Development easements can be a successful way to marry a tax shelter to protecting the environment or historical elements of property you own. With a development easement, you create an easement that prohibits development on the property and in return, receive a tax deduction for the reduction in value of the land due to the easement.
It may be that one of the reasons Donald Trump has been subjected to IRS tax audits could be his use of development easements on some of the golf courses he owns. In one case, a charitable deduction for a golf course was disallowed. The use of chemicals on the property was found likely to cause harm to the environment, which meant it really wasn’t a conservation easement.
The Internal Revenue Service examines these easements carefully, so it is likely that if you claim such a charitable deduction, you will invite a tax audit. Conservation and historical easement tax deductions are legal, but because of the potential for abuse, the need for scrupulous adherence to procedure is heightened.
You will likely need more than one attorney for this transaction. You will want an attorney experienced with setting up easements and you will need a tax attorney to minimize the risk of some part of the transaction does not comply with IRS requirements. This will help prevent the Service from disallowing your claim. Hiring an independent appraiser can also help to protect the integrity of the transaction and prevent claims of inflated valuations from causing problems.
These types of transactions are both complex and will invite scrutiny, so making certain that you have completed all of the steps properly can save time and expense and prevent with tax audits from becoming lengthy ordeals.
Source: forbes.com, “Trump’s Golf Course Tax Shelter Likely Target In IRS Audit,” Ashlea Ebeling, June 15, 2016