Landowners that claim federal or state tax benefits associated with conservation easements must file tax forms describing the transaction. The federal form 8283 requires that the donor state the amount of the deduction and provide the IRS with the appraisal if the deduction was greater than $500,000. Both the IRS and states that grant tax credits are cracking down on donors of conservation easements that overstate value. The best insurance against audits is a defensible appraisal.
Appraisals should be completed only by appraisal firms that have the experience and qualifications necessary to render opinions of value for complex instruments such as easements. Landowners that are found to overstate value will be required to repay the amount of the deduction plus interest and penalties. In Colorado alone over 300 IRS audits were conducted in the past several years, with the IRS claiming over-valuation in a majority of those cases. While many of these are being appealed, they have caused significant disruption in the lives of many. The statute of limitations for examining easement transactions runs for three years after the donation for the IRS and for four years for most states. |
