Developers Find Payoff in Preservation
Sunday, December 21, 2003
Mike Kahn, a Florida business consultant and former golf pro, advises celebrities and sports stars how they can save millions in taxes: Buy a golf course and prohibit building on the fairways.
"You make virtually risk-free easy money," Kahn's Web site says. He explained in one Internet posting how an investor paid $2.4 million for a golf course and reaped $4.8 million "in pure tax savings." Kahn will not identify the buyer but describes him as one of many who made big money -- and got to keep the golf course as well.
"People who do it generally keep it quiet," he explained in an interview. "It sounds like a money grab."
It is all possible, Kahn explains, through a common environmentalist's tool called a "conservation easement."
Easements are permanent deed restrictions that limit some types of intrusive development -- such as dense subdivisions or strip mines -- while often permitting limited construction. Landowners "donate" the easements to a nonprofit land trust or a government agency that, in effect, certifies that the restrictions are meaningful and provide some public benefit, such as preserving open space or protecting wildlife. That allows the donor to seek federal income tax deductions for the reduction in the land's market value.
By taking such steps to limit construction, the owners of vacation resorts, country manors and dude ranches can seek big write-offs, too. Pennsylvania developer Kenneth C. Hellings says he restricted building on "unusable" portions of his new subdivision and took "a shocker" of a tax deduction. Luxury-home builders in North Carolina paid $10 million for a tract in the mountains, developed a third of the land, then claimed a $20 million deduction. Such tax bonanzas have become a little-noticed byproduct of the maturing environmental movement, which increasingly entwines preservation of land with preservation of wealth.
Without question, conservation easements have done much good. Conservationists credit them with making preservation the fastest-growing arm of the environmental movement, fueling a boom in land conservation and helping to protect more than 6 million acres nationwide. Easements have helped safeguard fragile ecosystems, critical watersheds, land bordering national parks and some of the nation's most stunning vistas.
"There is an enormous amount of good that has been done," said Rand Wentworth, president of the Washington-based Land Trust Alliance. "Ninety-nine percent of these transactions are good, solid conservation."
But as easements have proliferated, so have problems and abuses.
The Senate Finance Committee earlier this year opened a wide-ranging inquiry into easement practices at the Nature Conservancy, the world's largest environmental group. The committee's investigation followed a Washington Post series that revealed the Conservancy had repeatedly bought scenic properties, added development restrictions, then resold the land at reduced prices to Conservancy trustees and supporters. The buyers, some of whom retained the right to build houses on the land, in turn gave the Conservancy cash donations that supplied them with hefty tax write-offs. After the series, the Conservancy board banned such sales.
Now conservationists are wrestling with other ethical concerns about easements.
Stephen J. Small, a leading easement consultant and former IRS attorney, warned that "some things are starting to get out of hand" in an address delivered at a conservationists' gathering earlier this year in Sacramento.