRS and Land Trust Alliance attention is the use of conservation easements as syndicated tax shelters. This is a complicated legal and tax issue, best summarized in this post from the Alliance. Fortunately, we are not seeing much, if any, such abuses occurring in Maine. Nevertheless, land trusts and their attorneys are advised to be on the lookout for deals that seem suspect. One key indicator of abusive tax shelters is a recently formed a limited liability company having multiple non-related individuals as members. For starters, the Alliance is recommending the use of this flow chart to guide land trusts.
At Rally in October, Karin Gross announced that the IRS will issue by the end of 2016 a notice on abusive conservation easement transactions. We are not certain what form that guidance will take, and the hope is that this notice will have a chilling effect on abusive transactions but will not discourage legitimate ones.
I send E-Bulletins 3 or 4 times per year to provide updates and analyses on legal and policy matters respecting Maine land conservation. I do my best to keep my messages brief, timely, and useful to conservation-minded landowners, as well as land trust professionals and volunteers. At the same time, no one should rely on these E-Bulletins as legal advice, and I encourage you to consult a qualified attorney for advice on any particular situation.
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