Members of Congress Urge IRS to Institute a Moratorium on Easement Donation Enforcement Actions

Douglas H. Shulman

Commissioner

Internal Revenue Service

U.S. Department of the Treasury

April 8, 2011

1111 Constitution Avenue, NW, Room 3241

Washington, DC 20224

Dear Commissioner Shulman:

We are writing to express our serious concern that the Internal Revenue Service is engaging in policies and practices that undermine existing law related to the charitable tax deduction for the donation of preservation easements on certified historic structures. This tax incentive was authorized by Congress under Section 170(h)(4)(C) of the Internal Revenue Code (IRC). 

In 1976 Congress approved a federal charitable deduction for owners of historic properties who donate easements to government agencies or non-profit organizations that preserve historic buildings. In 2006, Congress reiterated its support for this program, even as it strengthened Section 170(h) of the Internal Revenue Code by including additional qualifications on the donation of easements on buildings in registered historic districts. As recently as December 20 I 0, Congress enhanced the availability of this tax incentive for both preservation and conservation easements. 

In recent years, however, IRS administration of this program seems out of step with Congressional action with respect to protecting historically significant buildings. The IRS has intensively audited all charitable donations of this kind and undervaluing donor contributions. Donors consent to permanent and irrevocable encumbrances on their property and incur significant costs and fees relating to making and maintaining the donation. Too often, after their trouble, they discover that the IRS views the charitable value of the donations as worthless, or nearly so.

Taxpayers have also reported to us that the IRS is also using a variety of hyper-technical challenges to easement donations to invalidate the deduction altogether so as to avoid the more difficult question of easement valuation. In some cases these technical challenges effectively seek to invalidate easement terms that have been used for decades by numerous, reputable, and qualified easement-holding organizations.

The chilling effect on donations is already evident; prospective donors now understand that giving an easement to an historic preservation organization is an invitation to costly audits, possible fines and fees, and such devaluation that neutralizes the effort. This was not the intent of Congress when it passed this historic preservation incentive.

We realize that the valuation of historic preservation easements is not without its challenges. We recognize, for example, that there is no free market for preservation easements, and that valuation of such easements and the associated deductions is often subjective and complex. We are also aware that there have been past abuses associated with charitable contributions of easements, and we recognize that the IRS has an obligation to investigate and punish taxpayers who have used these or any other tactics as an inappropriate tax loophole or shelter. We believe, however, that the IRS has far better policy options to balance the goals of existing statutory intent with effective enforcement of abusive taxpayer practices.

The 2009 IRS Advisory Council (IRSAC) Report offers six recommendations for a fair and expeditious resolution of this issue. It suggests procedural changes so that donors may participate safely in the program while complying with its goals - without devoting excessive IRS resources to program oversight. Unfortunately, the IRS has chosen to disregard the IRSAC recommendations.

Recognizing the controversy surrounding this issue, we call upon the IRS to institute a temporary but immediate moratorium on all enforcement actions related to this program. We would welcome the opportunity to meet with IRS leadership during a moratorium period to examine ways to reform the enforcement of existing statutes so that the purposes of such statutes can be realized and that the IRS can continue to prevent real program abuses.

We appreciate your attention to this matter. If you have any questions regarding this issue please follow-up with Al Garesche in the office of Congressman Turner (202)225- 6465 or Ken Reidy in the office of Congressman Carnahan (202)225-2671.

Sincerely,