New Conservation Tax Incentives

On August 17, 2006, the President signed the Pension Protection Act of 2006 (the "Pension Act"). The Pension Act significantly increases the ability of individuals and corporations, particularly farmers and ranchers, to use the income tax deductions from the donation of conservation easements that are considered qualified conservation contributions under the Internal Revenue Code (the "Code").

We believe that the Pension Act's tax changes offer a major opportunity for individual and corporate landowners to realize unprecedented tax benefits and protect the conservation values on their land in perpetuity. Below is a summary of the Pension Act's highlights, as well as brief summaries of related Pension Act provisions that address appraisals of qualified conservation contributions and the Code's treatment of historic districts and structures. Finally, we offer some practical advice on how to best take advantage of the Pension Act's increased tax incentives.

Charitable Deductions for Qualified Conservation Contributions

Income Tax Deductions for Individuals

Prior to passage of the Pension Act, the income tax deductions available for qualified conservation contributions were generally limited to no more than 30% of the taxpayer's adjusted gross income ("AGI"). The Pension Act raises the amount of a conservation easement's fair market value an individual taxpayer may claim as an income tax deduction to 50% of AGI.

Previously, individual taxpayers were allowed to carry forward the value of any qualified conservation contributions that exceeded the 30% of AGI limitation for up to 5 years. The Pension Act allows individuals to carry forward the value of a qualified conservation contribution in excess of the new 50% of AGI limitation for up to 15 years.

Qualified farmers or ranchers may deduct the conservation easement value up to 100% of their AGI, with the same 15 year carryforward period, for donations of conservation easements that satisfy the following requirements:

• A qualified farmer or rancher is a taxpayer who earns more than 50% of his or her gross income from the business of farming in the taxable year in which the conservation contribution is made. The definition of 'farming' is a narrow definition set forth in the Code.
• The conservation easement must cover property that is used, or is available for use, for agricultural or livestock production.
• The conservation easement must contain a restriction that the property will remain available for agricultural or livestock production.

Income Tax Deductions for Farming and Ranching Corporations

Prior to the Pension Act, corporations faced a limitation of up to 10% of their taxable income for qualified conservation contributions. The Pension Act allows corporations earning more than 50% of income from the business of farming and ranching to deduct up to 100% of taxable income with a 15 year carryforward period for a qualified agricultural conservation easement. In order to qualify, the stock of a farming or ranching corporation cannot be readily tradable on a securities market.

Effective Date

The increased Pension Act tax incentives apply to qualified conservation easements donated from January 1, 2006, through December 31, 2007. Unless Congress votes to extend the Pension Act provisions before they expire, on January 1, 2008, the income tax rules for conservation easements will revert to their status before the Pension Act's passage. The requirement that the conservation easement contain a restriction that the property will remain available for agricultural or livestock production only applies to conservation easement donations after the date of enactment of the Pension Act.

The above-described summary of legislative changes and proposals are not intended to be treated as legal advice and we recommend that you speak with a qualified financial or legal advisor regarding this and/or other tax or financial laws.

Source: August 2006 "Conservation Alert" by Larry Keuter and Bill Silberstein - Isaacson Rosenbaum P.C. 633 17th Street Suite 2200 Denver, CO 80202 T 303.292.5656 www.ir-law.com

To view the Tax Incentive informational postcard, click here.