Does the new statute mean what it says? Did Congress really intend to apply these important new incentives to qualified mineral interest gifts?

Does this all mean that a landowner who donates her property, outright, in fee, to the local land trust will only be able to take an income tax deduction for the value of the gift up to 30% of her AGI for the year, with a five-year carryforward (the "old" and continuing law for most charitable gifts of property)? It appears so.

Does this also mean that if the same landowner reserves the right to extract oil, gas, and subsurface minerals and then donates the fee to the land trust she can take a deduction up to 50% of her AGI with a 15-year carryforward? Yes; that is in fact what the plain language of the statute says.

In short, this is an unusual situation. Congress seems to have given higher tax incentives to certain gifts of "partial interests" in property than to gifts of the entire property. But this is a policy decision that Congress has made and this is what the law says.

What if there are no known oil, gas, or subsurface mineral deposits when the landowner makes this donation? Are the new incentives still available? If the statute means what it says, the answer to that question is also yes. However, there are also very technical tax rules having to do with "partial interest" gifts that could be applied by the IRS in an attempt to deny such a deduction.

It is important to keep in mind that the "conservation purposes" tests under Section 170(h) apply to all qualified conservation contributions, not just to conservation easements. A charitable gift of property with no conservation values, no matter how it is structured, will not be eligible for the new incentives. Under Section 170(h) of the tax code, every qualified conservation contribution must meet one of these "conservation purposes" tests:

1. the preservation of land areas for outdoor recreation by, or the education of, the general public;
2. the protection of a relatively natural habitat of fish, wildlife, or plants, or similar ecosystem;
3. the preservation of open space for the scenic enjoyment of the general public, or pursuant to a clearly delineated governmental policy, which will yield a significant public benefit; and
4. the preservation of an historically important land area or a certified historic structure.

Assume that a landowner has land that has important conservation values, and some subsurface mineral deposits with more than a nominal value. A "simple" gift of the fee interest with a reservation of the right to oil, gas, and subsurface minerals meets the requirements of the new statute. Assuming a gift to the local land trust of a conservation easement on the land meets all of the Section 170(h) requirements, that donation would also be eligible for the new incentives.

What if the landowner first donated that conservation easement, then, a few months later, reserved the right to extract subsurface minerals and donated the fee interest (subject to the earlier conservation easement) to the town, so the property could be used as a park? Would that gift be eligible for the new increased incentives? It certainly seems so.

Do the results change if there are no known mineral deposits, but the landowner structured the transaction this way to take advantage of the new incentives? I do not think the answer is clear although these gifts seem to be in compliance with the language of the statute. However, as noted above, the technical partial interest rules might be applied to deny a deduction. There is no official guidance from the IRS on this point at this time.

Honest and informed people can disagree about these questions and these answers. I hope that as time goes by we can provide answers with more certainty. Stay tuned.

One other important issue has surfaced. As noted above, under the tax code rules, to qualify for an income tax deduction the landowner's gift must meet one of the conservation purposes tests under section 170(h). A further requirement under section 170(h) is that the conservation purposes must be enforceable in perpetuity. In the case of a conservation easement, this means at least two things: the easement be perpetual, and the restrictions imposed by the easement must actually protect the conservation values of the property. In other words, Aunt Sally may have a beautiful 200-acre farm, with important open space, habitat, and agricultural values, but if the conservation easement allows Aunt Sally to create twenty 10-acre house lots on

What does this mean when there is a gift of the fee interest, for conservation purposes, with a reservation of the rights to oil, gas, and subsurface minerals? The law is not abundantly clear on this point, and in fact there is very little guidance from the IRS on how this happens. What it seems to mean is that the deed of gift (gifting the fee and reserving the mineral interests) must include at least some of the restrictions that are substantially similar to restrictions imposed by a conservation easement, such as prohibiting industrial activities or other activities that would destroy the habitat or other conservation values, and including limitations on the permitted oil and gas operations. At least in theory, including such restrictions in the deed of gift potentially raises questions about enforceability and valuation. Once again, stay tuned.