It's Not As Bleak As You Think
Let me be the first to congratulate the Prickly Pear Land Trust of Helena, Montana. They got their message out to someone who matters. Today the Senate Finance Committee opened its hearings on tax abuse by charities, and the conservation easement deduction got a strong defense from the ranking Democrat on the Committee, Sen. Max Baucus of Montana. Here's an edited excerpt of the Senator's opening statement..
“In my home state of Montana, small chariities with few resources provide many essential services........ “
“....if you hike among the pristine wilderness of the Elkhorn mountains, you can thank the three-person team at the Prickly Pear Land Trust for protecting over 1,500 acres of wildlife, trails, open space, streams and productive agricultural land in central Montana.
“When I consider the reforms that we are here to discuss today, I am going to keep groups like .... the Prickly Pear land trust in mind. I recognize that any reform effort needs to be a balance between cracking down on the bad guys, and not unduly burdening the good guys.”
“In particular, I am concerned that their (the Joint Committee on Taxation) proposal on land conservation may have gone too far. While I want to make sure that scams in the land preservation field are addressed, I also want to ensure that farmers and ranchers in Montana can continue to get a fair deduction for donating easements that protect valuable open space. The Joint Committee proposal would eliminate the deduction for charitable contributions of conservation easements that would include a principal residence. This would prevent many working farmers and ranchers from claiming a deduction for donations of easements.
One of Montana’s greatest resources is its open space. I want to make sure that generations of future Montanan’s can appreciate the clean streams, rolling fields, and rugged mountains as I did growing up. I intend to work to ensure that farmers and ranchers continue to play a key role in preserving Montana’s open space.”
It looks like the land trust message is getting out.
Other Testimony
IRS Commissioner Mark Everson testified about the difficulty of properly valuing easements, and how overwhelmed his staff is by the volume of work. Like all good government managers, most of his testimony revolved around the huge workload, and how with more money and people, he could do a better job cracking down on abuse. Here is an edited excerpt from his testimony on conservation easements.
" “The IRS has seen abuses of this tax provision that compromise the policy the Congress intended to promote. .... Further the conservation easement rules place the charity in a watchdog role. In a number of cases, however, the charity has not monitored the easements, or has allowed property owners to modify the easement or develop the land in a manner inconsistent with the easement’s restrictions.”....
“We are examining charities that we believe may have been involved in particular abuses and those charity officials who may have unduly profited from their positions with a charity. We are currently examining 48 easement donors and also are reviewing deductions taken for nearly 400 open space easements.... We will use all civil and criminal tools at our disposal to combat abuses.”"
The chief of staff of the Join Committee on Taxation, George Yin, repeated the difficulty of giving a proper valuation to easements, and repeated the recommendation to do away with all deductions for property with a residence on it, and alowing only a 33 % deduction on all other conservation easements.
But Mr. Yin seemed to be the lone voice for that.
The final testimony came from Diana Aviv, who is the executive director, Panel on the Nonprofit Sector. She also came out in defense of the easement deduction. Here's an edited excerpt from her testimony regarding easements.
"“We are deeply troubled by the Joint Committee’s proposals to limit deductions on donations of property to the lesser of the donor’s basis or the fair market value. a significant number of Americans, particularly in rural areas, hold their wealth in real estate and in private business. Their basis is often significantly less than the current market value of their property and limiting deductions to the basis would likely cuase many taxpayers to continue to hold these assets or to sell the, resulting in no gifts or a significantly lower gift to charity......
“The Panel agrees that we must have clear, consistent methods to determining the fair maket value of such gifts, as well as stringent standards to assess the quality of appraisals used by taxpayers in determing the value of their gifts of property....”
“The goal, however, should be to end abuses, not eliminate donations of property...”
“We commend both the IRS and organizations in the conservation community, such as the Land Trust Alliance, for the actions they have taken to clarify rules, identify and penalize abusers and prevent future abuse. There must be tighter rules and higher standards for appraisals and appraisers, and the IRS must have the resources it needs to conduct an effective review and audit program to address and correct taxpayer abuse.”
Judging from the first day of testimony, the future of the easement deduction is not as bleak as you might have thought.
If you want to read the full testimony, go to the Finance committee website.
Finally, one last point. Witness after witness made the point that charities need to increase their governance, and become more transparent. Where have I heard that one?
“In my home state of Montana, small chariities with few resources provide many essential services........ “
“....if you hike among the pristine wilderness of the Elkhorn mountains, you can thank the three-person team at the Prickly Pear Land Trust for protecting over 1,500 acres of wildlife, trails, open space, streams and productive agricultural land in central Montana.
“When I consider the reforms that we are here to discuss today, I am going to keep groups like .... the Prickly Pear land trust in mind. I recognize that any reform effort needs to be a balance between cracking down on the bad guys, and not unduly burdening the good guys.”
“In particular, I am concerned that their (the Joint Committee on Taxation) proposal on land conservation may have gone too far. While I want to make sure that scams in the land preservation field are addressed, I also want to ensure that farmers and ranchers in Montana can continue to get a fair deduction for donating easements that protect valuable open space. The Joint Committee proposal would eliminate the deduction for charitable contributions of conservation easements that would include a principal residence. This would prevent many working farmers and ranchers from claiming a deduction for donations of easements.
One of Montana’s greatest resources is its open space. I want to make sure that generations of future Montanan’s can appreciate the clean streams, rolling fields, and rugged mountains as I did growing up. I intend to work to ensure that farmers and ranchers continue to play a key role in preserving Montana’s open space.”
It looks like the land trust message is getting out.
Other Testimony
IRS Commissioner Mark Everson testified about the difficulty of properly valuing easements, and how overwhelmed his staff is by the volume of work. Like all good government managers, most of his testimony revolved around the huge workload, and how with more money and people, he could do a better job cracking down on abuse. Here is an edited excerpt from his testimony on conservation easements.
" “The IRS has seen abuses of this tax provision that compromise the policy the Congress intended to promote. .... Further the conservation easement rules place the charity in a watchdog role. In a number of cases, however, the charity has not monitored the easements, or has allowed property owners to modify the easement or develop the land in a manner inconsistent with the easement’s restrictions.”....
“We are examining charities that we believe may have been involved in particular abuses and those charity officials who may have unduly profited from their positions with a charity. We are currently examining 48 easement donors and also are reviewing deductions taken for nearly 400 open space easements.... We will use all civil and criminal tools at our disposal to combat abuses.”"
The chief of staff of the Join Committee on Taxation, George Yin, repeated the difficulty of giving a proper valuation to easements, and repeated the recommendation to do away with all deductions for property with a residence on it, and alowing only a 33 % deduction on all other conservation easements.
But Mr. Yin seemed to be the lone voice for that.
The final testimony came from Diana Aviv, who is the executive director, Panel on the Nonprofit Sector. She also came out in defense of the easement deduction. Here's an edited excerpt from her testimony regarding easements.
"“We are deeply troubled by the Joint Committee’s proposals to limit deductions on donations of property to the lesser of the donor’s basis or the fair market value. a significant number of Americans, particularly in rural areas, hold their wealth in real estate and in private business. Their basis is often significantly less than the current market value of their property and limiting deductions to the basis would likely cuase many taxpayers to continue to hold these assets or to sell the, resulting in no gifts or a significantly lower gift to charity......
“The Panel agrees that we must have clear, consistent methods to determining the fair maket value of such gifts, as well as stringent standards to assess the quality of appraisals used by taxpayers in determing the value of their gifts of property....”
“The goal, however, should be to end abuses, not eliminate donations of property...”
“We commend both the IRS and organizations in the conservation community, such as the Land Trust Alliance, for the actions they have taken to clarify rules, identify and penalize abusers and prevent future abuse. There must be tighter rules and higher standards for appraisals and appraisers, and the IRS must have the resources it needs to conduct an effective review and audit program to address and correct taxpayer abuse.”
Judging from the first day of testimony, the future of the easement deduction is not as bleak as you might have thought.
If you want to read the full testimony, go to the Finance committee website.
Finally, one last point. Witness after witness made the point that charities need to increase their governance, and become more transparent. Where have I heard that one?
posted by Pat Burns | 7:03 PM
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