These days the U.S. government uses the tax code to affect policy more than most people realize, and it has been remarkably effective in increasing the conservation of land that might otherwise be developed.
For instance, the tax code offers a host of credits and deductions meant to incentivize environmental protection. One such provision is a conservation easement: If a landowner owns a property that has the potential to be developed but agrees to keep it in its natural state, the owner may deduct the difference between the value of the land if it were developed and its value sans development from taxable income. The promise to forego development is called a conservation easement.
Conservation easements protect about 30 million acres from development and prevent thousands of endangered wildlife species from being wiped out. The Biden Administration recently outlined a plan to dramatically increase the amount of land protected from development, and encouraging targeted private conservation and environmental protection efforts will be vital for it to achieve its goals. In fact, one recent study suggested that conservation easements were far more effective at safeguarding at-risk species than public conservation.
However, some members of Congress take exception to the fact that conservation easements on valuable land generate significant tax savings and they have tried for years to advance a bill that would disallow many charitable easements that would currently pass muster, as well as retroactively end many that have already transpired.
Earlier this week Senator Steve Daines (R-Mont) introduced an amendment to the infrastructure package that would severely limit a type of conservation easement known as syndicated – or partnership – easements, which allow groups of property owners, rather than individuals and families, to donate a charitable easement, a practice that dramatically expands their use.
The reason for this is that lawmakers take issue with high tax deductions claimed in several syndicated easements. However, ending syndicated easements altogether rather than cracking down on suspected abuses would defeat the intent of the entire easement program. Despite the occasional abuses there is solid evidence that syndicates provide considerable public benefits.
Retroactively disallowing deductions not only serves to reduce the efficacy of a policy that has achieved considerable good, but would also set a terrible precedent. As I’ve argued before
, when taxpayers make their economic decisions they count on the tax law not being changed after the fact, and if the government reverses course and imposes ex post
tax increases it can undermine taxpayer confidence in the entire system, and deter companies and individuals
from making investment and planning decisions, slowing economic growth.
Further, retroactive clawbacks aren’t actually needed, given that the IRS has been auditing these transactions since 2018. It’s simply a misnomer that these transactions are somehow flying under the radar. Richard J. Hassebrock, an attorney in the office of the IRS Chief Counsel, recently commented that “the IRS is currently examining every single one of these transactions.” If the IRS finds fault with any one of them, it can and should litigate those cases in tax court. But instances of alleged abuse are not grounds for a retroactive legislative overhaul.
Few would dispute that the conservation easement law can be improved to ensure that it is being used as intended. But there is a very real risk that Congress’ efforts to reduce abuses may significantly diminish not only the suspect easements but also many valid ones, as well as diminish the use of unrelated tax incentives.
There’s little doubt that the law can be improved to ensure that the public gets even more protected land for each dollar of tax revenue foregone, and if it’s done right, such a reform can be a cost-effective way to curb urbanization, protect nature and help reduce the amount of greenhouse gases in the environment.
But legislation that retroactively repeals tax incentives are—for conservation easements or anywhere else, for that matter—threatens to undermine confidence in the tax code. Such a step is something that members of Congress should reject.