Internal Revenue Service, Treasury § 1.170A­14 taxpayer must substantiate in accord- ployer matches Taxpayer's $400 payment ance with the requirements of this sec- with an additional payment of $400. In con- tion. sideration for the combined payments of (15) Substantiation of charitable con- $800, L gives Taxpayer an item that it esti- tributions made by a partnership or an S mates has a fair market value of $100. L does not give the employer any goods or services corporation. If a partnership or an S in consideration for its contribution. The corporation makes a charitable con- contemporaneous written acknowledgment tribution of $250 or more, the partner- provided to the employer must include a ship or S corporation will be treated as statement that no goods or services were the taxpayer for purposes of section provided in consideration for the employer's 170(f)(8). Therefore, the partnership or $400 payment. The contemporaneous written S corporation must substantiate the acknowledgment provided to Taxpayer must contribution with a contemporaneous include a statement of the amount of Tax- payer's payment, a description of the item written acknowledgment from the received by Taxpayer, and a statement that donee organization before reporting the L's good faith estimate of the value of the contribution on its income tax return item received by Taxpayer is $100. for the year in which the contribution (18) Effective date. This paragraph (f) was made and must maintain the con- applies to contributions made on or temporaneous written acknowledgment after December 16, 1996. However, tax- in its records. A partner of a partner- payers may rely on the rules of this ship or a shareholder of an S corpora- paragraph (f) for contributions made on tion is not required to obtain any addi- or after January 1, 1994. tional substantiation for his or her share of the partnership's or S corpora- [T.D. 8002, 49 FR 50664 and 50666, Dec. 31, 1984, tion's charitable contribution. as amended by T.D. 8003, 49 FR 50659, Dec. 31, (16) Purchase of an annuity. If a tax- 1984; T.D. 8199, 53 FR 16080, May 5, 1988; 53 FR payer purchases an annuity from a 18372, May 23, 1988; T.D. 8623, 60 FR 53128, Oct. 12, 1995; T.D. 8690, 61 FR 65952, Dec. 16, 1996] charitable organization and claims a charitable contribution deduction of § 1.170A­14 Qualified conservation $250 or more for the excess of the contributions. amount paid over the value of the an- (a) Qualified conservation contribu- nuity, the contemporaneous written tions. A deduction under section 170 is acknowledgment must state whether generally not allowed for a charitable any goods or services in addition to the contribution of any interest in prop- annuity were provided to the taxpayer. erty that consists of less than the do- The contemporaneous written ac- nor's entire interest in the property knowledgment is not required to in- other than certain transfers in trust clude a good faith estimate of the value (see § 1.170A­6 relating to charitable of the annuity. See § 1.170A­1(d)(2) for contributions in trust and § 1.170A­7 re- guidance in determining the value of lating to contributions not in trust of the annuity. partial interests in property). However, (17) Substantiation of matched a deduction may be allowed under sec- payments-(i) In general. For purposes tion 170(f)(3)(B)(iii) for the value of a of section 170, if a taxpayer's payment qualified conservation contribution if to a donee organization is matched, in the requirements of this section are whole or in part, by another payor, and met. A qualified conservation contribu- the taxpayer receives goods or services tion is the contribution of a qualified in consideration for its payment and real property interest to a qualified or- some or all of the matching payment, ganization exclusively for conservation those goods or services will be treated purposes. To be eligible for a deduction as provided in consideration for the under this section, the conservation taxpayer's payment and not in consid- purpose must be protected in per- eration for the matching payment. petuity. (ii) Example. The following example (b) Qualified real property interest-(1) illustrates the rules of this paragraph Entire interest of donor other than quali- (f)(17). fied mineral interest. (i) The entire inter- Example Taxpayer makes a $400 payment to est of the donor other than a qualified Charity L, a donee organization. Pursuant to mineral interest is a qualified real a matching payment plan, Taxpayer's em- property interest. A qualified mineral 149 VerDate Jan<31>2003 08:58 Apr 11, 2003 Jkt 200083 PO 00000 Frm 00149 Fmt 8010 Sfmt 8010 Y:\SGML\200083T.XXX 200083T § 1.170A­14 26 CFR Ch. I (4­1­03 Edition) interest is the donor's interest in sub- tion must be a qualified organization, surface oil, gas, or other minerals and have a commitment to protect the con- the right of access to such minerals. servation purposes of the donation, and (ii) A real property interest shall not have the resources to enforce the re- be treated as an entire interest other strictions. A conservation group orga- than a qualified mineral interest by nized or operated primarily or substan- reason of section 170(h)(2)(A) and this tially for one of the conservation pur- paragraph (b)(1) if the property in poses specified in section 170(h)(4)(A) which the donor's interest exists was will be considered to have the commit- divided prior to the contribution in ment required by the preceding sen- order to enable the donor to retain con- tence. A qualified organization need trol of more than a qualified mineral not set aside funds to enforce the re- interest or to reduce the real property strictions that are the subject of the interest donated. See Treasury regula- contribution. For purposes of this sec- tions § 1.170A­7(a)(2)(i). An entire inter- tion, the term qualified organization est in real property may consist of an means: undivided interest in the property. But (i) A governmental unit described in see section 170(h)(5)(A) and the regula- section 170(b)(1)(A)(v); tions thereunder (relating to the re- (ii) An organization described in sec- quirement that the conservation pur- tion 170(b)(1)(A)(vi); pose which is the subject of the dona- (iii) A charitable organization de- tion must be protected in perpetuity). scribed in section 501(c)(3) that meets Minor interests, such as rights-of-way, the public support test of section that will not interfere with the con- 509(a)(2); servation purposes of the donation, (iv) A charitable organization de- may be transferred prior to the con- scribed in section 501(c)(3) that meets servation contribution without affect- the requirements of section 509(a)(3) ing the treatment of a property inter- and is controlled by an organization est as a qualified real property interest described in paragraphs (c)(1) (i), (ii), under this paragraph (b)(1). or (iii) of this section. (2) Perpetual conservation restriction. A (2) Transfers by donee. A deduction ``perpetual conservation restriction'' is shall be allowed for a contribution a qualified real property interest. A under this section only if in the instru- ``perpetual conservation restriction'' is ment of conveyance the donor pro- a restriction granted in perpetuity on hibits the donee from subsequently the use which may be made of real transferring the easement (or, in the property-including, an easement or case of a remainder interest or the res- other interest in real property that ervation of a qualified mineral inter- under state law has attributes similar est, the property), whether or not for to an easement (e.g., a restrictive cov- consideration, unless the donee organi- enant or equitable servitude). For pur- zation, as a condition of the subsequent poses of this section, the terms ease- transfer, requires that the conserva- ment, conservation restriction, and per- tion purposes which the contribution petual conservation restriction have the was originally intended to advance same meaning. The definition of per- continue to be carried out. Moreover, petual conservation restriction under this subsequent transfers must be restricted paragraph (b)(2) is not intended to pre- to organizations qualifying, at the clude the deductibility of a donation of time of the subsequent transfer, as an affirmative rights to use a land or eligible donee under paragraph (c)(1) of water area under § 1.170A­13(d)(2). Any this section. When a later unexpected rights reserved by the donor in the do- change in the conditions surrounding nation of a perpetual conservation re- the property that is the subject of a do- striction must conform to the require- nation under paragraph (b)(1), (2), or (3) ments of this section. See e.g., para- of this section makes impossible or im- graph (d)(4)(ii), (d)(5)(i), (e)(3), and practical the continued use of the prop- (g)(4) of this section. erty for conservation purposes, the re- (c) Qualified organization-(1) Eligible quirement of this paragraph will be donee. To be considered an eligible met if the property is sold or ex- donee under this section, an organiza- changed and any proceeds are used by 150 VerDate Jan<31>2003 08:58 Apr 11, 2003 Jkt 200083 PO 00000 Frm 00150 Fmt 8010 Sfmt 8010 Y:\SGML\200083T.XXX 200083T Internal Revenue Service, Treasury § 1.170A­14 the donee organization in a manner there in a relatively natural state. For consistent with the conservation pur- example, the preservation of a lake poses of the original contribution. In formed by a man-made dam or a salt the case of a donation under paragraph pond formed by a man-made dike would (b)(3) of this section to which the pre- meet the conservation purposes test if ceding sentence applies, see also para- the lake or pond were a nature feeding graph (g)(5)(ii) of this section. area for a wildlife community that in- (d) Conservation purposes-(1) In gen- cluded rare, endangered, or threatened eral. For purposes of section 170(h) and native species. this section, the term conservation pur- poses means- (ii) Significant habitat or ecosystem. (i) The preservation of land areas for Significant habitats and ecosystems outdoor recreation by, or the education include, but are not limited to, habi- of, the general public, within the mean- tats for rare, endangered, or threatened ing of paragraph (d)(2) of this section, species of animal, fish, or plants; nat- (ii) The protection of a relatively ural areas that represent high quality natural habitat of fish, wildlife, or examples of a terrestrial community or plants, or similar ecosystem, within aquatic community, such as islands the meaning of paragraph (d)(3) of this that are undeveloped or not intensely section, developed where the coastal ecosystem (iii) The preservation of certain open is relatively intact; and natural areas space (including farmland and forest which are included in, or which con- land) within the meaning of paragraph tribute to, the ecological viability of a (d)(4) of this section, or local, state, or national park, nature (iv) The preservation of a historically preserve, wildlife refuge, wilderness important land area or a certified his- area, or other similar conservation toric structure, within the meaning of area. paragraph (d)(5) of this section. (iii) Access. Limitations on public ac- (2) Recreation or education-(i) In gen- cess to property that is the subject of a eral. The donation of a qualified real donation under this paragraph (d)(3) property interest to preserve land shall not render the donation non- areas for the outdoor recreation of the general public or for the education of deductible. For example, a restriction the general public will meet the con- on all public access to the habitat of a servation purposes test of this section. threatened native animal species pro- Thus, conservation purposes would in- tected by a donation under this para- clude, for example, the preservation of graph (d)(3) would not cause the dona- a water area for the use of the public tion to be nondeductible. for boating or fishing, or a nature or (4) Preservation of open space-(i) In hiking trail for the use of the public. general. The donation of a qualified real (ii) Access. The preservation of land property interest to preserve open areas for recreation or education will space (including farmland and forest not meet the test of this section unless land) will meet the conservation pur- the recreation or education is for the poses test of this section if such preser- substantial and regular use of the gen- vation is- eral public. (A) Pursuant to a clearly delineated (3) Protection of environmental system- Federal, state, or local governmental (i) In general. The donation of a quali- conservation policy and will yield a fied real property interest to protect a significant public benefit, or significant relatively natural habitat (B) For the scenic enjoyment of the in which a fish, wildlife, or plant com- general public and will yield a signifi- munity, or similar ecosystem normally cant public benefit. lives will meet the conservation pur- poses test of this section. The fact that An open space easement donated on or the habitat or environment has been after December 18, 1980, must meet the altered to some extent by human activ- requirements of section 170(h) in order ity will not result in a deduction being to be deductible. denied under this section if the fish, (ii) Scenic enjoyment-(A) Factors. A wildlife, or plants continue to exist contribution made for the preservation 151 VerDate Jan<31>2003 08:58 Apr 11, 2003 Jkt 200083 PO 00000 Frm 00151 Fmt 8010 Sfmt 8010 Y:\SGML\200083T.XXX 200083T § 1.170A­14 26 CFR Ch. I (4­1­03 Edition) of open space may be for the scenic en- general public is sufficient. Under the joyment of the general public. Preser- terms of an open space easement on vation of land may be for the scenic en- scenic property, the entire property joyment of the general public if devel- need not be visible to the public for a opment of the property would impair donation to qualify under this section, the scenic character of the local rural although the public benefit from the or urban landscape or would interfere donation may be insufficient to qualify with a scenic panorama that can be en- for a deduction if only a small portion joyed from a park, nature preserve, of the property is visible to the public. road, waterbody, trail, or historic (iii) Governmental conservation structure or land area, and such area or policy-(A) In general. The requirement transportation way is open to, or uti- that the preservation of open space be lized by, the public. ``Scenic enjoy- pursuant to a clearly delineated Fed- ment'' will be evaluated by considering eral, state, or local governmental pol- all pertinent facts and circumstances icy is intended to protect the types of germane to the contribution. Regional property identified by representatives variations in topography, geology, biol- ogy, and cultural and economic condi- of the general public as worthy of pres- tions require flexibility in the applica- ervation or conservation. A general tion of this test, but do not lessen the declaration of conservation goals by a burden on the taxpayer to demonstrate single official or legislative body is not the scenic characteristics of a donation sufficient. However, a governmental under this paragraph. The application conservation policy need not be a cer- of a particular objective factor to help tification program that identifies par- define a view as scenic in one setting ticular lots or small parcels of individ- may in fact be entirely inappropriate ually owned property. This require- in another setting. Among the factors ment will be met by donations that to be considered are: further a specific, identified conserva- (1) The compatibility of the land use tion project, such as the preservation with other land in the vicinity; of land within a state or local land- (2) The degree of contrast and variety mark district that is locally recognized provided by the visual scene; as being significant to that district; (3) The openness of the land (which the preservation of a wild or scenic would be a more significant factor in river, the preservation of farmland pur- an urban or densely populated setting suant to a state program for flood pre- or in a heavily wooded area); vention and control; or the protection (4) Relief from urban closeness; of the scenic, ecological, or historic (5) The harmonious variety of shapes character of land that is contiguous to, and textures; or an integral part of, the surroundings (6) The degree to which the land use of existing recreation or conservation maintains the scale and character of sites. For example, the donation of a the urban landscape to preserve open perpetual conservation restriction to a space, visual enjoyment, and sunlight qualified organization pursuant to a for the surrounding area; formal resolution or certification by a (7) The consistency of the proposed local governmental agency established scenic view with a methodical state under state law specifically identifying scenic identification program, such as the subject property as worthy of pro- a state landscape inventory; and tection for conservation purposes will (8) The consistency of the proposed meet the requirement of this para- scenic view with a regional or local graph. A program need not be funded to landscape inventory made pursuant to satisfy this requirement, but the pro- a sufficiently rigorous review process, gram must involve a significant com- especially if the donation is endorsed mitment by the government with re- by an appropriate state or local gov- spect to the conservation project. For ernmental agency. example, a governmental program ac- (B) Access. To satisfy the requirement cording preferential tax assessment or of scenic enjoyment by the general preferential zoning for certain property public, visual (rather than physical) ac- deemed worthy of protection for con- cess to or across the property by the servation purposes would constitute a 152 VerDate Jan<31>2003 08:58 Apr 11, 2003 Jkt 200083 PO 00000 Frm 00152 Fmt 8010 Sfmt 8010 Y:\SGML\200083T.XXX 200083T Internal Revenue Service, Treasury § 1.170A­14 significant commitment by the govern- (1) The uniqueness of the property to ment. the area; (B) Effect of acceptance by govern- (2) The intensity of land development mental agency. Acceptance of an ease- in the vicinity of the property (both ex- ment by an agency of the Federal Gov- isting development and foreseeable ernment or by an agency of a state or trends of development); local government (or by a commission, (3) The consistency of the proposed authority, or similar body duly con- open space use with public programs stituted by the state or local govern- (whether Federal, state or local) for ment and acting on behalf of the state conservation in the region, including or local government) tends to establish programs for outdoor recreation, irri- the requisite clearly delineated govern- gation or water supply protection, mental policy, although such accept- water quality maintenance or enhance- ance, without more, is not sufficient. ment, flood prevention and control, The more rigorous the review process erosion control, shoreline protection, by the governmental agency, the more and protection of land areas included the acceptance of the easement tends in, or related to, a government ap- to establish the requisite clearly delin- proved master plan or land manage- eated governmental policy. For exam- ment area; ple, in a state where the legislature has (4) The consistency of the proposed established an Environmental Trust to open space use with existing private accept gifts to the state which meet conservation programs in the area, as certain conservation purposes and to evidenced by other land, protected by submit the gifts to a review that re- easement or fee ownership by organiza- quires the approval of the state's high- tions referred to in § 1.170A­14(c)(1), in est officials, acceptance of a gift by the close proximity to the property; Trust tends to establish the requisite (5) The likelihood that development clearly delineated governmental pol- of the property would lead to or con- icy. However, if the Trust merely ac- tribute to degradation of the scenic, cepts such gifts without a review proc- natural, or historic character of the ess, the requisite clearly delineated area; governmental policy is not established. (C) Access. A limitation on public ac- (6) The opportunity for the general cess to property subject to a donation public to use the property or to appre- under this paragraph (d)(4)(iii) shall ciate its scenic values; not render the deduction nondeductible (7) The importance of the property in unless the conservation purpose of the preserving a local or regional land- donation would be undermined or frus- scape or resource that attracts tourism trated without public access. For ex- or commerce to the area; ample, a donation pursuant to a gov- (8) The likelihood that the donee will ernmental policy to protect the scenic acquire equally desirable and valuable character of land near a river requires substitute property or property rights; visual access to the same extent as (9) The cost to the donee of enforcing would a donation under paragraph the terms of the conservation restric- (d)(4)(ii) of this section. tion; (iv) Significant public benefit-(A) Fac- (10) The population density in the tors. All contributions made for the area of the property; and preservation of open space must yield a (11) The consistency of the proposed significant public benefit. Public ben- open space use with a legislatively efit will be evaluated by considering all mandated program identifying par- pertinent facts and circumstances ger- ticular parcels of land for future pro- mane to the contribution. Factors ger- tection. mane to the evaluation of public ben- (B) Illustrations. The preservation of efit from one contribution may be ir- an ordinary tract of land would not in relevant in determining public benefit and of itself yield a significant public from another contribution. No single benefit, but the preservation of ordi- factor will necessarily be determina- nary land areas in conjunction with tive. Among the factors to be consid- other factors that demonstrate signifi- ered are: cant public benefit or the preservation 153 VerDate Jan<31>2003 08:58 Apr 11, 2003 Jkt 200083 PO 00000 Frm 00153 Fmt 8010 Sfmt 8010 Y:\SGML\200083T.XXX 200083T § 1.170A­14 26 CFR Ch. I (4­1­03 Edition) of a unique land area for public em- the legislative policy that the X River ployment would yield a significant and the relatively natural quality of public benefit. For example, the preser- its surrounding be protected. On these vation of a vacant downtown lot would facts, an open space easement on farm- not by itself yield a significant public land in State X would have to dem- benefit, but the preservation of the onstrate additional factors to establish downtown lot as a public garden would, ``significant public benefit.'' The speci- absent countervailing factors, yield a ficity of the legislative mandate to significant public benefit. The fol- protect the X River, however, would by lowing are other examples of contribu- itself tend to establish the significant tions which would, absent counter- public benefit associated with an open vailing factors, yield a significant pub- space easement on land fronting the X lic benefit: The preservation of farm- River. land pursuant to a state program for flood prevention and control; the pres- (B) Scenic enjoyment and significant ervation of a unique natural land for- public benefit. With respect to the rela- mation for the enjoyment of the gen- tionship between the requirements of eral public; the preservation of wood- ``scenic enjoyment'' and ``significant land along a public highway pursuant public benefit,'' since the degrees of to a government program to preserve scenic enjoyment offered by a variety the appearance of the area so as to of open space easements are subjective maintain the scenic view from the and not as easily delineated as are in- highway; and the preservation of a creasingly specific levels of govern- stretch of undeveloped property lo- mental policy, the significant public cated between a public highway and benefit of preserving a scenic view the ocean in order to maintain the sce- must be independently established in nic ocean view from the highway. all cases. (v) Limitation. A deduction will not be (C) Donations may satisfy more than allowed for the preservation of open one test. In some cases, open space ease- space under section 170(h)(4)(A)(iii), if ments may be both for scenic enjoy- the terms of the easement permit a de- ment and pursuant to a clearly delin- gree of intrusion or future development eated governmental policy. For exam- that would interfere with the essential ple, the preservation of a particular scenic quality of the land or with the scenic view identified as part of a sce- governmental conservation policy that nic landscape inventory by a rigorous is being furthered by the donation. See governmental review process will meet § 1.170A­14(e)(2) for rules relating to in- the tests of both paragraphs (d)(4)(i)(A) consistent use. and (d)(4)(i)(B) of this section. (vi) Relationship of requirements-(A) (5) Historic preservation-(i) In general. Clearly delineated governmental policy and significant public benefit. Although The donation of a qualified real prop- the requirements of ``clearly delineated erty interest to preserve an histori- governmental policy'' and ``significant cally important land area or a certified public benefit'' must be met independ- historic structure will meet the con- ently, for purposes of this section the servation purposes test of this section. two requirements may also be related. When restrictions to preserve a build- The more specific the governmental ing or land area within a registered policy with respect to the particular historic district permit future develop- site to be protected, the more likely ment on the site, a deduction will be the governmental decision, by itself, allowed under this section only if the will tend to establish the significant terms of the restrictions require that public benefit associated with the do- such development conform with appro- nation. For example, while a statute in priate local, state, or Federal stand- State X permitting preferential assess- ards for construction or rehabilitation ment for farmland is, by definition, within the district. See also, § 1.170A­ governmental policy, it is distinguish- 14(h)(3)(ii). able from a state statute, accompanied (ii) Historically important land area. by appropriations, naming the X River The term historically important land as a valuable resource and articulating area includes: 154 VerDate Jan<31>2003 08:58 Apr 11, 2003 Jkt 200083 PO 00000 Frm 00154 Fmt 8010 Sfmt 8010 Y:\SGML\200083T.XXX 200083T Internal Revenue Service, Treasury § 1.170A­14 (A) An independently significant land a small portion of the property is so area including any related historic re- visible. Where the historic land area or sources (for example, an archaeological certified historic structure which is the site or a Civil War battlefield with re- subject of the donation is not visible lated monuments, bridges, cannons, or from a public way (e.g., the structure is houses) that meets the National Reg- hidden from view by a wall or ister Criteria for Evaluation in 36 CFR shrubbery, the structure is too far from 60.4 (Pub. L. 89­665, 80 Stat. 915); the public way, or interior characteris- (B) Any land area within a registered tics and features of the structure are historic district including any build- the subject of the easement), the terms ings on the land area that can reason- of the easement must be such that the ably be considered as contributing to general public is given the opportunity the significance of the district; and on a regular basis to view the charac- (C) Any land area (including related teristics and features of the property historic resources) adjacent to a prop- which are preserved by the easement to erty listed individually in the National the extent consistent with the nature Register of Historic Places (but not within a registered historic district) in and condition of the property. a case where the physical or environ- (B) Factors to be considered in deter- mental features of the land area con- mining the type and amount of public tribute to the historic or cultural in- access required under paragraph tegrity of the property. (d)(5)(iv)(A) of this section include the (iii) Certified historic structure. The historical significance of the donated term certified historic structure, for pur- property, the nature of the features poses of this section, means any build- that are the subject of the easement, ing, structure or land area which is- the remoteness or accessibility of the (A) Listed in the National Register, site of the donated property, the possi- or bility of physical hazards to the public (B) Located in a registered historic visiting the property (for example, an district (as defined in section unoccupied structure in a dilapidated 48(g)(3)(B)) and is certified by the Sec- condition), the extent to which public retary of the Interior (pursuant to 36 access would be an unreasonable intru- CFR 67.4) to the Secretary of the sion on any privacy interests of indi- Treasury as being of historic signifi- viduals living on the property, the de- cance to the district. gree to which public access would im- A structure for purposes of this section pair the preservation interests which means any structure, whether or not it are the subject of the donation, and the is depreciable. Accordingly easements availability of opportunities for the on private residences may qualify public to view the property by means under this section. In addition, a struc- other than visits to the site. ture would be considered to be a cer- (C) The amount of access afforded the tified historic structure if it were cer- public by the donation of an easement tified either at the time the transfer shall be determined with reference to was made or at the due date (including the amount of access permitted by the extensions) for filing the donor's return terms of the easement which are estab- for the taxable year in which the con- lished by the donor, rather than the tribution was made. amount of access actually provided by (iv) Access. (A) In order for a con- the donee organization. However, if the servation contribution described in donor is aware of any facts indicating section 170(h)(4)(A)(iv) and this para- that the amount of access that the graph (d)(5) to be deductible, some vis- donee organization will provide is sig- ual public access to the donated prop- nificantly less than the amount of ac- erty is required. In the case of an his- cess permitted under the terms of the torically important land area, the en- easement, then the amount of access tire property need not be visible to the afforded the public shall be determined public for a donation to qualify under with reference to this lesser amount. this section. However, the public ben- (v) Examples. The provisions of para- efit from the donation may be insuffi- graph (d)(5)(iv) of this section may be cient to qualify for a deduction if only illustrated by the following examples: 155 VerDate Jan<31>2003 08:58 Apr 11, 2003 Jkt 200083 PO 00000 Frm 00155 Fmt 8010 Sfmt 8010 Y:\SGML\200083T.XXX 200083T § 1.170A­14 26 CFR Ch. I (4­1­03 Edition) Example 1. A and his family live in a house weekends each year. However, the donation in a certified historic district in the State of would meet the public access requirement if X. The entire house, including its interior, the terms of the easement permitted the has architectural features representing clas- donee organization to open the property to sic Victorian period architecture. A donates the public every other weekend during the an exterior and interior easement on the year and the donor is not aware of any facts property to a qualified organization but con- indicating that the donee organization will tinues to live in the house with his family. provide significantly less access than that A's house is surrounded by a high stone wall permitted. which obscures the public's view of it from the street. Pursuant to the terms of the ease- (e) Exclusively for conservation ment, the house may be opened to the public purposes-(1) In general. To meet the re- from 10:00 a.m. to 4:00 p.m. on one Sunday in quirements of this section, a donation May and one Sunday in November each year must be exclusively for conservation for house and garden tours. These tours are purposes. See paragraphs (c)(1) and to be under the supervision of the donee and (g)(1) through (g)(6)(ii) of this section. open to members of the general public upon A deduction will not be denied under payment of a small fee. In addition, under the terms of the easement, the donee organi- this section when incidental benefit in- zation is given the right to photograph the ures to the donor merely as a result of interior and exterior of the house and dis- conservation restrictions limiting the tribute such photographs to magazines, uses to which the donor's property may newsletters, or other publicly available pub- be put. lications. The terms of the easement also (2) Inconsistent use. Except as pro- permit persons affiliated with educational vided in paragraph (e)(4) of this sec- organizations, professional architectural as- tion, a deduction will not be allowed if sociations, and historical societies to make an appointment through the donee organiza- the contribution would accomplish one tion to study the property. The donor is not of the enumerated conservation pur- aware of any facts indicating that the public poses but would permit destruction of access to be provided by the donee organiza- other significant conservation inter- tion will be significantly less than that per- ests. For example, the preservation of mitted by the terms of the easement. The 2 farmland pursuant to a State program opportunities for public visits per year, when for flood prevention and control would combined with the ability of the general pub- not qualify under paragraph (d)(4) of lic to view the architectural characteristics and features that are the subject of the ease- this section if under the terms of the ment through photographs, the opportunity contribution a significant naturally oc- for scholarly study of the property, and the curring ecosystem could be injured or fact that the house is used as an occupied destroyed by the use of pesticides in residence, will enable the donation to satisfy the operation of the farm. However, the requirement of public access. this requirement is not intended to Example 2. B owns an unoccupied farm- prohibit uses of the property, such as house built in the 1840's and located on a selective timber harvesting or selective property that is adjacent to a Civil War bat- tlefield. During the Civil War the farmhouse farming if, under the circumstances, was used as quarters for Union troops. The those uses do not impair significant battlefield is visited year round by the gen- conservation interests. eral public. The condition of the farmhouse (3) Inconsistent use permitted. A use is such that the safety of visitors will not be that is destructive of conservation in- jeopardized and opening it to the public will terests will be permitted only if such not result in significant deterioration. The use is necessary for the protection of farmhouse is not visible from the battlefield or any public way. It is accessible only by the conservation interests that are the way of a private road owned by B. B donates subject of the contribution. For exam- a conservation easement on the farmhouse ple, a deduction for the donation of an to a qualified organization. The terms of the easement to preserve an archaeological easement provide that the donee organiza- site that is listed on the National Reg- tion may open the property (via B's road) to ister of Historic Places will not be dis- the general public on four weekends each allowed if site excavation consistent year from 8:30 a.m. to 4:00 p.m. The donation with sound archaeological practices does not meet the public access requirement because the farmhouse is safe, unoccupied, may impair a scenic view of which the and easily accessible to the general public land is a part. A donor may continue a who have come to the site to visit Civil War pre-existing use of the property that historic land areas (and related resources), does not conflict with the conservation but will only be open to the public on four purposes of the gift. 156 VerDate Jan<31>2003 08:58 Apr 11, 2003 Jkt 200083 PO 00000 Frm 00156 Fmt 8010 Sfmt 8010 Y:\SGML\200083T.XXX 200083T Internal Revenue Service, Treasury § 1.170A­14 (f) Examples. The provisions of this than one single-family home allowable on section relating to conservation pur- each parcel. Random building on the prop- poses may be illustrated by the fol- erty, even as little as one home for each 90 lowing examples. acres, would destroy the scenic character of the view. Accordingly, no deduction would be Example 1. State S contains many large allowable under this section. tract forests that are desirable recreation Example 4. Assume the same facts as in ex- and scenic areas for the general public. The ample (3), except that not all of Greenacre is forests' scenic values attract millions of peo- visible from the park and the deed of ease- ple to the State. However, due to the in- ment allows for limited cluster development creasing intensity of land development in of no more than five nine-acre clusters (with State S, the continued existence of four houses on each cluster) located in areas forestland parcels greater than 45 acres is generally not visible from the national park threatened. J grants a perpetual easement and subject to site and building plan ap- on a 100-acre parcel of forestland that is part proval by the donee organization in order to of one of the State's scenic areas to a quali- preserve the scenic view from the park. The fying organization. The easement imposes donor and the donee have already identified restrictions on the use of the parcel for the sites where limited cluster development purpose of maintaining its scenic values. The would not be visible from the park or would restrictions include a requirement that the not impair the view. Owners of homes in the parcel be maintained forever as open space clusters will not have any rights with re- devoted exclusively to conservation purposes spect to the surrounding Greenacre property and wildlife protection, and that there be no that are not also available to the general commercial, industrial, residential, or other public. Accordingly, the donation qualifies development use of such parcel. The law of for a deduction under this section. State S recognizes a limited public right to Example 5. In order to protect State S's de- enter private land, particularly for rec- clining open space that is suited for agricul- reational pursuits, unless such land is posted tural use from increasing development pres- or the landowner objects. The easement spe- sure that has led to a marked decline in such cifically restricts the landowner from post- open space, the Legislature of State S passed ing the parcel, or from objecting, thereby a statute authorizing the purchase of ``agri- maintaining public access to the parcel ac- cultural land development rights'' on open cording to the custom of the State. J's par- acreage. Agricultural land development cel provides the opportunity for the public to rights allow the State to place agricultural enjoy the use of the property and appreciate preservation restrictions on land designated its scenic values. Accordingly, J's donation as worthy of protection in order to preserve qualifies for a deduction under this section. open space and farm resources. Agricultural Example 2. A qualified conservation organi- preservation restrictions prohibit or limit zation owns Greenacre in fee as a nature pre- construction or placement of buildings ex- serve. Greenacre contains a high quality ex- cept those used for agricultural purposes or ample of a tall grass prairie ecosystem. dwellings used for family living by the farm- Farmacre, an operating farm, adjoins er and his family and employees; removal of Greenacre and is a compatible buffer to the mineral substances in any manner that ad- nature preserve. Conversion of Farmacre to a versely affects the land's agricultural poten- more intense use, such as a housing develop- tial; or other uses detrimental to retention ment, would adversely affect the continued of the land for agricultural use. Money has use of Greenacre as a nature preserve be- been appropriated for this program and some cause of human traffic generated by the de- landowners have in fact sold their ``agricul- velopment. The owner of Farmacre donates tural land development rights'' to State S. K an easement preventing any future develop- owns and operates a small dairy farm in ment on Farmacre to the qualified conserva- State S located in an area designated by the tion organization for conservation purposes. Legislature as worthy of protection. K de- Normal agricultural uses will be allowed on sires to preserve his farm for agricultural Farmacre. Accordingly, the donation quali- purposes in perpetuity. Rather than selling fies for a deduction under this section. the development rights to State S, K grants Example 3. H owns Greenacre, a 900-acre to a qualified organization an agricultural parcel of woodland, rolling pasture, and or- preservation restriction on his property in chards on the crest of a mountain. All of the form of a conservation easement. K re- Greenacre is clearly visible from a nearby serves to himself, his heirs and assigns the national park. Because of the strict enforce- right to manage the farm consistent with ment of an applicable zoning plan, the high- sound agricultural and management prac- est and best use of Greenacre is as a subdivi- tices. The preservation of K's land is pursu- sion of 40-acre tracts. H wishes to donate a ant to a clearly delineated governmental scenic easement on Greenacre to a quali- policy of preserving open space available for fying conservation organization, but H would agricultural use, and will yield a significant like to reserve the right to subdivide public benefit by preserving open space Greenacre into 90-acre parcels with no more against increasing development pressures. 157 VerDate Jan<31>2003 08:58 Apr 11, 2003 Jkt 200083 PO 00000 Frm 00157 Fmt 8010 Sfmt 8010 Y:\SGML\200083T.XXX 200083T § 1.170A­14 26 CFR Ch. I (4­1­03 Edition) (g) Enforceable in perpetuity-(1) In (4) Retention of qualified mineral general. In the case of any donation interest-(i) In general. Except as other- under this section, any interest in the wise provided in paragraph (g)(4)(ii) of property retained by the donor (and this section, the requirements of this the donor's successors in interest) section are not met and no deduction must be subject to legally enforceable shall be allowed in the case of a con- restrictions (for example, by recorda- tribution of any interest when there is tion in the land records of the jurisdic- a retention by any person of a qualified tion in which the property is located) mineral interest (as defined in para- that will prevent uses of the retained graph (b)(1)(i) of this section) if at any interest inconsistent with the con- time there may be extractions or re- servation purposes of the donation. In moval of minerals by any surface min- the case of a contribution of a remain- ing method. Moreover, in the case of a der interest, the contribution will not qualified mineral interest gift, the re- qualify if the tenants, whether they are quirement that the conservation pur- tenants for life or a term of years, can poses be protected in perpetuity is not use the property in a manner that di- satisfied if any method of mining that minishes the conservation values is inconsistent with the particular con- which are intended to be protected by servation purposes of a contribution is the contribution. permitted at any time. See also (2) Protection of a conservation purpose § 1.170A­14(e)(2). However, a deduction in case of donation of property subject to under this section will not be denied in a mortgage. In the case of conservation the case of certain methods of mining contributions made after February 13, that may have limited, localized im- 1986, no deducion will be permitted pact on the real property but that are under this section for an interest in not irremediably destructive of signifi- property which is subject to a mort- cant conservation interests. For exam- gage unless the mortgagee subordi- ple, a deduction will not be denied in a nates its rights in the property to the case where production facilities are right of the qualified organization to concealed or compatible with existing enforce the conservation purposes of topography and landscape and when the gift in perpetuity. For conservation surface alteration is to be restored to contributions made prior to February its original state. 14, 1986, the requirement of section 170 (h)(5)(A) is satisfied in the case of (ii) Exception for qualified conservation mortgaged property (with respect to contributions after July 1984. (A) A con- which the mortgagee has not subordi- tribution made after July 18, 1984, of a nated its rights) only if the donor can qualified real property interest de- demonstrate that the conservation pur- scribed in section 170(h)(2)(A) shall not pose is protected in perpetuity without be disqualified under the first sentence subordination of the mortgagee's of paragraph (g)(4)(i) of this section if rights. the following requirements are satis- (3) Remote future event. A deduction fied. shall not be disallowed under section (1) The ownership of the surface es- 170(f)(3)(B)(iii) and this section merely tate and mineral interest were sepa- because the interest which passes to, or rated before June 13, 1976, and remain is vested in, the donee organization so separated up to and including the may be defeated by the performance of time of the contribution. some act or the happening of some (2) The present owner of the mineral event, if on the date of the gift it ap- interest is not a person whose relation- pears that the possibility that such act ship to the owner of the surface estate or event will occur is so remote as to is described at the time of the con- be negligible. See paragraph (e) of tribution in section 267(b) or section § 1.170A­1. For example, a state's statu- 707(b), and tory requirement that use restrictions (3) The probability of extraction or must be rerecorded every 30 years to removal of minerals by any surface remain enforceable shall not, by itself, mining method is so remote as to be render an easement nonperpetual. negligible. 158 VerDate Jan<31>2003 08:58 Apr 11, 2003 Jkt 200083 PO 00000 Frm 00158 Fmt 8010 Sfmt 8010 Y:\SGML\200083T.XXX 200083T Internal Revenue Service, Treasury § 1.170A­14 Whether the probability of extraction a qualified organization to protect the bot- or removal of minerals by surface min- tomland hardwood ecosystem. Since at the ing is so remote as to be negligible is a time of the transfer, surface mining and any question of fact and is to be made on a mining technique that will harm the bottom- case by case basis. Relevant factors to land hardwood ecosystem are completely be considered in determining if the prohibited, the donation qualifies for a de- duction under this section. probability of extraction or removal of minerals by surface mining is so re- (5) Protection of conservation purpose mote as to be negligible include: Geo- where taxpayer reserves certain rights-(i) logical, geophysical or economic data Documentation. In the case of a dona- showing the absence of mineral re- tion made after February 13, 1986, of serves on the property, or the lack of any qualified real property interest commercial feasibility at the time of when the donor reserves rights the ex- the contribution of surface mining the ercise of which may impair the con- mineral interest. servation interests associated with the (B) If the ownership of the surface es- property, for a deduction to be allow- tate and mineral interest first became able under this section the donor must separated after June 12, 1976, no deduc- make available to the donee, prior to tion is permitted for a contribution the time the donation is made, docu- under this section unless surface min- mentation sufficient to establish the ing on the property is completely pro- condition of the property at the time of hibited. the gift. Such documentation is de- (iii) Examples. The provisions of para- signed to protect the conservation in- graph (g)(4)(i) and (ii) of this section terests associated with the property, may be illustrated by the following which although protected in perpetuity examples: by the easement, could be adversely af- Example 1. K owns 5,000 acres of bottomland fected by the exercise of the reserved hardwood property along a major watershed rights. Such documentation may in- system in the southern part of the United clude: States. Agencies within the Department of (A) The appropriate survey maps the Interior have determined that southern from the United States Geological Sur- bottomland hardwoods are a rapidly dimin- vey, showing the property line and ishing resource and a critical ecosystem in the south because of the intense pressure to other contiguous or nearby protected cut the trees and convert the land to agricul- areas; tural use. These agencies have further deter- (B) A map of the area drawn to scale mined (and have indicated in correspondence showing all existing man-made im- with K) that bottomland hardwoods provide provements or incursions (such as a superb habitat for numerous species and roads, buildings, fences, or gravel pits), play an important role in controlling floods vegetation and identification of flora and purifying rivers. K donates to a qualified and fauna (including, for example, rare organization his entire interest in this prop- erty other than his interest in the gas and species locations, animal breeding and oil deposits that have been identified under roosting areas, and migration routes), K's property. K covenants and can ensure land use history (including present that, although drilling for gas and oil on the uses and recent past disturbances), and property may have some temporary localized distinct natural features (such as large impact on the real property, the drilling will trees and aquatic areas); not interfere with the overall conservation (C) An aerial photograph of the prop- purpose of the gift, which is to protect the unique bottomland hardwood ecosystem. Ac- erty at an appropriate scale taken as cordingly, the donation qualifies for a deduc- close as possible to the date the dona- tion under this section. tion is made; and Example 2. Assume the same facts as in Ex- (D) On-site photographs taken at ap- ample (1), except that in 1979, K sells the min- propriate locations on the property. If eral interest to A, an unrelated person, in an the terms of the donation contain re- arm's-length transaction, subject to a re- strictions with regard to a particular corded prohibition on the removal of any minerals by any surface mining method and natural resource to be protected, such a recorded prohibition against any mining as water quality or air quality, the technique that will harm the bottomland condition of the resource at or near the hardwood ecosystem. After the sale to A, K time of the gift must be established. donates a qualified real property interest to The documentation, including the 159 VerDate Jan<31>2003 08:58 Apr 11, 2003 Jkt 200083 PO 00000 Frm 00159 Fmt 8010 Sfmt 8010 Y:\SGML\200083T.XXX 200083T § 1.170A­14 26 CFR Ch. I (4­1­03 Edition) maps and photographs, must be accom- value that the perpetual conservation panied by a statement signed by the restriction at the time of the gift, donor and a representative of the donee bears to the value of the property as a clearly referencing the documentation whole at that time. See § 1.170A­ and in substance saying ``This natural 14(h)(3)(iii) relating to the allocation of resources inventory is an accurate rep- basis. For purposes of this paragraph resentation of [the protected property] (g)(6)(ii), that proportionate value of at the time of the transfer.''. the donee's property rights shall re- (ii) Donee's right to inspection and main constant. Accordingly, when a legal remedies. In the case of any dona- change in conditions give rise to the tion referred to in paragraph (g)(5)(i) of extinguishment of a perpetual con- this section, the donor must agree to servation restriction under paragraph notify the donee, in writing, before ex- (g)(6)(i) of this section, the donee orga- ercising any reserved right, e.g. the nization, on a subsequent sale, ex- right to extract certain minerals which change, or involuntary conversion of may have an adverse impact on the the subject property, must be entitled conservation interests associated with to a portion of the proceeds at least the qualified real property interest. equal to that proportionate value of The terms of the donation must pro- the perpetual conservation restriction, vide a right of the donee to enter the unless state law provides that the property at reasonable times for the donor is entitled to the full proceeds purpose of inspecting the property to from the conversion without regard to determine if there is compliance with the terms of the prior perpetual con- the terms of the donation. Addition- servation restriction. ally, the terms of the donation must (h) Valuation-(1) Entire interest of provide a right of the donee to enforce donor other than qualified mineral inter- the conservation restrictions by appro- est. The value of the contribution under priate legal proceedings, including but section 170 in the case of a contribution not limited to, the right to require the of a taxpayer's entire interest in prop- restoration of the property to its con- erty other than a qualified mineral in- dition at the time of the donation. terest is the fair market value of the (6) Extinguishment. (i) In general. If a surface rights in the property contrib- subsequent unexpected change in the uted. The value of the contribution conditions surrounding the property shall be computed without regard to that is the subject of a donation under the mineral rights. See paragraph this paragraph can make impossible or (h)(4), example (1), of this section. impractical the continued use of the (2) Remainder interest in real property. property for conservation purposes, the In the case of a contribution of any re- conservation purpose can nonetheless mainder interest in real property, sec- be treated as protected in perpetuity if tion 170(f)(4) provides that in deter- the restrictions are extinguished by ju- mining the value of such interest for dicial proceeding and all of the donee's purposes of section 170, depreciation proceeds (determined under paragraph and depletion of such property shall be (g)(6)(ii) of this section) from a subse- taken into account. See § 1.170A­12. In quent sale or exchange of the property the case of the contribution of a re- are used by the donee organization in a mainder interest for conservation pur- manner consistent with the conserva- poses, the current fair market value of tion purposes of the original contribu- the property (against which the limita- tion. tions of § 1.170A­12 are applied) must (ii) Proceeds. In case of a donation take into account any pre-existing or made after February 13, 1986, for a de- contemporaneously recorded rights duction to be allowed under this sec- limiting, for conservation purposes, the tion, at the time of the gift the donor use to which the subject property may must agree that the donation of the be put. perpetual conservation restriction (3) Perpetual conservation restriction- gives rise to a property right, imme- (i) In general. The value of the con- diately vested in the donee organiza- tribution under section 170 in the case tion, with a fair market value that is of a charitable contribution of a per- at least equal to the proportionate petual conservation restriction is the 160 VerDate Jan<31>2003 08:58 Apr 11, 2003 Jkt 200083 PO 00000 Frm 00160 Fmt 8010 Sfmt 8010 Y:\SGML\200083T.XXX 200083T Internal Revenue Service, Treasury § 1.170A­14 fair market value of the perpetual con- ably expected to be received by the servation restriction at the time of the donor or the related person. For pur- contribution. See § 1.170A­7(c). If there poses of this paragraph (h)(3)((i), re- is a substantial record of sales of ease- lated person shall have the same mean- ments comparable to the donated ease- ing as in either section 267(b) or section ment (such as purchases pursuant to a 707(b). (See Example (10) of paragraph governmental program), the fair mar- (h)(4) of this section.) ket value of the donated easement is (ii) Fair market value of property before based on the sales prices of such com- and after restriction. If before and after parable easements. If no substantial valuation is used, the fair market record of market-place sales is avail- value of the property before contribu- able to use as a meaningful or valid tion of the conservation restriction comparison, as a general rule (but not must take into account not only the necessarily in all cases) the fair mar- current use of the property but also an ket value of a perpetual conservation objective assessment of how immediate restriction is equal to the difference or remote the likelihood is that the between the fair market value of the property it encumbers before the property, absent the restriction, would granting of the restriction and the fair in fact be developed, as well as any ef- market value of the encumbered prop- fect from zoning, conservation, or his- erty after the granting of the restric- toric preservation laws that already re- tion. The amount of the deduction in strict the property's potential highest the case of a charitable contribution of and best use. Further, there may be in- a perpetual conservation restriction stances where the grant of a conserva- covering a portion of the contiguous tion restriction may have no material property owned by a donor and the do- effect on the value of the property or nor's family (as defined in section may in fact serve to enhance, rather 267(c)(4)) is the difference between the than reduce, the value of property. In fair market value of the entire contig- such instances no deduction would be uous parcel of property before and after allowable. In the case of a conservation the granting of the restriction. If the restriction that allows for any develop- granting of a perpetual conservation ment, however limited, on the property restriction after January 14, 1986, has to be protected, the fair maket value of the effect of increasing the value of the property after contribution of the any other property owned by the donor restriction must take into account the or a related person, the amount of the effect of the development. In the case deduction for the conservation con- of a conservation easement such as an tribution shall be reduced by the easement on a certified historic struc- amount of the increase in the value of ture, the fair market value of the prop- the other property, whether or not erty after contribution of the restric- such property is contiguous. If, as a re- tion must take into account the sult of the donation of a perpetual con- amount of access permitted by the servation restriction, the donor or a re- terms of the easement. Additionally, if lated person receives, or can reason- before and after valuation is used, an ably expect to receive, financial or eco- appraisal of the property after con- nomic benefits that are greater than tribution of the restriction must take those that will inure to the general into account the effect of restrictions public from the transfer, no deduction that will result in a reduction of the is allowable under this section. How- potential fair market value rep- ever, if the donor or a related person resented by highest and best use but receives, or can reasonably expect to will, nevertheless, permit uses of the receive, a financial or economic benefit property that will increase its fair that is substantial, but it is clearly market value above that represented shown that the benefit is less than the by the property's current use. The amount of the transfer, then a deduc- value of a perpetual conservation re- tion under this section is allowable for striction shall not be reduced by reason the excess of the amount transferred of the existence of restrictions on over the amount of the financial or transfer designed solely to ensure that economic benefit received or reason- the conservation restriction will be 161 VerDate Jan<31>2003 08:58 Apr 11, 2003 Jkt 200083 PO 00000 Frm 00161 Fmt 8010 Sfmt 8010 Y:\SGML\200083T.XXX 200083T § 1.170A­14 26 CFR Ch. I (4­1­03 Edition) dedicated to conservation purposes. its highest and best use. Under § 1.170A­12(b), See § 1.170A­14 (c)(3). the value of a remainder interest in real (iii) Allocation of basis. In the case of property following one life is determined the donation of a qualified real prop- under § 25.2512­5 of this chapter (Gift Tax erty interest for conservation purposes, Regulations). (See § 25.2512­5A of this chapter the basis of the property retained by with respect to the valuation of annuities, the donor must be adjusted by the interests for life or term of years, and re- mainder or reversionary interests trans- elimination of that part of the total ferred before May 1, 1999.) Accordingly, the basis of the property that is properly value of the remainder interest, and thus the allocable to the qualified real property amount eligible for an income tax deduction interest granted. The amount of the under section 170(f), is $55,996 basis that is allocable to the qualified ($200,000×.27998). real property interest shall bear the Example 3. Assume the same facts as in Ex- same ratio to the total basis of the ample (2), except that Greenacre is B's 200- property as the fair market value of acre estate with a home built during the co- the qualified real property interest lonial period. Some of the acreage around bears to the fair market value of the the home is cleared; the balance of property before the granting of the Greenacre, except for access roads, is wooded qualified real property interest. When a and undeveloped. See section 170(f)(3)(B)(i). However, B would like Greenacre to be main- taxpayer donates to a qualifying con- tained in its current state after his death, so servation organization an easement on he donates a remainder interest in Greenacre a structure with respect to which de- to a qualifying organization for conservation ductions are taken for depreciation, purposes pursunt to section 170 (f)(3)(B)(iii) the reduction required by this para- and (h)(2)(B). At the time of the gift the land graph (h)(3)(ii) in the basis of the prop- has a value of $200,000 and the house has a erty retained by the taxpayer must be value of $100,000. The value of the remainder allocated between the structure and interest, and thus the amount eligible for an the underlying land. income tax deduction under section 170(f), is computed pursuant to § 1.170A­12. See (4) Examples. The provisions of this §1.170A­12(b)(3). section may be illustrated by the fol- Example 4. Assume the same facts as in Ex- lowing examples. In examples illus- ample (2), except that at age 62 instead of do- trating the value or deductibility of do- nating a remainder interest B donates an nations, the applicable restrictions and easement in Greenacre to a qualifying orga- limitations of § 1.170A­4, with respect nization for conservation purposes. The fair to reduction in amount of charitable market value of Greenacre after the dona- contributions of certain appreciated tion is reduced to $110,000. Accordingly, the property, and § 1.170A­8, with respect to value of the easement, and thus the amount limitations on charitable deductions by eligible for a deduction under section 170(f), is $90,000 ($200,000 less $110,000). individuals. must also be taken into ac- Example 5. Assume the same facts as in Ex- count. ample (4), and assume that three years later, Example 1. A owns Goldacre, a property ad- at age 65, B decides to donate a remainder in- jacent to a state park. A wants to donate terest in Greenacre to a qualifying organiza- Goldacre to the state to be used as part of tion for conservation purposes. Increasing the park, but A wants to reserve a qualified real estate values in the area have raised the mineral interest in the property, to exploit fair market value of Greenacre (subject to currently and to devise at death. The fair the easement) to $130,000. Accordingly, the market value of the surface rights in value of the remainder interest, and thus the Goldacre is $200,000 and the fair market amount eligible for a deduction under sec- value of the mineral rights in $100.000. In tion 170(f), is $41,639 ($130,000×.32030). order to ensure that the quality of the park Example 6. Assume the same facts as in Ex- will not be degraded, restrictions must be ample (2), except that at the time of the do- imposed on the right to extract the minerals nation of a remainder interest in Greenacre, that reduce the fair market value of the min- B also donates an easement to a different eral rights to $80,000. Under this section, the qualifying organization for conservation pur- value of the contribution is $200,000 (the poses. Based on all the facts and cir- value of the surface rights). cumstances, the value of the easement is de- Example 2. In 1984 B, who is 62, donates a termined to be $100,000. Therefore, the value remainder interest in Greenacre to a quali- of the property after the easement is $100,000 fying organization for conservation purposes. and the value of the remainder interest, and Greenacre is a tract of 200 acres of undevel- thus the amount eligible for deduction under oped woodland that is valued at $200,000 at section 170(f), is $27,998 ($100,000×.27998). 162 VerDate Jan<31>2003 08:58 Apr 11, 2003 Jkt 200083 PO 00000 Frm 00162 Fmt 8010 Sfmt 8010 Y:\SGML\200083T.XXX 200083T Internal Revenue Service, Treasury § 1.170A­14 Example 7. C owns Greenacre, a 200-acre es- ((8×$1,000)+(2× $22,500)) the granting of the tate containing a house built during the co- easement. lonial period. At its highest and best use, for Example 11. Assume the same facts as in ex- home development, the fair market value of ample (10). Since the easement covers a por- Greenacre is $300,000. C donates an easement tion of E's land, only the basis of that por- (to maintain the house and Green acre in tion is adjusted. Therefore, the amount of their current state) to a qualifying organiza- basis allocable to the easement is $22,400 tion for conservation purposes. The fair mar- ((8×$3,000)×($112,000/$120,000)). Accordingly, ket value of Greenacre after the donation is the basis of the eight acres encumbered by reduced to $125,000. Accordingly, the value of the easement is reduced to $1,600 ($24,000­ the easement and the amount eligible for a $22,400), or $200 for each acre. The basis of the deduction under section 170(f) is $175.000 two remaining acres is not affected by the ($300,000 less $125,000). donation. Example 8. Assume the same facts as in Ex- Example 12. F owns and uses as professional ample (7) and assume that three years later, offices a two-story building that lies within C decides to donate a remainder interest in a registered historic district. F's building is Greenacre to a qualifying organization for an outstanding example of period architec- conservation purposes. Increasing real estate ture with a fair market value of $125,000. Re- values in the area have raised the fair mar- stricted to its current use, which is the high- ket value of Greenacre to $180.000. Assume est and best use of the property without that because of the perpetual easement pro- making changes to the facade, the building hibiting any development of the land, the and lot would have a fair market value of value of the house is $120,000 and the value of $100,000, of which $80,000 would be allocable the land is $60,000. The value of the remain- to the building and $20,000 woud be allocable der interest, and thus the amount eligible for to the lot. F's basis in the property is $50,000, an income tax deduction under section 170(f), of which $40,000 is allocable to the building is computed pursuant to § 1.170A­12. See and $10,000 is allocable to the lot. F's neigh- § 1.170A­12(b)(3). borhood is a mix of residential and commer- Example 9. D owns property with a basis of cial uses, and it is possible that F (or an- $20,000 and a fair market value of $80,000. D other owner) could enlarge the building for donates to a qualifying organization an ease- more extensive commercial use, which is its ment for conservation purposes that is deter- highest and best use. However, this would re- mined under this section to have a fair mar- quire changes to the facade. F would like to ket value of $60,000. The amount of basis al- donate to a qualifying preservation organiza- locable to the easement is $15,000 ($60,000/ tion an easement restricting any changes to $80,000=$15,000/$20,000). Accordingly, the basis the facade and promising to maintain the fa- of the property is reduced to $5,000 ($20,000 cade in perpetuity. The donation would qual- minus $15,000). ify for a deduction under this section. The Example 10. E owns 10 one-acre lots that are fair market value of the easement is $25,000 currently woods and parkland. The fair mar- (the fair market value of the property before ket value of each of E's lots is $15,000 and the the easement, $125,000, minus the fair market basis of each lot is $3,000. E grants to the value of the property after the easement, county a perpetual easement for conserva- $100,000). Pursuant to § 1.170A­14(h)(3)(iii), the tion purposes to use and maintain eight of basis allocable to the easement is $10,000 and the acres as a public park and to restrict any the basis of the underlying property (build- future development on those eight acres. As ing and lot) is reduced to $40,000. a result of the restrictions, the value of the eight acres is reduced to $1,000 an acre. How- (i) Substantiation requirement. If a tax- ever, by perpetually restricting development payer makes a qualified conservation on this portion of the land, E has ensured contribution and claims a deduction, that the two remaining acres will always be the taxpayer must maintain written bordered by parkland, thus increasing their records of the fair market value of the fair market value to $22,500 each. If the eight acres represented all of E's land, the fair underlying property before and after market value of the easement would be the donation and the conservation pur- $112,000, an amount equal to the fair market pose furthered by the donation and value of the land before the granting of the such information shall be stated in the easement (8×$15,000=$120,000) minus the fair taxpayer's income tax return if re- market value of the encumbered land after quired by the return or its instruc- the granting of the easement tions. See also § 1.170A­13(c) (relating (8×$1,000=$8,000). However, because the ease- to substantiation requirements for de- ment only covered a portion of the tax- payer's contiguous land, the amount of the ductions in excess of $5,000 for chari- deduction under section 170 is reduced to table contributions made after 1984), $97,000 ($150,000­$53,000), that is, the dif- and section 6659 (relating to additions ference between the fair market value of the to tax in the case of valuation over- entire tract of land before ($150,000) and after statements). 163 VerDate Jan<31>2003 08:58 Apr 11, 2003 Jkt 200083 PO 00000 Frm 00163 Fmt 8010 Sfmt 8010 Y:\SGML\200083T.XXX 200083T § 1.171­1 26 CFR Ch. I (4­1­03 Edition) (j) Effective date. Except as otherwise (2) Exceptions. This section and provided in § 1.170A­14(g)(4)(ii), this sec- §§ 1.171­2 through 1.171­5 do not apply tion applies only to contributions made to- on or after December 18, 1980. (i) A bond described in section 1272(a)(6)(C) (regular interests in a [T.D. 8069, 51 FR 1499, Jan. 14, 1986; 51 FR REMIC, qualified mortgages held by a 5322, Feb. 13, 1986; 51 FR 6219, Feb. 21, 1986, as REMIC, and certain other debt instru- amended by T.D. 8199, 53 FR 16085, May 5, 1988; T.D. 8540, 59 FR 30105, June 10, 1994; T.D. ments, or pools of debt instruments, 8819, 64 FR 23228, Apr. 30, 1999] with payments subject to accelera- tion); § 1.171­1 Bond premium. (ii) A bond to which § 1.1275­4 applies (relating to certain debt instruments (a) Overview-(1) In general. This sec- that provide for contingent payments); tion and §§ 1.171­2 through 1.171­5 pro- (iii) A bond held by a holder that has vide rules for the determination and made a §1.1272­3 election with respect amortization of bond premium by a to the bond; holder. In general, a holder amortizes (iv) A bond that is stock in trade of bond premium by offsetting the inter- the holder, a bond of a kind that would est allocable to an accrual period with properly be included in the inventory the premium allocable to that period. of the holder if on hand at the close of Bond premium is allocable to an ac- the taxable year, or a bond held pri- crual period based on a constant yield. marily for sale to customers in the or- The use of a constant yield to amortize dinary course of the holder's trade or bond premium is intended to generally business; or conform the treatment of bond pre- (v) A bond issued before September mium to the treatment of original 28, 1985, unless the bond bears interest issue discount under sections 1271 and was issued by a corporation or by through 1275. Unless otherwise pro- a government or political subdivision vided, the terms used in this section thereof. and §§ 1.171­2 through 1.171­5 have the (c) General rule-(1) Tax-exempt obliga- same meaning as those terms in sec- tions. A holder must amortize bond pre- tions 1271 through 1275 and the cor- mium on a bond that is a tax-exempt responding regulations. Moreover, un- obligation. See § 1.171­2(c) Example 4. less otherwise provided, the provisions (2) Taxable bonds. A holder may elect of this section and §§ 1.171­2 through to amortize bond premium on a taxable 1.171­5 apply in a manner consistent bond. Except as provided in paragraph with those of sections 1271 through 1275 (c)(3) of this section, a taxable bond is and the corresponding regulations. In any bond other than a tax-exempt obli- addition, the anti-abuse rule in § 1.1275­ gation. See § 1.171­4 for rules relating 2(g) applies for purposes of this section to the election to amortize bond pre- and §§ 1.171­2 through 1.171­5. mium on a taxable bond. (3) Bonds the interest on which is par- (2) Cross-references. For rules dealing tially excludable. For purposes of this with the adjustments to a holder's section and §§1.171­2 through 1.171­5, a basis to reflect the amortization of bond the interest on which is partially bond premium, see § 1.1016­5(b). For excludable from gross income is treat- rules dealing with the treatment of ed as two instruments, a tax-exempt bond issuance premium by an issuer, obligation and a taxable bond. The see § 1.163­13. holder's basis in the bond and each (b) Scope-(1) In general. Except as payment on the bond are allocated be- provided in paragraph (b)(2) of this sec- tween the two instruments based on a tion and § 1.171­5, this section and reasonable method. §§ 1.171­2 through 1.171­4 apply to any (d) Determination of bond premium-(1) bond that, upon its acquisition by the In general. A holder acquires a bond at holder, is held with bond premium. For a premium if the holder's basis in the purposes of this section and §§ 1.171­2 bond immediately after its acquisition through 1.171­5, the term bond has the by the holder exceeds the sum of all same meaning as the term debt instru- amounts payable on the bond after the ment in § 1.1275­1(d). acquisition date (other than payments 164 VerDate Jan<31>2003 08:58 Apr 11, 2003 Jkt 200083 PO 00000 Frm 00164 Fmt 8010 Sfmt 8010 Y:\SGML\200083T.XXX 200083T