As the sports world descended on Augusta National Golf Club in Georgia this past weekend for the biggest golf tournament of the year--The Masters--it was easy to see why the sport is endeared by so many. The pristinely-manicured greens, fairways, and tee boxes, all of which add an air of serenity to the proceedings. Falling in love with golf, in a way, is falling in love with nature, but there's a problem cropping up when course owners take that notion a bit too literally on their tax forms.
The IRS has recently been engaged in a battle with golf clubs over an environmental incentive that lets taxpayers deduct millions of dollars simply for running their businesses. How is it possible? The conservation-easement tax break.
The rule lets individuals claim a charitable deduction for giving away the right to develop land they still own and can use. The measure has spurred protection of millions of acres of pristine land, allowing it to be preserved for conservation. But it has also has prompted abuse, which has incited a boatload of litigation.
In order to be eligible for a deduction, the conservation easement has to be granted in perpetuity to a government entity or charitable organization exclusively for one of the conservation purposes enumerated in the federal code: protection of open space, protection of wildlife habitat, protection of historically important land or protection of land for the recreation or education of the general public. Certain sections of golf courses can fall under that description, but two St. James Plantation courses in North Carolina started classifying their entire courses under conservation easement, even if portions of them don't jibe with the intended spirit of the incentive.
The clubs, which had been enjoying nearly $8 million in conservation-related tax breaks, claimed every fairway, tee box, and trail under the conservation easement rule, even if they were paved.
I recently spoke to Nancy A. McLaughlin, a Robert W. Swenson Professor of Law at the University of Utah's College of Law. Her research focuses on conservation easement, tax, and nonprofit governance issues, and she writes and lectures extensively on these issues. She told me that, while giving golf courses tax breaks may seem ridiculous on the surface, it's not entirely unreasonable.
"I actually think golf courses, properly managed, in some limited circumstances, could protect habitat," she explained. "Golf courses are also some of the only remaining open spaces in certain localities. So protecting portions of golf courses that provide habitat or publicly-accessible open spaces should be eligible for the deduction. But the way the deduction is currently structured, it's too open for abuse. Congress needs to build in additional requirements for easements on golf courses to qualify."
That sounds fair. But, when we consider all the abuse the conservation easement exemption is subject to, is it really worth keeping around? McLaughlin says absolutely.
"The growth in the use of conservation easement as a land protection tool in the US over the last several decades have been extraordinary," she explained. "We've got billions of dollars being invested in easements, not only through the Federal tax incentive programs, but also through state tax incentives and purchase programs. They estimate there are more than 40 million acres encumbered by conservation easements nationwide. That's about 18 times the size of Yellowstone National Park. As a country, we are relying on them in large part to accomplish our conservation goals.
"I'm a strong supporter of the use of conservation easements to protect land," she continued. "Congress just needs to enact reforms to address abuses. In particular, reforms are needed that will help ensure that conservation easements are not overvalued, that the lands subject to the easements actually have important conservation values, and that those values will be 'protected in perpetuity.' This would not be difficult to do."