Niles Elber Weighs in on Conservation Easements in Bloomberg Law

Property owners looking to preserve historic buildings are vying to adapt a common tax tool to their advantage—if they can convince the IRS and the courts to back them.

Conservation easements typically involve the donation of undeveloped land in exchange for tax benefits. This tax tool also can apply to donations of historic but deteriorating buildings to save them from demolition.

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“There is so much money at stake,” said Niles Elber, a lawyer at Caplin & Drysdale who has litigated many conservation easement disputes. “And the petitioners are thinking maybe their case is the different one” that will go in their favor, he said.

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The legal framework for the tax deduction appears across a few sections of Internal Revenue Code Section 170(h)(4), which provides protections for a “certified historic structure” or one that sits in a historic district with restrictions on its modification. The law allows an owner to take a charitable contribution deduction if the easement is donated to a nonprofit preservationist organization.

While the number of new easements has declined, the court battles remain, Elber said.

There are 221,000 active easements in the US and slightly more than 1,800 of them have a stated purpose of historic preservation, according to the National Conservation Easement Database. On average about 200-400 were established each decade from 1970, but the number slowed to 200 or fewer since 2010.

Conservation easement deductions tend to happen in waves, prompting government pushback, Elber said.

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Despite those setbacks, the risk of serious financial loss makes it hard for landlords to back out of litigation now, Elber said.

Cases already before the Tax Court can involve tens of millions of dollars. They’re likely to continue being contested as deduction seekers push for a favorable court ruling, an appeal, or at least an IRS settlement, he said.

With millions on the line and the potential for hefty IRS fines for skewing property valuations, the strategy seems to be “fight fight fight,” Elber said.

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