Conservation v. the IRS

by Greg Walcher on July 5, 2019

Governments own almost a fourth of the land in the United States, mostly federal, mostly in the West. We often wonder how much is enough, and worry about the constant growth in government ownership. Hundreds of millions are spent every year buying more.

The most valuable private land is often subject to potential suburban development, so efforts to preserve open space are important. But governments can never save all the remaining open space in America by buying all the remaining land – no government will ever have that much money. That is why the growth of conservation easements has been so remarkable, proof that open space can be preserved without government acquisition.

Colorado was an early pioneer in encouraging “conservation easements” on open lands. Now used in almost every state, they recognize the simple concept that farmland has value based on its ability to grow crops, but also has value based on the ability to subdivide and build houses and shopping centers on it. The latter value – the development value – can be purchased by the public, or by non-profit land trusts, while the original farming value can be retained by the farmer. Thus, landowners sell “development rights” and their property deeds are restricted, effectively prohibiting development forever, in exchange for badly needed cash, or tax credits. Conservation easements are considerably cheaper than buying the land outright and in the end, the public gets what it wants (preservation of the open space) and the property remains in private agriculture.

In 2000, Colorado realized that many farmers and ranchers cannot use tax credits, because they are land rich but cash poor and don’t show much income. So it expanded the benefit, allowing the tax credits to be sold at a discount to taxpayers who need them, making the tool available to literally hundreds more farmers than before. Colorado helped push the federal government to do the same, and the positive influence for conserving open space has been dramatic.

Total acreage protected by easements in Colorado rose from under 350,000 acres in 2000 to almost two million within a decade. There are now at least 38 land trusts in the state, such as Colorado Open Lands, which grew from one small easement 35 years ago to more than a half-million acres today. The value of state tax credits for such easements went from $2.3 million in 2001 to $85.1 million by 2005.

Nationwide, 158,000 individual properties are thus preserved, totaling 27 million acres, as much as all the national parks combined. The 2015 National Land Trust Census Report shows that voluntarily conserved land increased eight-fold in 30 years. But the progress has slowed drastically in recent years, for one main reason.

The program is a sore subject for the Infernal Revenue Service, which has had a burr under its saddle about conservation easements ever since Congress made them deductible 43 years ago. Bipartisan congressional support has strengthened and clarified the program at least five more times, but still, the IRS continues harassing conservation-minded landowners.

The IRS – after the fact – has disallowed hundreds of easements, claiming the “fair market value” appraisals were inflated. Trouble is, farmers and ranchers are left holding the bag, required to repay the full value of the tax credits they sold at a discount, even though their properties remain encumbered by the easements forever. In other words, the farmers sold the development rights in perpetuity, the IRS now demands the money back, but the farmers cannot get their development rights back.

As with all good programs, there have been some abuses. Some easements were sold on land in isolated areas, no more threatened by urban sprawl than the moon. Also, critics object that some of the beneficiaries are wealthy. I’m OK with that. Some very important open lands are owned by rich people; go figure. Either way, that was the deal at the time, and no government has any right to change it after the fact. We call that “ex post facto” law, explicitly prohibited by the U.S. Constitution.

IRS attorneys assert their authority to determine the accuracy of land appraisals, a debatable point. But for landowners, the sale was already made, and the money spent. If the government gets back the money, the landowners should get back the easement. Fair is fair.

Colorado’s legislature addressed the appraisal problem this year, and Congress is poised to do the same nationally. But letting the IRS disallow easements retroactively has almost halted the use of one of America’s most effective conservation strategies.

This column originally appeared in the Grand Junction Daily Sentinel June 28, 2019.

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