Abstract
To date, there has been no comprehensive analysis of the case law involving alleged overvaluation of conservation and façade easements for § 170(h) deduction purposes. This Article fills that void. It examines the easement valuation case law over the past five decades (through 2015) and discusses the most common methods by which taxpayers or, more precisely, their appraisers overvalue easements. It also proposes reforms informed by the lessons learned from the case law.
This Article does not address the equally, if not more important body of case law in which taxpayers have been denied deductions because the easements they donated failed to satisfy one or more of the requirements of § 170(h) and the Regulations. That body of case law will be the subject of a separate article. For purposes of this Article, it is important to note that ensuring that conservation and façade easements are accurately valued at the time of their donation would not guarantee that the public's money is being well spent. Additional reforms are needed to ensure that the easements protect properties that have important conservation or historic values, and that those protections will not be lost through, for example, lack of enforcement or the substantial modification, release, or termination of the easements. In other words, any reforms in the easement deduction context should also include measures designed to ensure both the quality and the durability of the easements.
To set the stage for discussion of the valuation case law, Part I1 describes the rules governing the valuation of easements for purposes of the § 170(h) deduction. Part III describes the penalties that may be imposed on taxpayers who overstate the value of easements on their tax returns, as well as the penalties that may be imposed on the appraisers who assist them in doing so. Parts IV and V then analyze the forty-five cases through 2015 that involved challenges to the valuation of façade easements and conservation easements, respectively. The façade easement and conservation easement cases are analyzed separately because the two types of easements involve different valuation issues. Informed by the insights from the case law, Part VI offers suggestions for reform. Appendices A and B set forth relevant information regarding the façade easement valuation cases, and Appendices C and D contain similar information with respect to the conservation easement valuation cases.
Recommended Citation
McLaughlin, Nancy A.
(2016)
"Conservation Easements and the Valuation Conundrum,"
Florida Tax Review: Vol. 19:
No.
1, Article 4.
Available at:
https://scholarship.law.ufl.edu/ftr/vol19/iss1/4