Budget Would Prohibit Deduction for Conservation Easements on Golf Course

February 29, 2012

Legislative

Summary

According to page 140 of the Treasury's Green Book explanation of President Obama's 2013 budget, the Administration would disallow an income tax charitable deduction for the contribution of a conservation easement on land "that is, or is intended to be, used as a golf course."

Extended Summary

According to the Administration:

"Recent court decisions have upheld large deductions taken for contributions of easements preserving recreational amenities, including golf courses, surrounded by upscale, private home sites. These contributions have raised concerns both that the deduction amounts claimed for such easements (often by the developers of the private home sites) are excessive, and also that the conservation easement deduction is not narrowly tailored to promote only bona fide conservation activities, as opposed to the private interests of donors. These concerns are particularly strong in the case of the deduction for contributions of easements on golf courses. The benefit of an easement on a private golf course, especially one that is part of a luxury housing development, may accrue to a limited number of users such as members of the course club or the owners of the surrounding homes, not the general public, and the construction and operation of the course may even result in environmental degradation. Easements on golf courses are particularly susceptible to overvaluation, as private interests often profit from the contribution of the easement. Because of the difficulty determining both the value of the easement and the value of the return benefits provided to the donor – including indirect benefits, such as the increase in the value of home sites surrounding the golf course – it is difficult and costly for the IRS to challenge inflated golf course easement deductions. Thus, to promote the kinds of public benefits intended by the charitable deduction provision and to prevent abuses, no charitable deduction should be allowed for contributions of easements on golf courses."

No separate estimate was made of the revenue effect of this proposed change.

CPC Commentary

To the best of our knowledge, the only court decision allowing a (rather substantial) deduction for the contribution of a conservation easement on a golf course was the 2009 Tax Court decision in Kiva Dunes Conservation , LLC v. Commissioner (see our earlier commentary). The only issue before the court in the case was the valuation of the easement. The IRS conceded the deductibility of the contribution on brief, regardless of the method of valuation.

Thus, it is not a situation where "court decisions have upheld" the deductibility of a contribution of an easement for what amounts to a private benefit. Instead, IRS failed to make the argument at all. Kiva Dunes does raise the question whether the courts have correctly construed the statutory requirement that the easement be contributed "exclusively for conservation purposes."

The decision usually cited in this connection is Glass v. Commissioner, a 2005 Tax Court decision, affirmed by the 6th Circuit federal appeals court in 2006, allowing a conservation easement deduction for 2.64 acres of beachfront property along the shore of Lake Michigan. In Glass, the IRS argued unsuccessfully at trial and on appeal that the use of the property undermined the stated conservation purposes, particularly since the subject property was small and no similar limitations were imposed on immediately adjacent properties.

Any statutory remedy should address the problem at this more basic level, rather than specifying the largely symbolic example of a private golf course.