[Hvcatskillcewg] Fw: Steven Small Seminar

[Paul Elconin]

FYI

Paul Elconin, mid-Hudson Steward
Open Space Institute
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Somers, NY  10589
Ph:  914-276-2618  Fx:  914-276-0422
pelconin at osiny.org
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----- Original Message ----- 
From: "Katie Stone" <kstone at osiny.org>
To: "Paul Elconin" <pelconin at osiny.org>; "Paul Elconin--Home Email Address" 
<pastaelco at optonline.net>
Sent: Friday, July 13, 2007 1:11 PM
Subject: FW: Steven Small Seminar





-----Original Message-----
From: Katie Stone
Sent: Thu 7/12/2007 3:12 PM
To: Jennifer Grossman
Cc: Samayla Deutch; Bob Anderberg
Subject: Steven Small Seminar

Hello legal team,

I just got back from Steven Small's seminar on conservation easements and 
tax incentives.  It was actually very informative, and I thought I'd 
summarize some of the most interesting and valuable points I took away:

In his discussion of 170(h), he spent a great deal of time going through 
each of the requirements for a qualified conservation contribution.  In 
defining a "conservation purpose" (which a contribution must be exclusively 
for, in order to qualify), he said that when he discusses the drafting of a 
CE with landowners, he is very careful to explain to them that there MUST be 
a conservation purpose, not just a loss of rights.  This might sound obvious 
to everyone, but he discussed it as a foundation for everything from 
discussion with the landowner, to drafting of the easement, to shaping 
future enforcement.  In other words, it's important for the landowner to 
understand that just because he/she might choose to give up building 50 of 
the homes on a lot that allows for development of 100 homes, that does not 
form the basis for a valid CE.  There must be a conservation VALUE that the 
easement is geared to protect.  So, pretty basic, but just something to 
model your thinking after, according to Small.

That in mind, he moved into a discussion of the actual drafting, and the 
value of the recitals.  Small says that he never drafts an Easement with 
fewer than 4 PAGES of Whereas clauses (recitals!)  He says that, although 
not all CE's will result in an audit, a landowner should always expect that 
if he/she donates a CE, it WILL result in an audit in the future, and the 
way to ensure that the Easement passes muster is to get as detailed re. the 
conservation value as possible in the Whereas clauses.  This is why (as we 
know) boilerplate language doesn't work, and the farther away we can get 
from anything standardized in those clauses, the safer the Easement language 
will be.  He suggests as often as possible, even tying the recitals into GIS 
maps delineating wildlife corridors, habitats, parks, etc., generated by the 
state.  Says he makes it his practice to at least attempt to find one or 
more maps to use in the Easement, with every easement he drafts.

Re. valuation issues, he pointed out that it's the regs. and case law that 
determine how to value an easement, not 170.  Here, there are 4 recognized 
rules, as noted in the regs.  And according to a statement released by the 
Treasury Dept., a valutation MUST start with a discussion of the first rule. 
The first rule is that, if a substantial record of comparable marketplace 
sales of easements exists, value is based on such comparable sales. (Reg. 
Sec. 1.170A-14(h)(3)).  In reality however, no such record exists yet, so we 
move on to the next rule.  BUT, because of the Treasury Dept. statement, we 
should still be including a discussion (albeit a one sentence one) of this 
first rule in the appraisal...something along the lines of "according to the 
treasury dept., we must first start here.  However, no such record exists, 
so we move to the next consideration..."  I personally have not seen this in 
our appraisals, so I thought that was interesting.  He says that it is for 
this reason that he always requests a draft of all appraisals, prior to 
completion, so he can make these sorts of suggestions.  Something to 
consider.  Anyway, Rule 2 is the "before and after" discussion.  Rule 3 is 
that if the CE covers a portion of the contiguous prop. owned by the donor 
and/or the donor's family, value of the CE is equal to calue of the entire 
contiguous potion before the easement minus the value of the entire 
contiguous portion after the CE.  (Reg. 170A-14(h)(3).)  This means that if 
S owns 100 acres, split into two areas, and encumbers only one of those 
areas, the appraiser has to look at the highest and best use of each area 
together, and this applies where S owns 50 acres, and S's daughter owns the 
abutting 50 acres.  This is somewhat esoteric, and more important for 
appraisers, but we should be looking to ensure that appraisers consider this 
when valuing the land, if we know this to be the case.  The 4th Rule is the 
Enhancement rule, meaning that an appraiser must consider enhancement of any 
property owned by the taxpayer, his family, or "related" parties (ie. an 
llc, etc.).  If anybody doesn't follow the difference b/w these last two 
rules, let me know, and I'll explain better.

Finally, guidance was recently generated by the IRS, dealing with many of 
the issues people had surrounding the new 170 Conservation Contribution 
language.  It answers a lot of FAQs in great detail, and is, I think, a good 
reference for any of us who receive calls asking questions about the new 
rules.  It's also quite long, and is too long to summarize here.  So since I 
only have a hard copy, I'd suggest googling either "Notice 2007-50" or 
"Guidance regarding deductions by individuals for qualified conservation 
contributions."  Think it would be good to read through, or even just look 
up indiv. specific questions.

There was also a dicussion of trusts and corps., with respect to deductions, 
a great discussion on fed. estate and gift tax rules with regards to donated 
easements, and a conversation about "developer" easements, but those would 
be too long to go into here, so feel free to ask me if you want to know 
about any of this.

There was also a brief discussion about the NYS credit, but most of the 
questions answered, we already answered internally.  Namely, it's a 25% 
rebate in school, county, and town taxes (not currently city or village, but 
they're working on changing this); the credit is retroactive, meaning it 
runs with the land and doesn't matter when the CE was created, you (the 
current landowner) can benefit from it now, even if it was created prior to 
2006; and it applies where the CE was donated in "whole or in part" and 
we're still not sure what "in part" means (nor is the legislature) - it 
could be interpreted to mean donating as little as 10 cents of an easement's 
value, or as must as 99.9%.  Finally, to determine what portion of the 
property value applies for the credit, you can get an assessor to determine 
what % of the tax bill the restricted land represents or do something less, 
as long as you have a "reasonable basis" for the calculation.  Basically, 
the sense is that the leg. recognized this was going to be a somewhat 
confusing calculation for landowners, and left the issue open intentionally, 
with the understanding that they'll accept pretty broad readings of 
calculation determinations (according to Henrietta Jordan.)

Ok all, there was much more, but those are some of the highlights.

=)
Project Manager/Assistant Counsel
Open Space Institute, Inc.
307 Hamilton Street
Albany, NY 12210
Tel: 518.427.1564, ext. 21
Fax: 518.427.0653