1: Wonder what the IRS is thinking? Read their playbook!
Most IRS revenue agents are accountants without any prior experience in dealing with conservation easements. As such, they rely heavily on their internal guidance materials to interpret easements and spot documentation problems. Their Conservation Easement Audit Techniques Guide touches on all general aspects of tax code compliance for charitable deductions of easements and is a fascinating and enlightening window on how the IRS Chief Counsel’s office views compliance. The Guide is extremely general and leaves many nuances and details unaddressed or potentially open to misapplication. Nonetheless, it’s a must read for any conservation attorney or practitioner seeking to identify potential problems.
2: Form 990 Instructions Scrutinize Easement Modifications
All nonprofits must now file some version of form 990 each year. Even if you’re small enough to file the short-form 990-N or 990-EZ, you should at least be aware of expanded instructions for the full 990 regarding changes to conservation easements. (See second column, page 2.) Notably the terms “swap” and “boundary line adjustments” now appear as well as the statement that “tax exemption may be undermined by the modification, release, extinguishment or termination of an easement.”
These changes show the IRS’s continued interest in easement amendments. We trust that the IRS still distinguishes between changes to conservation easements that increase land protection from ones that reduce protection, but land trusts must fully document their decision making on easement changes, including their consultation with competent legal counsel prior to changing a conservation easement. Land trusts may also wish to consider other legal mechanisms to accomplish their conservation positive or neutral objectives.
Land trusts should note that an IRS challenge of a land trust’s tax exempt status will not be covered by the Terrafirma Risk Retention Group conservation defense insurance program.
3: More than One Way to Book Easements on Your 990
In recent remarks, IRS Tax Law Specialist Stephen Clark concurred with the Alliance’s longstanding position regarding the valuation of conservation easements as assets on land trusts’ books — that they can be booked at either a nominal (or zero) value or their fair market value, so long as a consistent method is used. He stated, “we’re not telling filers how they need to report conservation easements. We’re just telling them that they need to be consistent with their books and records and across the 990.” Land trusts will want to be sure to have their outside accountants be comfortable with whatever approach they use and use it consistently.Read more.
4: Substantiation Letters Required to Deduct Volunteer Expenses
If you have volunteers who incur out-of-pocket expenditures, authorized but not reimbursed by your land trust, they may be eligible for an income tax deduction, but there are specific steps they need to follow. Last year, the US Tax Court, in Van Dusen v. Commissioner of IRS, ruled for the first time that persons who incur out-of-pocket expenses of $250 or more while serving as volunteers for charities and wish to take a federal tax deduction must obtain a “contemporaneous written acknowledgment” from the charity stating whether or not any “goods or services” were provided to the volunteer in exchange for those expenses. View a template land trust letter to volunteers with statement of volunteer expenses.
5: Updated Publications on Gift Substantiation and UBIT
Publication 1771, Charitable Contributions — Substantiation and Disclosure Requirements, discusses general rules for documentation of charitable contributions, including the renewed focus on unreimbursed expenses discussed above.
Publication 598, Tax on Unrelated Business Income of Exempt Organizations, discusses the rules for the tax on unrelated business income of exempt organizations, including the types of organizations that are subject to the tax and how to determine unrelated business taxable income. New rules state that special rules apply for estimated payments for large corporations for July – August 2012. UBIT is also covered in Nonprofit Law and Recordkeeping for Land Trusts on The Learning Center.