The Tax Treatment of the Donation of Easements in Scenic and Historic Property

Stephen J. Small

Mr. Small (B.A. 1967, Yale University; M.S.J. 1968, Northwestern University; J.D. 1978, Candidate for LL.M. in taxation, Georgetown University Law Center; member, District of Columbia Bar), was Executive Assistant to Senator Clifford P. Case (R-N.J.) at the time this article was prepared. He is currently with the office of the Chief Counsel, Internal Revenue Service. The views expressed in this article are the author's and do not necessarily represent the official position of the Internal Revenue Service, the Department of the Treasury, or any other agency or department of the United States.

[9 ELR 50009]

INTRODUCTION

An easement is a limited right, granted by the owner of real property, to use all or part of his property for specific purposes. A traditional legal use of an easement, for example, has been for owner A, on whose property a stream flows, to allow neighbor B to cross A's property in order to take water from A's stream.

Within the last century, this common law device has been adapted to a modern purpose: natural resources conservation. Easements for conservation purposes touch a different set of rights — the property owner's right to develop, improve, or modify his property, and the buildings on it, generally as he sees fit. An easement for conservation or preservation purposes involves the relinquishment of some of these rights (i.e., the right to alter or diminish a building or to cut down a forest) and the power in the new holder of the easement to enforce the restrictions on the use of the property.

The law on the federal income tax deductibility of donations of easements for conservation and historic preservation purposes has followed a tortuous path. Commendable progress was made in the Tax Reform Act of 1976¹ to clarify some of the earlier confusion and to provide needed statutory authority in this area. However, a divergence of interests between conservationists and historic preservation groups contributed to a significant setback for preservationists in 1977 tax legislation.

This article has two purposes: first, to bring together the legislative history of the tax treatment of easements and to fill in the public record, which is virtually nonexistent on the reasons for the significant 1977 change; second, to promote increased awareness of this narrow but vitally important area of environmental law.

The wisdom of using the tax code as a vehicle to encourage, discourage, reward, or penalize behavior, either in general or in the historic preservation field in particular, will not be addressed.² Rather, it is assumed that short of a major and unlikely legislative shift Congress will continue to use the Internal Revnenue Code to adjust inequities or to encourage or discourage certain conduct or actions. Congress has already established a national policy favoring the preservation of historic property.³ Further, Congress has determined to help implement that policy through the medium of the tax code: § 2124 of the Tax Reform Act of 1976 added to the code significant tax incentives for taxpayers who rehabilitate income-producing or commercial historic structures, and it disallows certain tax preferences for an owner or lessee who demolishes a certified historic structure and erects a new structure in its place.⁴

The History

Only in the last few decades have the issues of conservation of open space and protection of our undeveloped natural resources begun to attract more than a narrow following. Similarly, beyond the noteworthy efforts of John D. Rockefeller, Jr. at Williamsburg and the protection of New Orleans' Vieux Carre, the historic preservation movement attracted few loyal followers prior to the 1960s. It is not unusual, then, to find limited experience prior to 1960 with a number of what are now common conservation and perservation tools.⁵

The breakthrough occurred in 1964. A taxpayer granted to the United States the right to limit the use and development of his own wooded property, abutting a federal highway, in order to preserve the scenic view from the highway. In Rev. Rul. 64-205, the Internal Revenue Service (IRS) determined that the donation of this restrictive easement was the gift of an interest in real property and qualified for a § 170 charitable deduction.⁶

Support for this important tax incentive was highlighted the following year in an informational news release from IRS noting the availability of deductions for gifts of scenic easements to qualified conservation groups.⁷

These developments were fortunate indeed. Faced with [9 ELR 50010] rapid population growth and increasing urban sprawl, conservationists were finding that zoning, the traditional land development tool in urban and suburban areas, was inadequate to control the exploitation of individual or isolated parcels of land. Easements, on the other hand, had a variety of advantages:

The nature of the control can be individualized to the parcel upon which open space is sought. The owner can be paid for the right he relinquishes. Unlike the zoning control, estate interest limitations can be utilized by both public and private interests. Moreover, since the control is not subject to the direction of a governmental body, it is less susceptible to policy changes. Finally, operation of the property right control is not dependent upon a government structure for evaluation of compliance and requests for variance. Rather, it enjoys the simplicity of a two party contract, but is subject to judicial scrutiny in the event of a dispute.⁸

The availability of a tax benefit obviously increased the attractiveness of easements.

The Tax Reform Act of 1969; Rev. Rul. 75-358

While still in its relative infancy, this evolutionary application of the ancient law of easements was inadvertently⁹ dealt a serious setback. In § 201 of the Tax Reform Act of 1969,¹⁰ while moving to close loopholes in the realm of charitable deductions, Congress sharply restricted the easement incentives.

The key provision of the 1969 Act in this context is that which added § 170(f)(3) to the code. The section denied a taxpayer deductions for the donation of all partial interests not in trust.¹¹ The Act carved out three exceptions to this rule, permitting deductions (1) for the donation of a remainder interest in a personal residence or farm;¹² (2) for the donation of a partial interest constituting the taxpayer's entire interest in the property;¹³ and (3) for the donation of an undivided portion of the taxpayer's interest in the property.

The legislative history on this last exception is both promising and confusing. In what is widely regarded as the single most influential article on this subject,¹⁴ the authors do a thorough and succinct job of identifying the sources of confusion:

Returning to the conservation or scenic easements and restrictions whose deductibility had been acknowledged and publicized by the Service in 1964 and 1965, their future, as determined strictly by Code provisions was, and is, bleak indeed. However, the following critical sentence in the Conference Report on the Tax Reform Act offers some hope:

The conferees on the part of both Houses intend that a gift of an open space easement in gross is to be considered a gift of an undivided interest in property where the easement is in perpetuity.

The foregoing passage should be read in conjunction with the earlier statement contained in the Senate Report setting forth the principal tax-avoidance transaction with which Congress was concerned in enacting section 170(f)(3):

General reasons for change. — An individual receives what may be described as a double benefit by giving a charity the right to use property which he owns for a given period of time. For example, if the individual owns an office building, he may donate the use of 10 percent of its rental space to a charity for 1 year. As a result, he will report for tax purposes only 90 percent of the income which he otherwise would have had if the building were fully rented, and still may claim a charitable deduction (amounting to 10 percent of the rental value of the building) which offsets his already reduced rental income.

A fair reading of the above is that the chief concern lay with gifts of rent-free use of property with a resulting "double benefit," and that a last-ditch effort was made to salvage the deduction at least for gifts of open space easements of the kind held deductible in Rev. Rul. 64-205. To do that, the fiction was employed that the easement or restriction was to be deemed an "undivided interest in property," and the concept was dutifully incorporated into the regulations, understandably without much elucidation. Thus we have a situation where Congress evidently overshot the mark with the broad exclusionary rule of section 170(f)(3) and then, using terminology which is both cryptic and inartistic as far as real property concepts are concerned, has undertaken not merely to fill a gap or resolve an ambiguity in the statute, but rather to make an exception for a partial interest otherwise squarely within the statutory prohibition. The cautious practitioner might well counsel that so fragile an exception may be narrowly and strictly construed and if relied upon should be closely adhered to.¹⁵

A 1975 Revenue Ruling¹⁶ added some significant authority in this area. The Service stated that the owner [9 ELR 50011] of a state landmark was entitled to a charitable deduction for the grant to the state of the right to prevent alternation of the property's "historically significant appearance." The Ruling concluded that this restrictive scenic easement was an "open space easement" under Treas. Reg. § 1.170A-7(b)(1)(Ii).¹⁷ The ambiguity of the 1969 Act, coupled with Rev. Rul. 75-358, however, contributed to a situation where some of the relevant scholarly literature is conflicting and other opinions are, of necessity, quite cautious.

A 1975 study of easements, prepared for the National Park Service by one of the acknowledged specialists in this area, was completed prior to the issuance of Rev. Rul. 75-358, discussed above. Referring to Treas. Reg. § 1.170A-7(b)(1)(ii), which was the basis for the deduction in the later revenue ruling, the study noted that "it must also be acknowledged that the regulation itself, if read and applied narrowly, does not explicitly support the deductibility of the value of historic preservation easements."¹⁸ In a subsequent essay the following year, after the ruling had been issued, Mr. Brenneman commented that Rev. Rul. 75-358 "demonstrates that the Internal Revenue Service is willing to go a long way in its interpretation of what constitutes an "open space' easement."¹⁹

Also in 1976, another author wrote, "… since the passage of the Tax Reform Act of 1969, the status of charitable deductions for gifts of partial interests in one's property (e.g., a facade easement) has been unsettled …. Recently the IRS has indicated that historic easements granted in perpetuity may … be deductible [citing Rev. Rul. 75-358]. Despite this favorable treatment, however, it should not be assumed that the provision of the Tax Reform Act will have no detrimental impact on historic preservation donations."²⁰ From the practitioner's point of view, it is noteworthy that an attorney who has been active in this area maintained that "the emphasis was on drafting facade easements to make them look like open space easements,"²¹ in order to take advantage of Rev. Rul. 75-358.

Clearly, this was an undesirable state for the law to be in. "[T]he precarious non-Code authority for the deduction for any easements"²² (emphasis added) had created considerable uncertainty at this point and had thrown a cloud over the growing use of easements for conservation and historic preservation purposes. Fortunately, within a relatively few years after the passage of the 1969 Act, efforts were begun to bring some light into the darkness.

The Tax Reform Act of 1976

The complete history of what was to become § 2124 of the Tax Reform Act of 1976 is, like many other related and appealing subjects, beyond the scope of this article. What is important is that the relevant tax concepts first appeared in legislative form in 1972 with the introduction of the Environmental Protection Tax Act.²³ The following year, Senator J. Glenn Beall of Maryland took the conservation and historic preservation incentives from that bill and reintroduced them as the Historic Structures Tax Act of 1973.²⁴

Senator Beall's proposed legislation included the incentives for rehabilitation and disincentives for demolition of historic structures discussed above.²⁵ Additionally, a portion of the Historic Structures Tax Act was designed to remedy the confusion surrounding the legality of easement donation deductions. Section 501 proposed to allow an income tax deduction for the donation to a qualified organization of a lease, option to purchase, or easement of not less than 30 years duration for conservation purposes. Section 501(a)(4) defined "conservation purposes" as including "the preservation of land areas for public outdoor recreation or education, or scenic enjoyment; the preservation of historically important land areas or structures; or the protection of natural environmental systems."

The Advisory Council on Historic Preservation stressed the need for § 501: "Recent tax reforms have generally, with the exception of easements perpetual in terms, abolished the deduction of less than fee interests in land — such as easements, options to purchase and long-term leases — donated for charitable purposes. This eliminates any tax incentive for the donation of a scenic or facade easement on a historic property except when given for a perpetual term."²⁶

The Treasury Department supplied a more blunt historical assessment for the record:

Charitable transfers…. . some provisions of the 1969 Tax Reform Act have had the unfortunate result of discouraging these important conservation undertakings. In dealing with a broad range of tax abuses in the area of charitable contributions, the reforms inadvertently swept in many transactions that would have these beneficial environmental impacts.

The changes now being proposed would … allow deductions for all conservation-related easements, even those granted for less than perpetuity.²⁷

The growth of the historic preservation movement beyond its traditional boundaries may be a relatively new [9 ELR 50012] development, but in 1979 there is no excuse for the starkly limited record of preservation needs that lies before the Congress. The following that the preservation movement has attracted has an obligation to be more sophisticated with respect to legislative initiatives at the federal level. This shortcoming became apparent during Senate floor consideration of the Historic Structures Tax Act, although in 1976 no real damage resulted. The need for more sophisticated representation of preservation views was actuely evident in 1977, and there was great damage done.²⁸

Senator Beall indeed deserves full credit for his strong advocacy of the Historic Structures Tax Act over a four-year period, but he could have used some assistance both in building the public record and in winning congressional support for his bill. The concepts embodied in the Environmental Protection Tax Act and the Historic Structures Tax Act were both novel and important as far as the historic preservation movement is concerned. But there were never any hearings, either in the House or the Senate, on the approach suggested by these bills.

It was fortunate, then, that when Senator Beall rose on the Senate floor to offer his bill as an amendment to the Tax Reform Act of 1976, he found a sympathetic Chairman of the Senate Finance Committee, Senator Russell Long:

Mr. LONG. Then, Mr. President, I would like to have recognition long enough to say that this amendment was not studied in the committee. It was not the subject of hearings.

I have discussed this with my ranking member (Mr. CURTIS). He finds a great deal of appeal to the amendment, and, of course, so do I.

I think all of us would like to preserve historic things around the country. I really have no strong objection to it.²⁹

Perhaps swayed by Senator Beall's comment that "it is appropriate during this, our Bicentennial Year, for the Congress to take meaningful action to encourage the preservation of historic property,"³⁰ Chairman Long gas the measure a boost:

Mr. LONG. May I say this to the Senator, I have been looking for an opportunity to do something along the lines of this amendment for a number of years. I simply have not been able to work out a legislative proposal to meet the various objectives that I would like to see achieved. But I know this would do part of what I would like to see done.

If the Senate would pardon me for voting on something that has not been considered in committee, In think I will vote for it myself.³¹

It is important to identify exactly what Senator Bell's amendment incontrovertibly did: (1) it provided, for the first time, express statutory authority for the deductibility of the donation of easements; (2) if the changes in the 1969 Act did in fact limit deductible easements to open space, in gross, and in perpetuity, the 1976 amendment made truly significant changes in the law; and (3) it provided, also for the first time, statutory authority on term easements.

With Senator Long's fortuitous endorsement, as well as with the full support of the Treasury Department,³² the Historic Structures Tax Act was incorporated into the Senate version of the Tax Reform Act of 1976 by a 94 to 2 vote. It was retained intact by the Senate-House conference committee and was signed into law along with the rest of the Act on October 4, 1976.

The 1977 Amendment

A littleneglect may breed mischief …

For the want of a nail the shoe was lost,

For the want of a shoe the horse was lost,

For the want of a horse the rider was lost,

For the want of a rider the battle was lost,

For the want of a battle the kingdom was lost,

And all for the want of a horseshoe-mail.³³

The public record on the reasons for the significant changes wrought in the law of easements in 1977 is virtually barren. The record indicates neither the controversy that went on behind the scenes, nor a clear outline of the issues, nor the failure of the historic preservation movement to protect its own interests. It is thus important to at least attempt to fill in some of the gaps.

The public record begins in February 1977, when Senator Mathias of Maryland introduced S. 685,³⁴ and explained his bill by inserting in the Congressional Record a letter from former Senator Beall³⁵ suggesting the legislation. Senator Mathias noted that the section of the Tax Reform Act of 1976 dealing with easements "contains an expiration date of June 14, 1977, while all the other related provisions of Senator Beall's amendment have dates of June 14, 1981."³⁶ S. 685, he said, would merely change the 1977 date to 1981.

Senator Beall's letter to his former colleague gave additional background:

During the Senate consideration of Amendment No. 1905, I indicated that "as a member of the Budget Committee, I believe that tax expenditures should be periodically reviewed by the Finance Committee just as other federal programs are reauthorized from time to time." Thus I provided for a 5-year termination date on the provisions of Amendment No. 1905. Inadvertently the last provision in the amendment which was entitled "Transfers of Partial Interests in Property for Conservation Purposes" carr[ies] a termination date of June 14, 1977. This should have read "June 14, 1981." The enclosed legislation would correct this error.³⁷

[9 ELR 50013]

Then, in April 1977, Senator Mathias moved to atach his bill as an amendment to the Tax Reduction Act of that year. The amendment, he said, "simply corrects a technical error which occurred in the printing of the Tax Reform Act of 1976."³⁸ Senator Long agreed with Senator Mathias' characterization of the amendment and had no objection to its adoption. The amendment passed by voice vote on the last day of Senate consideration of the Tax Reduction Act. Since a comparable amendment was not in the House version of the Tax Reduction Act, the issue went to a Senate-House Conference Committee on the bill.

Three different sets of interests converged on this technical date change in conference committee: the interests of the Treasury Department; the interests of conservation groups, especially the Nature Conservancy;³⁹ and the interests of historic preservation groups. A careful look at these varying points of view is essential to a full understanding of this issue.

In the middle of 1976, the Treasury Department strongly endorsed the Historic Structures Tax Act.⁴⁰ But and 1977, the Treasury Department took a position against term easements before the conference committee and strongly opposed the Senate amendment as it applied to 30-year easements. *

The Treasury Department's position, of course, laid the groundwork for a legislative change. The issue can be brought more sharply into focus by explaining some of the differences between conservationists and historic preservationists on this narrow question. First, the limited nature of a term easement may not be helpful to the conservation cause: "Term easements are more likely to lead in long run to destruction of natural area than preservation of it. Development proceeds apace. There is little reason to think that allowing development pressures to build up over thirty years will reduce the continuing threat to natural areas; on the contrary, there is every reason to think that the pressure will be irresistible in 30 years."⁴¹ (Emphasis in the original.) The Treasury Department's opposition to Senator Mathias' amendment reflected this view. Further, some conservationists suggested, and reasonably so, that the availability of a deduction for the donation of a term easement will inhibit the giving of perpetual easements on the same property.⁴² The Treasury Department agreed with this premise.

The differences between conservationists and historic preservationists as to the desirability of term easements emerge because, broadly stated, preservationists are concerned about what happens as urban environments change while conservationists attempt to mitigate the perceived threats over time to the environment in developing suburban and rural areas. For preservationists, term easements are often more suitable than perpetual easements. In the short run, in an emergency situation where a historic structure is threatened by demolition, preservationists will welcome the availability of any tool that will keep a building standing. The flexibility provided by a term easement will often allow development pressure to cool. Further, the term easement will certainly provide needed time to review the situation and possibly to devise alternate approaches that will save a threatened structure. This is in contrast to the conservationists' view that development pressures will build where prime land, protected by a term easement, lies in the path of growth.

Long-run preservation interests also generally favor term easements. In 30 years, a new generation often puts its stamp on urban areas, and what makes sense for a downtown historic structure in 1979 might be inappropriate by the year 2000.⁴³ Moreover, adaptive reuse, whereby a historic structure is put to use for other than its originally intended purpose while the historic character of the building is maintained, is coming into favor with preservationists. For example, Union Station in New London, Connecticut, built in 1885, was recently transformed from its under-utilized and poorly maintained state into Amtrak offices, a restaurant, and office space. As another example, the Gardner Building, the only remaining 18th century building on the Boston waterfront, has been restored and rebuilt and is now a popular restaurant, the Chart House. Perpetual restrictions on any changes to the facade or the interior of a particular building may prohibit this kind of needed flexibility; the donation of a term easement, however, would not lock a building irretrievably into the past.

If some preservationists would decry the lack of purity inherent in the thought that some day a historic property might no longer deserve favored status, suffice it to say that those who bow to changing times are in good company:

The restoration of Colonial Williamsburg enlisted my interest and support because to see beautiful and historic places disintegrating has long caused me very real distress.

It was this feeling that moved me to aid in the restoration of Versailles, Fontainebleau, and Reims. To undertake to preserve a single building when its environment has changed and is no longer in keeping, has always seemed to me unsatisfactory — much less worthwhile.⁴⁴

[9 ELR 50014]

What happened to Senator Mathias' amendment in the conference committee is that the Treasury Department successfully urged eliminating any deductibility for term easements. Under the legislation in its final form, and under the law now, the deduction is available until June 14, 1981 but only for the donation of perpetual easements.⁴⁵ The Treasury Department does not seem to have admitted any distinction between the preservation and conservation approaches to easements. Clearly, however, the Department's opposition to term easements for any purpose had the effect of supporting deductibility for the more valuable conservation tool, perpetual easements.

There is one final reason why the law on easements was changed in 1977. It appears that preservationists simply missed the opportunity to fight for their own interests.⁴⁶ As one participant in the give and take over the 1977 amendment put it, although the different types of easements serve different purposes, there is no inherent incompatibility: "A distinction can be drawn between easements justified for historic reasons and easements justified for purposes contained in The Nature Conservancy Bylaws. Let historic folk plug for term easements if they want them; our concern is not to defeat this … but to further our own preservation goals."⁴⁷ (Emphasis in the original.)

Conclusion

Within the confines of the 1976 and 1977 legislation on charitable donations of easements, a number of problems need to be addressed.⁴⁸ Further, there may be both conservation groups and hisoric preservationists who will disagree with this analysis of their interests. That would be welcome. A discussion of the concepts addressed here, along with some thoughtful testimony on other pending historic preservation legislation, could serve as a focal point for a long overdue congressional look at these issues. Hearings on tax incentives for preservation might encourage preservations to become better acquainted with the federal legislative process and would certainly mandate further thought about the kind of legislation that might be appropriate in the future.

[9 ELR 50015]

Appendix

by Tersh Boasberg

Mr. Small has pointed out that the historic preservation movement lost the advantage of a deduction for a term easement as a result of the 1977 amendment to § 170(f)(3)(B) of the tax code. In order to overcome that loss, an amendment to the code could be proposed that would allow the deduction for a contribution of:

(v) an easement of 30 years or more to preserve a certified historic structure which is granted to an organization described in subsection (b)(1)(A) exclusively for conservation purposes. For purposes of this provision, a "certified historic structure" means a building or structure which

(a) is listed in the National Register of Historic Places, or

(b) is located in a Registered Historic District and is certified by the Secretary of the Interior as being of historic significance to the District, or

(c) is located in a historic district designated under a statute of the appropriate state or local government if such statute is certified by the Secretary of the Interior as containing criteria which will substantially achieve the purpose of preserving and rehabilitating buildings of historic significance to the district.

This definition is identical to that of "certified historic structure" in the 1976 Act with one significant difference: in the 1976 legislation, a cerified historic structure must be a commercial or income-producing property (i.e., subject to depreciation). Under the definition proposed here, and for the purposes of this code section and this section only, private historic residences that fall within the definition would also be eligible for the easement incentives.

A careful structuring of the limits on the type of property that will be eligible for the easement incentives is essential. A proposed vague statutory offer to owners of "historic property" would not be likely to win approval from the Treasury Department during the legislative process. However, restricting the incentive to property that has gone through a fairly thorough review process and is in some way "listed" at the federal, state, or local level would prevent any possibility for abuse.

Limiting the benefit to certified historic structures could well provide another kind of incentive. It could encourage owners of historic property to explore the possibility of National Register listing. According to the Department of the Interior, the loss of unprotected historically valuable structures during a 10-year period is about 17 percent, while during a similar period only about three percent of the structures listed on the National Register are lost.

1. Pub. L. No. 94-455, 90 Stat. 1520 (1976).

2. Questions about the proper mechanism and appropriate federal role in encouraging charitable contributions are also beyond the scope of this article. See, e.g., McDaniel, Federal Matching Grants for Charitable Contributions: A Substitute for the Income Tax Deduction, 27 TAX. L. REV. 377 (1977); REPORT OF THE COMMISSION ON PRIVATE PHILANTHROPY AND PUBLIC NEEDS [The Filer Commission], 1975.

3. National Historic Preservation Act, 16 U.S.C. §§ 470-470t, ELR STAT. & REG. 41452.

4. The charitable deduction provisions of § 2124 are discussed below. See text accompanying notes 23-32 infra.

5. For example, there is no reference at all to tax incentives for the donation of conservation easements in Note, Techniques for Preserving Open Spaces, 75 HARV. L. REV. 1622 (1962). A good discussion of the history of the use of easements to control land development is in R. BRENNEMAN, SHOULD EASEMENTS BE USED TO PROTECT NATIONAL HISTORIC LANDMARKS?, A STUDY FOR THE NATIONAL PARK SERVICE, 9-11 (1975). Brenneman gives credit to a 1959 study, W. Whyte, Securing Open Space for Urban America: Conservation Easements, URB. LAND INST. BULL. NO. 36 at 11 (1959), for advocating a revival of easements for land use control purposes.

6. 1964-2 C.B. 62. The revenue ruling relied upon § 170(c)(1) of the Internal Revenue Code, generally defining a charitable deduction, § 1.170-1(c) of the income tax regulations, generally defining the value of the contribution, and the law of the taxpayer's state, which states that a restrictive easement is a valuable property right in favor of the party for whose benefit the easement is created and is enforceable by that party.

7. IRS News Release No. 784, Nov. 15, 1965.

8. Brenneman, Techniques for Controlling the Surroundings of Historic Sites, 36 LAW & CONTEMP. PROB. 416, 417 (1971).

9. See text accompanying note 27 infra.

10. Pub. L. No. 91-172, 83 Stat. 549.

11. The phrase "partial interests not in trust" springs from the complicated workings of § 170 of the Internal Revenue Code. Generally, § 170 allows deductions for charitable contributions. Section 170(f) denies deductions in specific instances, including for certain transfers in trust. Section 170(f)(3) denies deductions generally for contributions of "partial interests in property" (.e., contributions by the taxpayer of less than his entire interest) other than transfers in trust. Finally, § 170(f)(3)(B) lists exceptions to the rule articulated in § 170(f)(3) and allows deductions in the limited areas referred to here.

12. This narrowed prior law, which allowed the deduction merely for an inter vivos gift to charity of a remainder interest in property. Treas. Reg. § 1.170-1(d)(1). The Tax Reform Act of 1976 amended the Code to return generally to pre-1969 law on this point, with the important qualification that such gifts must be "for conservation purposes." Questions surrounding the effect of this limitation are beyond the scope of this article.See note 48 Infra and accompanying text.

13. "Thus, if securities are given to A for life, with the remainder over to B, and B makes a charitable contribution of his remainder interest, … a deduction is allowed under section 170 for the present value of B's remainder interest in the securities." Treas. Reg. § 1.170A-7(a)(2)(i).

14. Browne & Van Dorn, Charitable Gifts of Partial Interests in Real Property for Conservation Purposes, 29 TAX LAW. 69 (1975) (footnotes omitted below).

15. Id. at 73-75.Another extensive discussion of the legislative history appears in Wiggins & Hunt, Tax Policy Relating to Environmental Activities and Public Interest Litigation (1975), in DEPARTMENT OF THE TREASURY, 4 RESEARCH PAPERS SPONSORED BY THE COMMISSION ON PRIVATE PHILANTHROPY AND PUBLIC NEEDS 2045 (1977). A number of the individual papers prepared for the Filer Commission may be helpful to students of this general area. The six separate volumes are difficult to locate but may be purchased throught the Government Printing Office.

16. Rev. Rul. 75-358, 1975-2 C.B. 76.

17. "… a charitable contribution of an open space easement in gross in perpetuity shall be considered a contribution of an undivided portion of the donor's entire interest in property …." Treas. Reg. § 1.170A-7(b)(1)(ii).

18. Brenneman, supra note 5, at 94-95.

19. Brenneman, Easements and Their Taxation, PRESERVATION AND TAXATION SUPPLEMENT in PRESERVATION NEWS, NO. 5 (May 1976).

20. Shull, The Use of Tax Incentives for Historic Preservation, 8 CONN. L. REV. 334, 337-8 (1976).

21. Interview with John Fowler, Director, Office of Intergovernmental Programs and Planning, Advisory Council on Historic Preservation, in Washington, D.C. Mar. 14, 1978.

22. Browne & Van Dorn, supra note 14, at 79.

23. H.R. 14669, 92d Cong., 2d Sess. (1972).

24. S. 2347, 93d Cong., 1st Sess. (1973).

25. See text accompanying note 4, supra.

26. The Environmental Protection Tax Act and the Historic Structures Tax Act, an Analysis for the Advisory Council on Historic Preservation (Sept. 24, 1973), reprinted in 121 CONG. REC., at 3007 (1975) (remarks of Sen. Beall). Note that the Advisory Council seemed to take the position in 1973 that the donation of a perpetual facade easement would have been deductible. Although Rev. Rul. 75-358 subsequently validated this position, in 1973 it appears to have been questionable.

27. DEP'T OF THE TREASURY, ENVIRONMENTAL IMPACT STATEMENT OF THE HISTORIC STRUCTURES TAX ACT, reprinted in 121 CONG. REC. at 3005 (1975) (remarks of Sen. Beall).

28. See notes 36-46 infra and accompanying text.

29. 22 CONG. REC. S 12710 (daily ed. July 28, 1976) (remarks of Sen. Long).

30. Id., at S12711.

31. Id.

32. "From both a policy and a technical standpoint, it has our full support." From a letter from George H. Dixon, Acting Secretary of the Treasury, July 19, 1976, commenting on Senator Beall's amendment, at 122 CONG. REC. S12709 (daily ed. July 28, 1976) (remarks of Sen. Beall). See also text accompanying note 27 supra, especially the comment, "even those granted for less than perpetuity."

33. Maxims prefixed to POOR RICHARD'S ALMANAC (1757).

34. 95th Cong., 1st Sess. (1977).

35. Senator Beall was defeated by Paul Sarbanes when he ran for reelection in 1976.

36. 123 CONG. REC. S2481 (daily ed. Feb. 10, 1977) (remarks of Sen. Mathias).

37. Id. The specific comments to which Senator Beall refers appear at 122 CONG. REC. S12708 (daily ed. July 28, 1976). At that point, he notes that he is in fact placing a "5-year termination date on the provisions" of his 1976 amendment. In the Congressional Record text, however, the easement sections of the amendment continued to carry a 1977 termination date.

38. 123 CONG. REC. S6763 (daily ed. Apr. 29, 1977) (remarks of Sen. Mathias).

39. The Nature Conservancy, in the words of the group's magazine THE NATURE CONSERVANCY NEWS, is a "national conservation organization committed to the preservation of natural diversity by protecting lands containing the best examples of all components of our natural world."

40. See note 32, supra.

* This may be explained by the fact that there was a new set of officials in charge of the Department's tax policy as a result of the 1976 election. — Ed.

41. Hardy Wieting, Jr. (Legal Advisor, Government Program, The Nature Conservancy), internal Nature Conservancy Memorandum Re: Reasons to oppose term easements for conservation purposes, July 12, 1977 (unpublished memorandum from the Nature Conservancy files on file at ELR). In this context, it is important to note that Wieting draws a careful distinction between easements for conservation purposes and easements for preservation purposes. See text accompanying note 47 infra.

42. Id.

43. In the long term, demolition of a historic structure may ultimately be appropriate because the area may have undergone such a drastic change that preservation may make no sense from an economic perspective.

44. John D. Rockefeller, Jr., The Genesis of the Williamsburg Restoration, NATIONAL GEOGRAPHIC, NO. 4, at 401 (Apr. 1937).

45. H.R. Rep. No. 263, 95th Cong., 1st Sess. 30 (1977). What happened to Senator Mathias' amendment provides a striking example of the leeway available to members of the Senate-House conference committee. It is noteworthy that the conferees used the amendment as a vehicle to trim the law back to perpetual easements in the face of Senator Mathias' assertion when he introduced this very amendment (see note 34 supra) that "[i]t is rarely practicable to make [easements] perpetual, as the law required before the '76 Act." Senator Mathias clearly espoused the preservation viewpoint; the conference committee version of his amendment did not.

46. John Fowler of the Advisory Council on Historic Preservation acknowledged that the preservation organizations that have been interested in federal tax policy were not aware of the direction the conference committee was taking until it was too late. In fairness, it should also be pointed out that Hardy Wieting from The Nature Conservancy said that his group was not aware of the term easement section of the 1976 Tax Reform Act until after it became law.

47. Wieting [the Nature Conservancy] memorandum, supra note 41.

48. It is not the function of this Article to go into these problems. To give but one example, the 1977 conference report (supra note 45) includes this language: "The requirement that the contribution be exclusively for conservation purposes is also intended to limit deductible contributions to those transfers which require that the donee hold the easement (or, in the case of a remainder interest, the property) exclusively for conservation purposes (i.e., that they not be transferable by the donee in exchange for money, other property, or services.)" In fact, some preservation groups have made a practice of acquiring historic property and retransfering the property subject to easements and other restrictions. This language from the conference report is but another example of what can happen when preservationists do not have informed representatives keeping a close watch on these matters.

* Mr. Boasberg (B.A. 1956, Yale University; LL.B. 1959, Harvard University) is a partner in Boasberg, Hewes, Finkelstein & Klores in Washington, D.C. He is general counsel for Preservation Action and a board member of the National Center for Preservation Law.