Given what else is going on in the conservation easement tax world, there is probably not a lot here to interest the IRS.
New York Attorney General Letitia James’ complaint against former President Donald Trump, Donald Trump Jr., Eric Trump, Ivanka Trump, Allen Wesselberg, Jeffrey McConney and ten entities including the Trump Organization is not mainly focused on taxes. It is mostly about Trump gaining advantages such as favorable loan terms and insurance provisions by purportedly misrepresenting his net worth.
The purported « acts of fraud and misrepresentation » cited in the complaint came in the form of an annual Statement of Financial Condition compiled by top 30 accounting firm Mazars, which has fired the Trump Organization as a client and stated that the Statements of Financial Condition for Donald Trump for the years ended June 30, 2011 through 2020 are unreliable. Mazars compiled rather than reviewed or audited the statements so responsibility for the purported misrepresentations rests with the people named in the complaint.
What the AG claims is that Trump and the others were fibbing to Mazars about is the valuation of property thereby overstating Trump’s net worth. That sort of thing will not create a tax understatement. Where the tax problem, which is what I write about, comes into play is with conservation easements. During his run for the presidency, Donald Trump’s campaign provided a 93-page list of 4,844 charitable contributions totaling $102 million. At the very top of the list was $63,825,000 in various conservation easements.
Generally you don’t get a charitable deduction for giving less than an entire interest in property away. There are exceptions to that rule. Most notable is Code Section 170(h) Qualified conservation easement. Rather than the entire interest or a remainder interest in the property you can donate « a restriction (granted in perpetuity) on the use which may be made of the real property ». That is commonly called an easement. There are other requirements, most notably that the gift has to be to the right sort of organization and has to be for one of a variety of conservation purposes.
If you give an easement you get a deduction for the value of the easement. There is not a lot of buying and selling of easements. So how do you value the easement? Regulation 1.170A-14 takes care of that:
The « before » value creates most of the controversy. There is a mini-industry of syndicated conservation easements that is based on fantasy valuations. I have written a lot about the issue. When you overstate the « before » value of a property, you can end up understating your tax liability by inflating your charitable deductions. That is the income tax issue in the complaint.
Here are the parts of the complaint that discuss conservation easements.
According to the complaint, Seven Springs is a parcel of real property that consists of approximately 212 acres within the towns of Bedford, New Castle and North Castle in Westchester County, New York. The owner of Seven Springs LLC, a subsidiary of the Trump Organization, is named in the complaint.
