"Extra" Tax Benefits for Conservation Easements: A Response to Urban Sprawl
By Karen M. White
INTRODUCTION
The Taxpayer Relief Act of 1997 (“TRA”) provides a new incentive for taxpayers to place their land under conservation easements. In addition to the deductions already available under the Internal Revenue Code, the new incentives in section 2031(c) provide an exclusion from federal estate taxes for a portion of the value of land placed under a qualified conservation easement. A number of commentators have discussed the importance of this addition, and some in particular have addressed whether or not the conservation easement exclusion is a good policy goal. Conservation easements are undoubtedly effective ways to preserve open space, however, whether or not they deserve special treatment in the form of additional tax benefits remains a contested issue.
This Note examines the new conservation easement exclusion in order to determine whether or not Congress has provided an estate tax savings which is related to a valid policy goal. Section II discusses what conservation easements are, why they are eligible for tax breaks under the Internal Revenue Code, and what tax benefits conservation easements received prior to the TRA. Section III discusses the additional estate tax benefits for conservation easements now available under section 2031(c) and their impact on estate planning. Section IV addresses the issue of whether the additional benefits given to conservation easements are good policy by examining the easements to which the new section applies, whether the tax savings are justified by the policy goal of preserving open space, and whether other ways of achieving more open space might satisfy the policy goals without the additional tax benefit. Section IV also addresses how section 2031(c) provides an additional tax benefit only for certain lands--those which appear to be most in danger from development and the spread of urban sprawl.
Although many alternate ways for land owners to conserve and preserve their land exist, conservation easements are an excellent means of ensuring the integrity and nature of land in perpetuity. Given America's diminishing open space and the rapid development and expansion of suburbia, the incentive to create conservation easements provided by the additional tax savings available under section 2031(c) of the Code serves as an useful tool in combating the problem of urban sprawl.
The Taxpayer Relief Act of 1997 (“TRA”) provides a new incentive for taxpayers to place their land under conservation easements. In addition to the deductions already available under the Internal Revenue Code, the new incentives in section 2031(c) provide an exclusion from federal estate taxes for a portion of the value of land placed under a qualified conservation easement. A number of commentators have discussed the importance of this addition, and some in particular have addressed whether or not the conservation easement exclusion is a good policy goal. Conservation easements are undoubtedly effective ways to preserve open space, however, whether or not they deserve special treatment in the form of additional tax benefits remains a contested issue.
This Note examines the new conservation easement exclusion in order to determine whether or not Congress has provided an estate tax savings which is related to a valid policy goal. Section II discusses what conservation easements are, why they are eligible for tax breaks under the Internal Revenue Code, and what tax benefits conservation easements received prior to the TRA. Section III discusses the additional estate tax benefits for conservation easements now available under section 2031(c) and their impact on estate planning. Section IV addresses the issue of whether the additional benefits given to conservation easements are good policy by examining the easements to which the new section applies, whether the tax savings are justified by the policy goal of preserving open space, and whether other ways of achieving more open space might satisfy the policy goals without the additional tax benefit. Section IV also addresses how section 2031(c) provides an additional tax benefit only for certain lands--those which appear to be most in danger from development and the spread of urban sprawl.
Although many alternate ways for land owners to conserve and preserve their land exist, conservation easements are an excellent means of ensuring the integrity and nature of land in perpetuity. Given America's diminishing open space and the rapid development and expansion of suburbia, the incentive to create conservation easements provided by the additional tax savings available under section 2031(c) of the Code serves as an useful tool in combating the problem of urban sprawl.
