Conservation easements, like diamonds, are forever. Similarly, the Internal Revenue Service believes that, just like diamonds, the tiniest imperfection in a conservation easement deed is fatal to its value. Like inclusions in diamonds, the alleged technical deficiencies in conservation easements are often inconspicuous to the untrained eye. However, the exacting scrutiny of an IRS audit has a way of magnifying — and at times skewing — a conservation easement’s true color and clarity. This article serves as an alert to potential donors of conservation easements regarding the top six IRS attacks that could render an easement valueless for federal income tax purposes. 1. The Deemed Consent Provision Recent summary judgement motions have addressed situations in which donors have reserved certain rights in easement deeds, the exercise of which were conditioned upon donee consent. The IRS interpreted the easement deeds at issue to provide a “deemed consent” in the event the donee failed to affirmatively object to a proposed exercise of rights within a given period of time — i.e. the deeds at issue stated the donee was deemed to approve of an action in the event the donee did not affirmatively oppose the action within a stated period of time. The U.S. Tax Court agreed with the IRS that the deemed consent provision at issue in one of those cases caused the easement to fail to protect the conservation purposes in perpetuity. The IRS is now contending that charitable deductions should be disallowed under Treasury regulation section 1.170A-14(e)(2) whenever easement deeds contain deemed consent provisions. The IRS argues that these deeds permit the donor to use the property in a manner destructive of the conservation purposes protected by the conservation easement. The IRS also argues that deemed consent provisions strip land trusts of their ability to protect conservation values in perpetuity as required by Treasury regulation section 1.170A-14(g)(1), which instructs that
Conservation easements, like diamonds, are forever. Similarly, the Internal Revenue Service believes that, just like diamonds, the tiniest imperfection in a conservation easement deed is fatal to its value. Like inclusions in diamonds, the alleged technical deficiencies in conservation easements are often inconspicuous to the untrained eye. However, the exacting scrutiny of an IRS audit has a way of magnifying — and at times skewing — a conservation easement’s true color and clarity. This article serves as an alert to potential donors of conservation easements regarding the top six IRS attacks that could render an easement valueless for federal income tax purposes. 1. The Deemed Consent Provision Recent summary judgement motions have addressed situations in which donors have reserved certain rights in easement deeds, the exercise of which were conditioned upon donee consent. The IRS interpreted the easement deeds at issue to provide a “deemed consent” in the event the donee failed to affirmatively object to a proposed exercise of rights within a given period of time — i.e. the deeds at issue stated the donee was deemed to approve of an action in the event the donee did not affirmatively oppose the action within a stated period of time. The U.S. Tax Court agreed with the IRS that the deemed consent provision at issue in one of those cases caused the easement to fail to protect the conservation purposes in perpetuity. The IRS is now contending that charitable deductions should be disallowed under Treasury regulation section 1.170A-14(e)(2) whenever easement deeds contain deemed consent provisions. The IRS argues that these deeds permit the donor to use the property in a manner destructive of the conservation purposes protected by the conservation easement. The IRS also argues that deemed consent provisions strip land trusts of their ability to protect conservation values in perpetuity as required by Treasury regulation section 1.170A-14(g)(1), which instructs that
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