Conservation Easement Issues and Updates: Latest & Greatest

AGENDA: 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

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

FILING A PLACEHOLDER CLAIM OR FULL CLAIM DOES NOT COMMIT YOU TO LITIGATION A very good lawyer will first analyze the strength of your case Come up with a strategy Help create the proper record

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

LAND TRUST ALLIANCE REVISED ADVISORY ON CONSERVATION TAX SHELTERS AKA Marketing of Conservation Easement Tax Deductions

SYNDICATION HOW IT WORKS: 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

WHAT IS A PASS-THROUGH ENTITY? Non-passthrough entity C-Corporation = Corporation itself pays taxes Passthrough entity Partnership LLC S-Corporation = Entity does not pay tax tax liability & benefits pass through to shareholders

LTA STANDARDS & PRACTICES New Practice 10C4 deals with transactions with pass-through entities of unrelated parties 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

SYNDICATION WHERE S THE BEEF? Syndications often involve highly inflated appraisals to juice the tax benefits

SYNDICATION HOW DO YOU KNOW? LOOK FOR 2 THINGS: 1) Land owned by a pass-through entity 2) Owners who are not related

SYNDICATION HOW DO YOU KNOW? Who owns the property? Ask them Ask for a copy of their deed Order title commitment 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

SUMMING UP - THIS COULD BE A SYNDICATION: 1) Tax benefits being sought 2) Land owned by pass-through entity 3) Owners not related Contact qualified legal counsel

Conservation Easement Amendments: The Revised LTA Amendment Report 2017 Most basic: 1) Land trust must have amendment policy which includes LTA s 7 Amendment Principles 2) In the event of CE amendment, the land trust must implement the policy and must document that 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 ALLIANCE RECOMMENDATION: 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 BENEFIT LTA 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.

LTA REVISED AMENDMENT REPORT http://conservationtools.org/library_items/582- Amending-Conservation-Easements-Evolving-Practicesand-Legal-Principles pp. 11-14 discuss range of methods of determining private benefit, depending on risk of finding it Consult Report when doing any amendment where there could be private benefit

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

CONSERVATION EASEMENT AMENDMENTS Practice Tips: 1) Multiple lots allowed? State in CE who can approve amendment 2) Get title update before accepting amendment 3) Does amendment increase land trust stewardship burden? Additional stewardship contribution may be warranted.

CONSERVATION EASEMENT AMENDMENTS: The Four Corners Issue

THE FOUR CORNERS ISSUE: Land Trust holds a 250 acre conservation easement, in 2 parcels - one of 100 acres, one of 150 acres 250 acres 100 acres 150 acres 120 acres

THE FOUR CORNERS ISSUE: Can the land trust swap 100 acres out of a CE for another 120 acres? 100 acres 150 acres 120 acres

FOUR CORNERS COROLLARY: Can a land trust agree to an amendment that - Diminishes conservation values on a CE parcel In Exchange For A conservation easement on ADDITIONAL LAND?

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

ADDED LAND BENEFITS ORIGINAL CE ORIGINAL CONSERVATION EASEMENT GOAL: OVERALL, CE AMENDMENT HAS NEUTRAL OR POSITIVE CONSERVATION IMPACT ON ORIGINAL CE PROPERTY

ADDITIONAL RESOURCES Texas Land Trust Council: www.texaslandtrustcouncil.org Land Trust Alliance: www.lta.org Conservation Easements: A Guide for Texas Landowners http://www.gbrtrust.org/documents/easements/conservation Easements.pdf Law Office of Burgess Jackson 1206 W Saint Johns Ave Austin, TX 78757 512/699-9012 burgess@conservationlaw.net