Conservation Easement Issues and Updates: Latest & Greatest

1) Terrafirma Conservation Defense Insurance: Tips for Filing Claims

2) Land Trust Alliance Advisory on Conservation Tax Shelters

3) LTA Revised Report on Amending Conservation Easements

AGENDA:

TERRAFIRMA CONSERVATION DEFENSE

INSURANCE: TIPS FOR FILING CLAIMS

TAKEAWAY:

TIMELY NOTIFY TERRAFIRMA

OF POTENTIAL VIOLATIONS

Not sure you want to pursue a Terrafirma claim?

File a Placeholder Claim

If you suspect a conservation easement violation:

You don’t even have to file a Placeholder Claim –• email Terrafirma• describe your situation• they can guide you

• A very good lawyer will first analyze the strength of your case

• Come up with a strategy• Help create the proper record

FILING A PLACEHOLDER CLAIM OR FULL CLAIM DOES NOT COMMIT YOU

TO LITIGATION

TERRAFIRMA CONSERVATION DEFENSE INSURANCE

Filing a claim will NOT increase your insurance premium

TERRAFIRMA CONSERVATION DEFENSE INSURANCE

Filing a claim will NOT increase your insurance premium

TERRAFIRMA CONSERVATION DEFENSE

INSURANCE: TIPS FOR FILING CLAIMS

TAKEAWAY:

TIMELY NOTIFY TERRAFIRMA

OF POTENTIAL VIOLATIONS

AKA Marketing of Conservation Easement Tax Deductions

LAND TRUST ALLIANCE REVISED ADVISORY ON CONSERVATION

TAX SHELTERS

• Land is placed into a “pass-through” entity – partnership or LLC

• Wealthy investors buy interests in LLC• LLC donates conservation easement on land• Tax deduction passes through to investors

SYNDICATION – HOW IT WORKS:

Non-pass-

through

entity

WHAT IS A PASS-THROUGH ENTITY?

C-Corporation

Corporation

itself pays

taxes

=

____________________________________________________________

Pass-

through

entity

Partnership

LLC

S-Corporation

=

Entity does

not pay tax –

tax liability &

benefits pass

through to

shareholders

• Land is placed into a “pass-through” entity – partnership or LLC

• Wealthy investors buy interests in LLC• LLC donates conservation easement on land• Tax deduction passes through to investors

SYNDICATION – HOW IT WORKS:

New Practice 10C4 deals with transactions

with pass-through entities of unrelated

parties

LTA STANDARDS & PRACTICES

LTA Practice does not apply to FAMILY

Partnerships & FAMILY LLCs

Note: Practice applies only where TAX BENEFITS are sought – does not apply to Mitigation Banks

Syndications often involve

highly inflated appraisalsto juice the tax benefits

SYNDICATION – WHERE’S THE BEEF?

SYNDICATION – HOW DO YOU KNOW?

LOOK FOR 2 THINGS:

1) Land owned by a pass-through entity

2) Owners who are not related

Who owns the property?• Ask them• Ask for a copy of their deed• Order title commitment

SYNDICATION – HOW DO YOU KNOW?

If the property is owned by a pass-through entity (LLC, Partnership, S Corp)

Find out who the owners (managers, partners, investors, members) are?

• Ask them• Some info at Tx Sec’y of State web site

Contact qualified legal counsel

SUMMING UP -THIS COULD BE A SYNDICATION:

1) Tax benefits being sought2) Land owned by pass-through entity3) Owners not related

Most basic:

Conservation Easement Amendments: The Revised LTA Amendment Report 2017

1) Land trust must have amendment policy which includes LTA’s 7 Amendment Principles2) In the event of CE amendment, the land trust must implement the policy and must documentthat they have implemented the policy

LTA AMENDMENT PRINCIPLES

A conservation easement amendment should conform to all of the following amendment principles:

• Clearly serve the public interest and be consistent with the land trust’s mission

• Comply with all applicable federal, state and local laws • Not jeopardize the land trust’s tax-exempt status or status as a

charitable organization under federal or state law • Not result in private inurement or confer impermissible

private benefit • Be consistent with the conservation purpose(s) and intent of

the easement • Be consistent with the documented intent of the grantor and

any direct funding source • Have a net beneficial or neutral effect on the relevant

conservation values protected by the easement

Line 3

For each easement modified, transferred, released, extinguished, or terminated, in whole or in part, explain the changes in Part XIII.

Tax exemption may be undermined by the modification, transfer, release, extinguishment, or termination of an easement.

LAND TRUST ALLIANCERECOMMENDATION:

In Schedule D, Part XIII narrative, make concise statement of how amendment benefits conservation

TAKEAWAY:LIST EVERY CE AMENDMENT IN IRS FORM 990, SCHEDULE D, & COMPLETE PART XIII NARRATIVE

CE AMENDMENTS AND PRIVATE BENEFITLTA Accreditation Indicator Practice 11I requires documentation of no private inurement or impermissible private benefit:

Appraisals or other contemporaneous evidence (such as a letter of opinion from a qualified real estate professional, correspondence with an attorney, board materials, memo to the file, etc.) appropriate to the scale of the amendment document that no private inurement or impermissible private benefit resulted from the conservation easement amendment.

pp. 11-14 discuss range of methods of determining private benefit, depending on risk of finding it

LTA REVISED AMENDMENT REPORThttp://conservationtools.org/library_items/582-Amending-Conservation-Easements-Evolving-Practices-and-Legal-Principles

Consult Report when doing any amendment where there could be private benefit

Amendment Report: The land trust should not accept an offered cash donation as a full offset to the potential financial gain.

CHALLENGE OF PRIVATE BENEFIT:

Practice Tips:

CONSERVATION EASEMENT AMENDMENTS

1) Multiple lots allowed? State in CE who canapprove amendment2) Get title update before acceptingamendment3) Does amendment increase land truststewardship burden? Additional stewardshipcontribution may be warranted.

CONSERVATION EASEMENT AMENDMENTS:

The “Four Corners” Issue

100 acres 150 acres

THE FOUR CORNERS ISSUE:Land Trust holds a 250 acre conservation easement, in 2 parcels - one of 100 acres, one of 150 acres

120 acres

250 acres

100 acres 150 acres

THE FOUR CORNERS ISSUE: Can the land trust swap 100 acres out of a CE for another 120 acres?

120 acres

FOUR CORNERS COROLLARY:Can a land trust agree to an amendment that -

• Diminishes conservation values on a CE parcel

• A conservation easement on ADDITIONAL LAND?

In Exchange For

FOUR CORNERS COROLLARY:

PRINCIPLE:• A conservation easement amendment

must have a neutral or positive impact inside the boundaries of the original CE

LAND TRUST CAN CONSIDER AMENDMENT:

• Has some negative impact on original CE property

• In exchange for conservation of nearby land that has POSITIVE impact on original CE property

• Nets POSITIVE or NEUTRAL impact on ORIGINAL CE Property

ORIGINAL CONSERVATION EASEMENT

ADDED LAND BENEFITS ORIGINAL CE

GOAL: OVERALL, CE AMENDMENT HAS NEUTRAL OR POSITIVE CONSERVATION IMPACT ON ORIGINAL CE PROPERTY

ADDITIONAL RESOURCESTexas Land Trust Council:www.texaslandtrustcouncil.org

Land Trust Alliance:www.lta.org

Conservation Easements: A Guide for Texas Landownershttp://www.gbrtrust.org/documents/easements/ConservationEasements.pdf

Law Office of Burgess Jackson1206 W Saint Johns Ave

Austin, TX 78757512/699-9012

burgess@conservationlaw.net