Senators Question Conservancy's Practices

After the series, the Conservancy restructured its board and banned some practices, including lending money to insiders, selling land to trustees and drilling on preserves.

The Finance Committee report recounts many of the transactions described in the series and explores their tax implications. Documents relating to the transactions are contained in a 1,700-page appendix to the 200-page report.

The investigation looked extensively at conservation easements -- development restrictions placed on land to preserve wildlife habitat and open space. The Conservancy holds easements on 1,600 tracts of land.

In some cases, the committee found, years passed without the Conservancy formally documenting that the easement restrictions had been honored. Documents collected by the committee "indicate a level of monitoring that may be considered inadequate for the small conservation easements and minimally adequate for the larger easements," the report said.

In many cases, landowners donated the easements to the Conservancy and claimed substantial tax breaks for the charitable contributions. The Conservancy acknowledged that it had allowed a number of donors or subsequent property owners to alter the terms of the "perpetual" easements, presumably after donors had already cashed in on their tax breaks.

Sometimes, the report said, the Conservancy allowed property owners to expand a home on the sites, construct additional buildings or cut timber. Such changes could harm conservation efforts and violate the law, the report said. In the document, the Conservancy defended its actions, saying it required landowners who sought to change easement restrictions to agree to other concessions.

Without naming the Conservancy, the report recommended that the IRS "consider revoking the tax-exempt status of a conservation organization that regularly and continuously fails to monitor and enforce conservation easements." The committee also called for a law that would allow the IRS to fine officers and directors of charities that fail to monitor and enforce easement restrictions.

The report questioned whether the Conservancy's conservation buyer program allowed participants to claim inflated tax deductions, and whether they used the transactions to circumvent tax laws. It recommended that the IRS look into the transactions, which often benefited Conservancy insiders.

Under the program, the Conservancy purchases land, attaches conservation easement restrictions, and then resells the property at a lesser amount designed to reflect the decrease in land value caused by the restrictions on development. The buyers, in turn, make charitable contributions to cover the difference between the Conservancy's original purchase price and the lower resale price. That cash gift allows the buyers to claim substantial tax breaks.

Such transactions, the report said, "test the limits" of the law, because in most of the deals examined by the Finance Committee it appeared as though the Conservancy would not have sold the property if the buyer had not simultaneously made the cash contribution. The panel questioned whether the buyers could legitimately claim the cash payments as tax-deductible charitable donations.

The Conservancy appeared to have failed to consider the effect such transactions "could have on its tax-exempt status," the report said.

Until recently, the Conservancy generally did not market the properties to the public, but instead sold many of the tracts to its trustees, staff members and other supporters, the report said. The report questioned whether the buyers, who often helped craft the terms of the land deals, paid less than full price for the tracts.