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Maine Land Conservation Law E-Bulletin - January 2021
March 1, 2021
In this issue:
  • Pivotal Court Decision in Pine Mountain: What Does It All Mean?
  • Form 8283 Changes
  • Upcoming Event: Land Trust Alliance Webinar on Federal Tax Law
  • E-Bulletin Information

Pivotal Court Decision in Pine Mountain: What Does It All Mean?

In late October, the 11th Circuit Court of Appeals issued a landmark opinion in the Pine Mountain Preserve case. Although the decision establishes formal precedent only in Georgia, Florida, and Alabama, the court’s analysis is likely to be persuasive and impactful across the country.

Pine Mountain dealt with two major issues (actually three, if you include the valuation dispute, but we won’t be covering that angle). First, the 11th Circuit affirmed the United States Tax Court in holding that a typical conservation easement amendment provision, allowing amendments that are deemed by the holder to be consistent with the conservation purposes, complies with the protected-in-perpetuity requirement of § 170(h)(5)(A). As the Court reasoned, under the fundamental tenets of contract law, any document is amendable whether or not it contains an amendment provision. Thus, the amendment provisions in the conservation easements under scrutiny had the effect of limiting the scope of possible amendments, to those that were consistent with the easement’s conservation purposes. Moreover, the Court found that the possibility that atypical land trust holder would consent to a detrimental amendment is so remote as to be negligible, the standard under the applicable Treasury regulation that implements the statute.

On the second issue, the 11th Circuit vacated the Tax Court’s decision with respect to the degree of precision required for building areas. The two easements at issue both allowed a certain number of residential building areas. In one easement, the building areas were initially located in a clustered area around an artificial pond, but could be relocated upon the prior written consent of the land trust holder. In the other easement, the building areas were not initially fixed at all, and were to be located in the future with the prior written consent of the holder, based on consistency with the conservation purposes.

The Tax Court held in December 2018 that both of these easements violated the granted-in-perpetuity test of § 170(h)(2)(C), likening the easements to those previously struck down in the Belk line of cases. Now, in a significant check to the Tax Court’s and IRS’ overreach, the 11th Circuit has held that the easements did indeed satisfy the granted-in-perpetuity test because they constituted a broad restriction that applied to the entire protected property, even if the restrictions were lighter on the building areas.

The case remains active, as the 11th Circuit remanded to the Tax Court to determine whether the overall protection scheme, including the building area provisions, satisfy the § 170(h)(5)(A) protected-in-perpetuity requirement. But the IRS’ most aggressive arguments against building areas have now been rebuked by two different appellate courts (see the Fifth Circuit’s BC Ranch II opinion in 2017 for the other instance).

The11th Circuit’s opinion is a significant victory for the broader land conservation movement, and closely follows the analysis urged by the Land Trust Alliance’s amicus briefs in this case (of which I was honored to be the lead author). Moreover, the 11th Circuit’s analysis here sets up the taxpayers for another win in Carter, a similar case about building areas that is pending before the same court. What remains to be seen is whether the IRS will now back off its aggressive and unsupported arguments around building areas and amendment provisions.

So…what does it all mean for Maine land trusts? A few quick thoughts:

  • We continue to be on relatively safe ground in using the current amendment provision in the Maine Land Conservation Attorneys Network Model Boilerplate (see Section15.F), and no changes to the template are recommended at this time. (Although stay tuned in the spring for a few unrelated changes coming to the template.)
  • Land trusts should continue to be deliberate and discerning with respect to the size, number, and placement of building areas. For both programmatic and legal reasons, I strongly discourage fully floating building areas. However, many Maine land trusts continue to use a partially floating arrangement. In this formulation, a potential building zone (say, five acres)is identified in the easement, within which a smaller building area (say, one or two acres) may be established in the future. With proper documentation from the outset that siting the building area anywhere within those five acres is consistent with the conservation purposes, there is much lower risk of an IRS challenge.
  • The IRS remains on the prowl against conservation easements, and has won several other cases on different technical and substantive grounds, as I have discussed in recent E-Bulletins. Donors who claim a federal income tax deduction must be careful to follow all of the rules around mortgage subordination, appraisals, the Form 8283, and contemporaneous written acknowledgments. Land trusts, as the primary drafters of easements, should ensure that their templates and practices around termination provisions, baseline documentation, etc., are in ship shape. I submit that the MLCAN Model Boilerplate (linked above) remains the best resource for staying current and avoiding IRS pitfalls.

For a deeper analysis, see the Alliance’s updated Pointers for Balancing Risk When Permitting Structures on Deductible Conservation Easements After the Tax Court Decisions in Pine Mountain Preserve and Carter (behind paywall for Alliance members).

Still hungry for more? I will be discussing these and other cases at an Alliance webinar on March 4 (see below).

 

Form 8283 Changes

 In December 2020, the IRS released a new version of its Form 8283, replacing an earlier version dated November 2019. The new form and instructions can be found here on the IRS website. Although it is up to landowners and their advisors to follow the rules for claiming charitable deductions, land trusts can be helpful in pointing out the existence of the new version of the form.

There are no major changes for the typical land or conservation easement donation. That said, there are a couple new details worth mentioning:

  • Section B, Part I of the Form, for gifts valued at over $5,000, has moved from page two to page one. This is the substantive section typically required to be completed for a land or easement gift, while Section A and Section B, Part II are left blank. (In the rare event of a claimed conservation easement deduction of $5,000 or less, the donor would fill out Section A and also attach the separate statement as set forth in the instructions.)
  • In Line 5(g) of Section B, Part I, some sort of “separate statement” is now required to be attached for bargain sales, although the instructions do not shed any light on what this statement might include. I have an inquiry into the IRS on this point, and will report back on the MLTN list serve if I hear anything useful. Anyone who has any insight, please email me.

In addition, here are some general tips on completing the Form 8283, in light of changes over recent years and the IRS’ scrutinizing these forms for errors in the hopes of denying deductions:

  • There is often confusion over which box to check in Section B, Part I. The “Qualified Conservation Contribution” box should be checked only for conservation easements. For outright land donations, the “Other Real Estate” box should be checked.
  • The donor must be sure to fill out every applicable part of Section B, Part I, Lines 3(a)-(i). The IRS has been very persnickety about missing items and has denied deductions in their entirety for minor foot faults on the form.
  • Donors and their advisors also must remember to attach to the Form 8283 a separate statement for any conservation easement donation. Details of what is required on this statement are included in the Instructions. A template for this statement can be found here on the MLTN website.
  • For any claimed deduction over $500,000, the entire appraisal must be included with the tax return. This rule has been in place for many years now, but is still occasionally overlooked by donors and accountants.
  • A representative of the land trust signs the “Donee Acknowledgment” section at the bottom of page 2 of the Form, but should do so only if the substantive part of the form has been completed and after conducting a basic accuracy review of the appraisal to ensure there is no error in the property description or that no gift has been made (e.g., because the easement was granted in connection with some sort of governmental approval). All of these practices should be spelled out in a detailed disclosure letter sent to the donor early in the project discussions, to avoid any surprises See Land Trust Standards and Practices 10.A and 10.B for details.
  • The land trust’s signatory must be either the person authorized to sign the organization’s tax returns (typically any Board officer, but not the Executive Director, unless the E.D. is also an officer under the Bylaws) or else someone who has been “specifically designated” to sign the Form 8283. To meet this latter qualification, I would suggest that the Board’s authorizing resolution expressly empower whoever is executing the closing documents to also sign the Form 8283.

Upcoming Event: Land Trust Alliance Webinar on Federal Tax Law

 

Date: Thursday, March 4, 2:00 - 3:30 pm

Location: Webinar

Sponsor:  Land Trust Alliance

Register and more information here

As usual, there’s a lot going on at the Tax Court and at the IRS that land trusts need to know about. Attorneys Rob Levin and Jessica Jay will bring everyone up to speed on the latest developments in case law and actions to curtail conservation easement syndicated deals.

How will you benefit from this webinar?

• Hear the latest decisions/actions from the courts and IRS concerning conservation easements/fee land donations

• Learn prudent strategies to address those actions/decisions

• Learn that latest on conservation easement syndications

 

E-Bulletin Information

 I send E-Bulletins 3 or 4 times per year to provide updates and analyses on legal and policy matters respecting Maine land conservation.  I do my best to keep my messages brief, timely, and useful to conservation-minded landowners, as well as land trust professionals and volunteers.  At the same time, no one should rely on these E-Bulletins as legal advice, and I encourage you to consult a qualified attorney for advice on any particular situation.  

If you find this free E-Bulletin to be valuable and interesting, please forward it to a friend or colleague.  Subscriptions remain free, and I respect my subscribers' privacy.  Anyone who would like to receive this E-Bulletin or the Maine Nonprofit Law E-Bulletin can e-mail me at rob@roblevin.net.  If you’d like to be removed from my list, simply drop me a line at that same address.  Recent E-Bulletins can be found on my website, www.roblevin.net.

Maine Land Conservation Law E-Bulletin – October 2020
October 14, 2020
In this issue:
  • Latest Thoughts on Attorney’s Fees Provisions in Conservation Easements
  • Conservation Land and Property Tax Exemption: What Counts as “Enough” Public Recreation?
  • E-Bulletin Information

Thoughts on Attorney’s Fees Provisions in Conservation Easements

A recent court case in Wyoming is a good reminder of why it’s important for conservation easements to include carefully drafted attorney’s fee provisions. And folks, I have to be honest, I’m still seeing poorly worded fee provisions in Maine conservation easements. We can do better!

So what happened in Wyoming? Well, the good news is that a land trust easily won a conservation easement violation lawsuit in Douglas v. Jackson Hole Land Trust. The trial court and then the Wyoming Supreme Court had no trouble dispensing with the landowner’s spurious argument that a so-called “accessway” was not a “driveway” for the purposes of the easement, and therefore did not count towards a square footage limitation. However, the courts declined to award the land trust its legal fees, despite a provision of the easement that provided for recovery of “the costs of enforcement of any of the terms.” The courts held that because the lawsuit was brought as a declaratory judgment action by the landowners, the land trust was not “enforcing” the easement.

A better attorney’s fee provision could have avoided this technicality. For example, the provision in the Maine Land Conservation Attorneys Network’s Model Conservation Easement Boilerplate (See Section 10.B) awards the holder its attorney’s fees if it is the prevailing party in any action to enforce or defendthe easement. This formulation dodges the question of who initiated the lawsuit and what kind of suit it is.

Another flaw that I occasionally encounter is a two-way fee provision, where each party pays the other’s fees if it loses. Although mutuality sounds fair as a general principle, it’s not a good approach for easement violation issues, where the landowner has a much greater financial incentive to challenge the easement than the land trust does to enforce it. For the most part, Maine land trusts have insisted on these one-way fee provisions, as per the MLCAN Model, but landowners’ attorneys are constantly trying to change this language. Sometimes, to allay a landowner’s concerns about a land trust going rogue and bringing an unfounded enforcement action, I have agreed to compromise language that adds the following sentence to the foregoing MLCAN Model language: “If Holder initiates litigation against the Grantor to enforce this Conservation Easement and if a court determines the litigation was frivolous or in bad faith, then the court may require Holder to reimburse Grantor her reasonable costs and attorney fees incurred in defending the action.” But in no way would I ever agree to an equally balanced two-way fee provision.

All in all, I think that the MLCAN Model language mentioned above is still the best way to go for Maine land trusts. And even when I represent landowners, they usually want a strongly worded one-way fee provision once they realize that it’s much more likely to apply to a successor landowner and not to themselves.

For a deeper dive, check out the Land Trust Alliance’s Practical Pointer on Costs and Fees Recovery (password protected).

Conservation Land and Property Tax Exemption: What Counts as “Enough” Public Recreation?

A pending case in Maine and a recently decided case in Michigan have caught my attention. These cases address what level of public recreation should be required for conservation land to qualify for property tax exemption. As municipalities face an increasingly daunting fiscal situation as fallout from Covid, I wouldn’t be surprised to see similar disputes arise in other towns.

Here in Maine, keep an eye on Peace Ridge Sanctuary v. Town of Brooks, which is currently at the trial level in Waldo County Superior Court. A good summary of the issues is found in this WGME story. In a nutshell, the Sanctuary (PRS) runs one of the state’s largest animal sanctuaries on a 789-acre property. About 140 acres are actively used for animal shelter activities. The remaining 650 acres is forested and is primarily dedicated to land conservation. There are a variety of trails on the 650 acres, and PRS claims that these trails are used both for its own education and animal-related programs (e.g., walking the dogs in custody of PRS) and by the general public, although the level of public or PRS use of these trails is in dispute. PRS does host over 1,000 visitors annually, but mostly for humane and environmental education programs on the 140-acre developed area. It appears that the property was open to the public for hunting and snowmobiling under previous landowners, but PRS prohibited those activities in recent years. The Town denied property tax exemption, claiming that there wasn’t sufficient public use of the 650 acres to provide substantial public benefit. PRS filed suit and the case was scheduled for trial last March, but then Covid hit and now the trial is not expected until 2021.

Meanwhile, in Michigan, the case of Upper Peninsula Land Conservancy v. Twp. of Michigamme has raised some eyebrows in the land trust world. The Conservancy (UPLC) received a donation of a 600-acre parcel in a remote area in 2014. The property hosted habitat for a variety of animals, including moose, loons, and bald eagles. The public was allowed to recreate on the property, but access was challenging. One could enter the property by walking a three-mile round trip along a road, or by vehicle after contacting a UPLC representative to open two locked gates that the surrounding private property owners installed and controlled. Nearby landowners also had placed “no trespassing” and “private road” signs on the road leading up to the first locked gate. UPLC hosted occasional (about once per year) public events on the property, but these were sparsely attended. Based on the lack of public access, the Township denied UPLC’s property tax exemption and UPLC appealed.

The Michigan Tax Tribunal ruled that there was insufficient public access to qualify for a conservation-specific statutory exemption. The Court of Appeals of Michigan affirmed, rejecting UPLC’s argument that the restrictions to the public’s access were a result of the remoteness of the subject property and its conservation efforts. The appellate court further noted that the interactive map of the property on UPLC’s website was of limited use because of the lack of cell phone coverage on the property. Finally, the court suggested that it would have liked to see some “specific conservation efforts” on the parcel, rather than so-called “passive” land management.

UPLC made certain changes in 2019 to increase public access, including a new trail to connect to a nearby state park. Resolution of taxes in 2019 and later years was severed from this lawsuit and remains outstanding, so this opinion is not the final word for UPLC. As a result of this dispute, UPLC policy now requires contacting municipalities regarding tax exemption prior to closing on a new acquisition, and an official document from the township confirming expected taxation status.

So, what steps should a Maine land trust take to ensure that there is “enough” public recreational access on any given property? Keep in mind that the landmark Maine case of Francis Small Heritage Trust, Inc. v. Town of Limingtontouched on but did not definitively resolve this issue. In deciding in favor of FSHT’s property tax exemption, the Maine Supreme Court distinguished the facts from an earlier case in which public access was restricted. Thus, although the court didn’t go so far as to say that public access is a prerequisite for exemption, the opinion seemed to suggest that where public access is prohibited or significantly restricted, a land trust will have a heavier burden in demonstrating public benefit. The Peace Ridge Sanctuary case looks to be the first to tackle this issue since the FSHT case was decided in 2014. Stay tuned…

Maine Land Conservation Law E-Bulletin – May 2020
May 6, 2020
In this issue:
  • Appellate Court Agrees With IRS on Deemed Approval Provisions
  • Other Eye Opening Tax Court Cases
  • E-Bulletin Information

Appellate Court Agrees With IRS on Deemed Approval Provisions

A couple years ago I wrote about the Hoffman case, where the Tax Court upheld the IRS’ denial of a deduction for a historic preservation easement due to an automatic approval provision. This is a clause stating that if the holder does not reply to a request for approval of a particular land use activity within a specified time frame, the request is deemed automatically approved. Now the Sixth Circuit Court of Appeals has affirmed the Tax Court’s decision, finding that an automatic approval provision undermines the perpetual protection of the property. As the court pointed out, rightly in my opinion, even a simple mistake by the easement holder could lead to the evisceration of the easement’s restrictive terms. Although technically the appellate decision is binding only in the handful of Midwestern states within that circuit, the winds are blowing strongly in one direction on this issue. Moreover, beyond the deductibility issue, automatic approval provisions are a terrible idea for programmatic reasons. Would you (dear stewardship newbie, longtime executive director, or volunteer Board president) want to wake up on the 46th day of a hard and fast 45-day response period and find that request letter buried on your desk, knowing that the bulldozers were about to descend on the property?

Fortunately, the Maine model easement does not include such language, and instead uses an automatic denial provision. (See the last two sentences of Section 11.C.) That said, occasionally I still see easements that stray from the model by including some version of an automatic approval provision. Land trusts and government agencies should scour their templates to make sure there is not even a whiff of an automatic approval. And for landowners and their attorneys who object to automatic denial provisions, now you can point to the Hoffman case and make the IRS the bad cop.

Other Eye Opening Tax Court Cases

While we’ve all been distracted by other news that shall not be named, some other notable tax cases are working their way through the court systems. Here are some capsule updates to keep you apprised of the latest happenings:

  • Pine Mountain Preserve and Carter – I first wrote about Pine Mountain Preserve, a doozy of a case, in March 2019, and the ultimate outcome is still pending. It is currently on appeal before the 11th Circuit Court of Appeals. There are several key issues, including: (1) Whether an amendment provision prohibiting amendments that are inconsistent with the conservation purposes is compliant with the perpetuity requirements of 170(h); and (2) Whether the adjustability and scope of building areas and other reserved rights are compliant with those same perpetuity requirements. I was honored to work with the Land Trust Alliance on preparing two separate amicus briefs to the 11th Circuit. As if Pine Mountainwere not confounding enough, in February a Tax Court judge handed down a related and equally confusing decision regarding building areas in Carter v. Commissioner, which also looks to be appealed to the 11th Circuit. Carterinvolved a fully floating building area, but the language of the opinion is unclear as to whether it applies to fixed building areas as well. I suggest that land trusts make landowners aware of the heightened risks around building areas in deductible easements, at least until the appeals conclude. Resolution of either of these cases is likely still at least many months away, if not a year or two. Meanwhile, this excellent summary of the issues from the Alliance is well worth your careful perusal.

  • TOT Property Holdings – The IRS proffered a new and aggressive argument in this case before the Tax Court. The IRS claimed that the easement’s forest management provisions were inconsistent reserved rights under the Treasury Regulations for deductible conservation easements because they would allow for the destruction of wildlife habitat and would harm scenic views. The argument is especially disconcerting because the forest management restrictions in the easement were rather robust. In particular, the easement allowed sustained-yield commercial forest management pursuant to a forest management plan. The plan had to: (a) accord with the Tennessee Division of Forestry’s Best Management Practices; (b) be consistent with conservation purposes; and (c) be approved by the holder land trust. Moreover, the holder could prohibit all forest management within any sensitive habitat areas that it identified at the time of the easement’s granting or in the future. Although the Tax Court did not spend any time on this aggressive argument and instead ruled on other grounds, land trusts should be aware of the IRS’ attempt to create another barrier to a deduction. In response to this case, the Land Trust Alliance has issued essential guidance for commercial forest management provisions in donated easements.

  • Termination Proceeds Cases – As I’m sure you will recall, in the October 2018 E-Bulletin I wrote about another case in which the Tax Court and an appellate court struck down a common-sense phrase included in most conservation easement termination proceeds provisions. The crux of the matter concerns what percentage of sale or condemnation proceeds must be shared with the holder in the event that the easement is terminated. The disputed phrase allows the landowner to keep all proceeds for the value of a property that is attributable to buildings and other improvements established after the easement was granted. Several recent Tax Court cases agree with the earlier case in finding that this phrase does not comply with the Regulations, and for better or worse we should now consider the matter settled law. As a result of the earlier decisions, lawyers in Maine got together and changed the Maine model easement in late 2018 to delete the disputed phrase from Section 14.G.3. So it’s important that your land trust use the 2018 version of the model and not any earlier versions. To be crystal clear, if the landowner is seeking a deduction, the easement must notinclude any version of this sentence in the termination proceeds provision: “Such reduction shall not include value attributable to permitted improvements made to the Protected Property by Grantor after the effective date hereof.”
Maine Land Conservation Law E-Bulletin – March 2018
March 13, 2019
In this issue:
  • Key Takeaways from the ACF Conserved Lands Study
  • How the Republican Tax Bill Affects Land Trusts
  • E-Bulletin Information

Key Takeaways from the ACF Conserved Lands Study

Ever since the Maine Supreme Court held in the 2014 Francis Small Heritage Trust case that land conservation is a charitable purpose and that conservation land owned by nonprofit land trusts are generally exempt from property taxes, Governor LePage has crusaded mightily against Maine land trusts. LePage recently devoted several minutes of his final State of the State address to a veritable rant against land conservation and land trusts. Fortunately, all of the Governor’s rather unhinged attacks have fallen flat in the face of basic facts. The most recent example comes by way of a legislative committee report on the issue of property taxation of conserved lands.

In late February, the Maine Legislature’s Committee on Agriculture, Conservation and Forestry (ACF) released a Study of Conserved Lands Owned by Nonprofit Organizations.  The Conserved Lands Study deals quite a blow to the Governor’s efforts to malign Maine land trusts, concluding that Maine land trusts provide “a myriad of public benefits” and “great value to the residents of Maine.” The Study faults the LePage Administration for failing to provide any data or assistance to the Committee, and in the absence of any government data relied largely on a survey conducted by Maine Coast Heritage Trust, as well as input from various stakeholders.

The Conserved Lands Study is a good read and contains a host of facts that demonstrate the public benefits that Maine land trusts provide. But rather than summarize these figures, I want to assess the state of play in this ongoing debate. Here are the key takeaways from my perspective:

  • The broad issue of how land conservation in Maine should and does affect municipal property tax revenues has existed since the very first property was conserved. And because we live in a dynamic democracy, it will never be resolved definitively one way or the other. For those expecting that the issue is now settled, think again.
  • The Maine land trust community should feel vindicated by the Conserved Lands Study, which amounts to a firm pushback against the Governor’s distorted attacks. The Study is a perfect example of how facts trump oratory, and shows that land conservation continues to enjoy strong bipartisan support. That said…
  • The ACF Committee heard testimony of a handful of dissenting voices from small and mostly rural towns, and these voices are best not ignored. Although statewide laws and policies should not be tailored around these minority views, local conservation efforts in these communities must be sensitive to them. Moreover, the Conserved Lands Study recommends that “the Legislature reexamine current-use tax programs and how these tax programs may adversely affect certain communities.” Expect some bills next year that seek to limit the exemption or Open Space acreage or tax reductions available in thinly populated areas. Given the unknowns about the composition of the Legislature or who fills the Governor’s seat, it’s impossible to say whether any of these bills might have legs.
  • Public access is more important than ever. The Conserved Lands Study recommends that “a certain level of public access to land should be a requirement in order for a property owner to be eligible for a reduced rate of property tax.” Again, expect one or more bills next year to implement this suggestion. I might add that I don’t think it’s a bad idea. There’s a lot to be said for the notion that public access should be required for property tax exemption or for Open Space qualification. (The Tree Growth and Agricultural categories are more complicated, as their goals are quite different.) Although the Francis Small case did not establish a public access requirement for exemption, the Court’s opinion did identify access as an important factor in determining eligibility. Given the recommendation of the Conserved Lands Study, a thoughtfully crafted bill that imposes a reasonable level of public access, perhaps with partial or full exceptions for sensitive wildlife habitat, could very well make it through the Legislature sooner or later.
  • Much of what happens next, both for the narrow issue of property taxation for conserved lands and the broader question of how to advance land conservation in Maine, depends on who succeeds LePage as governor. Fortunately, none of the current declared candidates has exhibited LePage’s disdain for land conservation, and so hopefully we have nowhere to go but up. But most Democratic candidates are much more openly supportive of land conservation than most Republican candidates, and the outcome will have a huge effect on whether progress is merely incremental or dramatic. Now is a good time to press all candidates, Republican and Democratic, to demonstrate strong support for protecting Maine’s natural areas, whether it is through maintaining our robust exemption and current-use laws, increasing LMF spending, or other avenues.

How the Republican Tax Bill Affects Land Trusts

As you are by no doubt aware, Republicans in Congress passed a major federal tax bill in December. For the most part, this bill will affect land trusts in the same ways that it will affect all nonprofit organizations, and I invite you to read my take on that question in my January Nonprofit Law E-Bulletin. Bottom line: expect somewhat reduced annual giving and planned giving levels as fewer and fewer people itemize their taxes or face the threat of owing any federal estate tax liability. And expect reduced federal funding for all government programs, including land conservation. That said, the bottom won’t fall out and land trusts, who enjoy very loyal donor bases, should continue to proceed with fundraising operations as if nothing is amiss.

In fact, instead of fearing the reduced tax savings from charitable giving, savvy fundraisers and conservation dealmakers might want to focus on the fact that because most people will have lower taxes and thus higher disposable income, they can now afford to give more to their favorite charities. A simplified high-value conservation easement donation example shows how this could work, if you want to follow the numbers with me.

Suppose you have a married couple filing jointly with $1 million in adjusted gross income. In 2017, they donated a conservation easement that was appraised at $2 million. Before any deductions and credits were taken into account, this couple owed about $341,000 in federal income taxes. Due to the easement donation, they could claim a charitable deduction of $500K in 2017 and in each of following three years ($500,000 per year because of the 50% of AGI deduction limitation for conservation easements). But a special rule called the Pease limitation kicked in to reduce their deduction by about $20,000 per year, so let’s call it $480,000 in each of these years. Thus, the easement donation led to federal tax savings of roughly $190,000 in each year from 2017 through 2020, and an overall annual tax owed of about $151,000.

Now let’s see how this calculation works under the new tax law in effect for 2018. Before any deductions and credits are taken, this couple’s tax due is about $309,000, roughly $32,000 less than under the 2017 higher tax rates. Once again, they can claim a charitable deduction of $500,000 in 2018 and in each of following three years. And this time there is no Pease limitation because that provision is suspended through 2025. So the easement donation leads to federal income tax savings of roughly $183,000 per year, a bit less than the $190,000 savings under the 2017 rates. But the couple’s overall tax owed is now about $126,000, well below the $151,000 owed under the 2017 rates. Even though the charitable incentives are slightly reduced under the 2018 rates, the couple is in a much better financial position objectively speaking, and the land trust should not hesitate to point this out.

Notes: I’ve taken several shortcuts in this example, and actual results would vary somewhat. State income tax savings are also not calculated, and they could be significant. Finally, although I’m emphasizing that a land trust project person or an independent legal or tax adviser would want to play up the better financial position of the landowners due to the lower tax laws, by no way should that be seen as endorsement of the tax bill. In my view, tax cuts for wealthy people are the last thing that our economy or our polity needs at this time.

Maine Land Conservation Law E-Bulletin - March 2019
March 5, 2019
In this issue:
  • Tax Court Roller Coaster of a Case
  • Conservation and Climate – Sea Change in Augusta
  • E-Bulletin Information

Tax Court Roller Coaster of a Case

Rarely does a United States Tax Court decision deliver the highs and lows of an amusement park ride. But Pine Mountain Preserve accomplishes the feat in bewildering style.

Let’s start with the good stuff. Back in October’s E-Bulletin, I wrote about how the IRS had been denying charitable deductions due to the presence of standard amendment provisions in conservation easements. In Pine Mountain, the Tax Court soundly rejected this argument. In 2017, I assisted the Land Trust Alliance with amicus briefs in this case as well as two others before the Tax Court, in order to counter the IRS’ aggressive position. Following the arguments set forth in these amicus briefs, as well as the rationale of earlier cases, the Pine Mountain majority found that easement holders can be assumed to remain faithful to the conservation purposes upon which their 501(c)(3) tax exemption rests. Therefore, an amendment provision based on the conservation purposes standard is consistent with the perpetuity requirements of Code § 170(h) and the accompany Regulations.  Pine Mountain thus represents a solid victory for the land trust community on the amendment provision issue and will hopefully put an end to the IRS’ pursuit of this line of attack. Maine land trusts can continue to use traditional amendment provisions that tie decisions to consistency with the easement’s conservation purposes as well as our state’s unique statutory “materially detract” standard.

But while the Tax Court properly settled the amendment provision dustup, in the very same opinion it obfuscated issues about the siting and adjustability of building areas. While acknowledging the usefulness of flexibility in the amendment context, the court denies easement holders an equal level of discretion regarding building areas, even those that are included within the terms of the easement. The opinion seems to suggest that deductions may be denied when easements allow for even partially floating building areas and when they allow too many unsited building rights. For more on the far-reaching implications of this decision, I highly recommend the Alliance’s Pointers, with which I assisted in the drafting. In addition, I am working with the Alliance on preparing another amicus brief, as we expect the taxpayer to appeal to the 11thCircuit. Nevertheless, any appellate decision is likely at least a year or two away, and in the meantime we are stuck with the uncertainty stemming from this wild ride of a decision. Buckle up.

Conservation and Climate – Sea Change in Augusta

How refreshing it is that “conservation” and “climate” are no longer dirty words in the Blaine House. With the election of Janet Mills and strong Democratic majorities in the Legislature, Maine can finally begin to make up for our regress of the past eight years. There are dozens of important bills in the works, and it is far too soon to make predictions about which ones will survive the legislative process.

As for conservation funding, the Maine conservation and hunting community is pushing for a new Land For Maine’s Future bond, paired with funds to improve state parks. See the Maine Land Conservation Task Force Draft Recommendations. State Senator Cathy Breen, who served on the Task Force and has a powerful role as a co-chair of the Appropriations Committee, recently introduced L.D. 11, which calls for $75 million in LMF funding and $20 million for capital improvements to state parks and historic sites, both over five years. In her budget address, Governor Mills has indicated receptivity to a new LMF bond. That said, fiscal pressures are expected to come into play, and I encourage you to reach out to the Governor and your representatives to push for funding at the $75 million level.

Maine Land Conservation Law E-Bulletin – October 2018
October 19, 2018
In this issue:
  • IRS Targets Common Conservation Easement Provisions
  • Syndication Deals Run Amok
  • E-Bulletin Information

IRS Targets Common Conservation Easement Provisions

The Internal Revenue Service keeps inventing new arguments to deny charitable deductions for conservation easements. Although the vast majority of easement deductions don’t encounter any problem, when the IRS does scrutinize an easement it often comes up with dubious reasons to deny a deduction. The IRS’s arguments have met with varying levels of success in court, and landowners and land trusts must be more vigilant than ever in when drafting easements so as to minimize the chances of a denial. In addition to the traditional denial reasons (overvaluation, errors in filling out the Form 8283, etc.), the following are three rationales recently offered by the IRS when challenging conservation easements:

Amendment Provision – In at least three recent Tax Court cases, the IRS has made the remarkable claim that the typical amendment provision used by land trusts across the nation is too weak and jeopardizes an easement’s perpetuity. In response, the Land Trust Alliance has filed an amicus brief (of which I was a primary author) to reject these overly aggressive contentions. The cases have been stalled in the Tax Court for quite some time, although I heard at the recent Rally conference that movement is expected soon. In the meantime, I encourage land trusts and landowners to use a thoughtful and comprehensive amendment provision. For Maine-based easements, I generally recommend the one included in the Maine Land Conservation Attorneys Network model, which is specific to our Maine statute and was updated in 2017. And the good news is that because we have a conservation easement statute that requires Attorney General and court review for amendments that materially detract from the conservation values, our vulnerability to an IRS challenge on the amendment front is low.

Termination Proceeds Provision – As with the amendment provision, the IRS is assailing a common-sense phrase included in most termination proceeds provisions. The specific issue is confusing and hard to summarize in this E-Bulletin, but the crux of the matter concerns what percentage of sale or condemnation proceeds must be shared with the easement holder in the event that a conservation easement for which a deduction is claimed were to be terminated. The phrase at issue allows the landowner to keep all proceeds for the value of a property that is attributable to buildings and other improvements established after the easement was granted. Unfortunately, the IRS recently talked the Fifth Circuit Court of Appeals into denying a deduction for including such language, even though it has been included for years as a matter of basic fairness to the taxpayer. On behalf of the Land Trust Alliance and 29 other land trust organizations around the country, including Maine Coast Heritage Trust, I recently drafted an amicus brief asking the Fifth Circuit to take another look at this issue. (Please email me if you’d like a copy of the brief.) Note that the Maine model easement does include the disputed phrase – see Section 14.G.3, the parenthetical beginning with the words “Such reduction shall not include…” Thus, in the face of uncertainty in the courts, easement donors must choose between removing the disputed phrase in order to placate the IRS or keeping the phrase and risking a denial of their deduction.

Automatic Approval Provision – Finally, in Hoffman Properties II, L.P. v. Commissioner, the IRS successfully challenged a deduction because an easement contained what is known as an automatic approval provision. This is a clause stating that if the holder does not reply to a request for approval of a particular land use activity within a specified time frame, the request is automatically approved. To be fair to the IRS, I think they have a good argument here, unlike with the amendment and termination proceeds claims. Automatic approval provisions act as ticking time bombs, ready to detonate if the easement holder fails to timely reply to an approval request. As the Tax Court noted in this case, even requests that are patently inconsistent with the easement’s conservation purposes can sneak through if the holder is not paying attention, whether due to staff or volunteer changes, miscommunication, or any number of reasons. In the wake of the Hoffmandecision, land trusts and landowners must be sure to avoid default approval provisions in their conservation easements. Fortunately, the Maine modeleasement does not include such language.

Syndication Deals Run Amok

Maine land trusts, attorneys, and accountants should be on alert for any conservation easement proposals coming their way from professional syndication promoters. These are deals that entail highly inflated appraisals aimed at delivering huge profits for promoters and investors.

Recent numbers from the IRS, which is trying to clamp down on these abusive deals, reveals the massive scope of the problem: In 2016 alone, 248 syndications claimed deductions worth $6 billion, and total deductions over several years approached $20 billion. The top 10 percent of syndicated transactions received a charitable tax deduction of $8,230 for every $1,000 invested, an absurd figure that can only result from fraudulent activity. Both the House and the Senate are looking into legislation that would block these syndications. The bill is known as the Conservation Easement Integrity Act, and the Land Trust Alliance encourages its members to advocate for passage with their Congressional representatives.

To date, we have not seen conservation easement syndication deals in Maine, but the word is that they are spreading beyond their traditional base in the southeast. Please contact me if you are aware of any such promotions in our state.

Maine Land Conservation Law E-Bulletin – September 2017
September 19, 2017
In this issue:
  • Important Court Decision on CE Baselines and Boundary Adjustments
  • New Filing Requirement For Fee Lands
  • E-Bulletin Information

Important Court Decision on CE Baselines and Boundary Adjustments

A federal appellate court recently issued a noteworthy decision concerning boundary adjustments and Baseline Documentations for tax-deductible conservation easements.  In Bosque Canyon Ranch, LP v. Commissioner, No. 16-60068 (5th Cir. 2017), the Fifth Circuit overturned a Tax Court decision and upheld the deductibility of two easements against an IRS challenge on these two issues.

Let’s look at the Baseline issue first, as that’s the simpler and more wide-ranging impact of the case.  The Tax Court had agreed with the IRS that certain flaws in the Baseline prepared by the land trust rendered the entire conservation easement non-deductible.  The two easements were executed in December 2005 and December 2007, respectively.  In particular, one report included in the Baseline for the December 2005 easement was dated March 2007 and thus was added 15 months after that easement’s closing.  Meanwhile, the Baseline for the December 2007 easement was not signed until November 2008.  Furthermore, much of data in each Baseline was current only as of April 2004, not the date of each easement’s respective conveyance.

The IRS maintained, and the Tax Court agreed, that these flaws rendered the easement ineligible due to a lack of compliance with Treasury Regulation § 1.170A-14(g)(5)(i), which addresses Baselines.  The Fifth Circuit was much more forgiving, first noting that the Regulation’s permissive rather than mandatory language as to what might be included in a Baseline indicated an intent to be “flexible and illustrative rather than rigid.”  The appellate court determined that the wealth of maps, photos, and habitat reports that were included in the Baselines was “more than sufficient to establish the condition of the property prior to the donation.”  In an explicit rebuke, the Fifth Circuit wrote: “The Tax Court’s hyper-technical requirements for baseline documentation, if allowed to stand, would create uncertainty by imposing ambiguous and subjective standards for such documentation and are contrary to the very purpose of the statute. If left in place, that holding would undoubtedly discourage and hinder future conservation easements.”

The Fifth Circuit’s take on the Baseline issue is good news for land trusts and easement donors.  In the hustle to complete an easement transaction, it’s not uncommon for data to become slightly outdated or for certain exhibits to be added later.  To be sure, land trusts should not see this decision as a green light to prepare sloppy Baselines.  Land Trust Standards and Practices 11.B requires that Baselines be completed and signed prior to closing, with an acknowledgment that seasonal conditions might require the submission of additional data after the closing.  However, donors and land trusts can rest a little bit easier that the courts will not wipe out deductions for minor foot faults in the Baselines.

Meanwhile, as for the second major issue, the Fifth Circuit held that limited adjustments to the boundaries of homesites located entirely within the easement’s external boundary did not run afoul of the perpetuity requirements of I.R.C. § 170(h)(2)(C).  The court distinguished this situation from the Fourth Circuit’s decision in Belk v. Commissioner, 774 F.3d 221 (4th Cir. 2014)(Belk III), which held that limited “substitution” changes to the external boundaries of a conservation easement rendered the easement ineligible under § 170(h).

Together, the two easements in Bosque Canyon protected two contiguous parcels comprising 3,482 acres.  The holder was the North American Land Trust (NALT), which has been involved in several easements challenged by the IRS.  Within the protected property there were 47 separate 5-acre homesites, which were entirely excluded from the easements.  The easements contained a provision that the boundaries of the homesite parcels (and by corollary the easement’s internal boundaries with those homesite parcels) could be adjusted, provided that any such adjustment could not “in [the holder’s] reasonable judgment, directly or indirectly result in any material adverse effect on any of the Conservation Purposes” and also provided that the area of each Homesite could not be increased.  The IRS contended, and the Tax Court agreed, that this boundary adjustment provision was similar to the substitution provision that was struck down in Belk (which easement was also held by NALT).

But the Fifth Circuit reversed, finding that allowing limited changes to the internal boundaries was supportive of, and not inconsistent with, the perpetuity requirements of § 170(h).  In a key section citing earlier D.C. Circuit and First Circuit appellate decisions, the Fifth Circuit wrote, “The common-sense reasoning that [Simmons and Kaufman] espoused, i.e., that an easement may be modified to promote the underlying conservation interests, applies equally here. The need for flexibility to address changing or unforeseen conditions on or under property subject to a conservation easement clearly benefits all parties, and ultimately the flora and fauna that are their true beneficiaries.”  The Fifth Circuit also noted approvingly that the homesites were generally clustered in a particular area of the protected properties around the only existing road, and thus it was highly unlikely that the boundary adjustment provision could be abused to allow the homesites to be scattered throughout the protected properties.  (Thus, unlike some of NALT’s golf course easements at issue in other cases, these easements appeared to protect genuinely significant wildlife habitat.)

I welcome this decision on the boundary adjustments.  Having seen first-hand the need for the occasional boundary adjustment for any number of valid reasons (third party encroachments, survey mistakes, a first-time survey that clarifies previously murky boundaries, etc.), I agree with the Fifth Circuit that a certain degree of flexibility is healthy for conservation easement stewardship.  So long as a boundary adjustment provision is made subject to a responsible conservation standard (as was the case here, i.e., the requirements that any boundary adjustment not result in any material adverse effect on the conservation purposes nor reduce the size of the protected property), then I see no reason why it should render the easement ineligible for a federal income tax deduction.  The entire misbegotten premise of the IRS’ argument in this and other cases is that land trusts should not be trusted with these discretionary decisions about amendments.  Although I don’t think land trusts are infallible, they should be accorded the flexibility to make reasonable easement stewardship decisions.

That said, the issue of boundary adjustment provisions and the related question of whether to allow “floating” building rights are far from settled.  The Bosque Canyon decision is binding only within the Fifth Circuit states of Louisiana, Mississippi and Texas, although hopefully it will have persuasive effect on the IRS and the Tax Court.  Moreover, the Fifth Circuit would have been better off openly disagreeing with the Fourth Circuit’s Belk decision, rather than positing a qualitative distinction between internal vs. external boundary adjustments.  And the Fifth Circuit’s decision was split 2-to-1, with a vigorous dissent, perhaps giving the IRS hope to continue its campaign against boundary adjustments.  For all of these reasons, even after Bosque Canyonland trusts and landowners are still advised not to include explicit boundary adjustment provisions or floating easement envelopes in donated conservation easements.  In the vast majority of situations, a general amendment provision could address any scenario in which a boundary adjustment might be considered.  Of course, the IRS is also pressing an attack on general amendment provisions, but that’s a topic for another day.

New Filing Requirement for Fee Lands

Since 2007, holders of conservation easements in Maine have been required to submit an annual filing in a Conservation Easement Registry maintained by the Department of Agriculture, Conservation and Forestry (DACF).  A little-noticed provision of the final budget bill (P.L. Ch. 284, § TT-1) passed by the Maine Legislature now expands the filing requirement to include “lands owned in fee for conservation purposes.”  Registrants must include in the annual filing the number of acres owned in fee that are exempt from property taxation under 36 M.R.S. § 652 and for which the municipality or county does not receive any payment in lieu of taxes.  The new filing requirement appears to stem from Governor LePage’s unsuccessful attempts to overturn the results of the 2014 Francis Small Heritage Trust, Inc. v. Town of Limington case, which held that land conservation is a charitable purpose eligible for property tax exemption.

DACF has not yet revised the online filing portal, so it’s not clear exactly how the questions and field entries will be worded for the fee portion of the Registry.  Nevertheless, it appears that the fee-related information compiled by the Registry will allow the State (and the public, through a Freedom of Access Act request) to gather comprehensive data on how much conservation land is owned by nonprofit organizations, and what percentage of that land is fully property-tax-exempt.

Maine Land Conservation Law E-Bulletin – May 2017
May 16, 2017
In this issue:
  • Land Trusts Fend Off Governor’s Property Tax Assault (Again)
  • Maine Trial Court Rules Against Land Trust in Conservation Easement Dispute
  • Maine Supreme Court Decides Conservation Easement Standing Case
  • E-Bulletin Information

Land Trusts Fend Off Governor’s Property Tax Assault (Again)

In what is becoming an annual exercise, Maine land trusts are once again fending off attempts by the Governor and his conservative allies in the Legislature to weaken the property tax laws as applied to land trusts in particular and nonprofit organizations in general.  Two separate bills, LD 727and LD 1521, are at issue.  Last year, similar bills were unanimously defeated in committee, but recently LD 727 received support from four Republican members of the Taxation Committee.  Meanwhile, the Committee voted 9 to 3 Ought Not To Pass on LD 1521 last Thursday.  Now both bills will go before the full Legislature.  For more information on what these bills would do, see MCHT’s analysis.

Now is the time once again to let your Representatives and Senators know that support for land conservation is bipartisan, and that the property tax laws do not need a legislative fix.  Click here to find your legislators and their contact information.  Hearing from even three or four constituents can make a big difference on these bills.  And the property tax issue is a great entree to speaking about the overall work of your local land trust.

Maine Trial Court Rules Against Land Trust in Conservation Easement Dispute

In an April 29 decision, Justice John O’Neil of the Maine Superior Court ruled that a nonprofit school was not a “commercial use” and therefore did not violate a conservation easement held by the Saco Valley Land Trust (SVLT).  The court further held that the easement’s reference to “local land use laws” referred to those laws as they may change over time, and not at the time the easement was executed.

Here’s the backstory:  SVLT accepted a donated conservation easement from Mary Merrill in 1998 on her 105-acre property in Saco.  The easement designated 96 acres as the “Protected Property” and the other 9 acres as the “Residence/Farm Area,” where an existing residence and some outbuildings were located.  The restrictions on the 96 acres are fairly typical of a conservation easement, with only minimal structures and surface alterations permitted.  In contrast, the Residence/Farm Area was largely unrestricted, with two key exceptions: (1) no “commercial uses” were allowed (except forestry or agriculture); and (2) any structures had to be “permitted by local land use laws and… in keeping architecturally with the other structures in the Residence/Farm Area.”

In 2015, the Ferry Beach Ecology School (FBES), a Maine nonprofit corporation and 501(c)(3) tax-exempt organization, worked out a deal to purchase the 105 acres from Thomas Merrill (Mary’s nephew, who inherited the property upon Mary’s death).  FBES sought to relocate its educational programs to a new campus on the property, and proposed to establish two 9,000-square-foot dormitories and a 7,000-square-foot dining hall for 120 students within the Residence/Farm Area.  SVLT’s approval of the project was a contingency of the purchase and sale agreement, as was the City’s land use approvals.  The City of Saco approved a contract zone application for the property in early 2016, but site plan review was placed on hold pending SVLT’s approval.

SVLT objected to the FBES proposal, claiming that the size and scope of the school’s activities rendered it a commercial use that was not consistent with Mary’s intentions as set forth in the easement and in her subsequent last will and testament.  SVLT also contended that the easement’s reference to structures “permitted by local land use laws” referred to the laws in effect as of 1998, when the easement was executed.  And because the 1998 zoning classification would not have allowed the school, the FBES proposal could not meet the “local land use laws” condition of the easement.

Thomas Merrill filed suit against SVLT, seeking a declaratory judgment that the school’s activities and structures did not constitute a “commercial use,” and that the easement’s reference to local laws referred to laws in existence moving forward to time, and not the laws in effect at the time of the easement’s conveyance.

On summary judgment, the Superior Court sided with Merrill on both points.  As for commercial use, the court followed past Maine Supreme Court decisions that cited the dictionary definition of the word “commercial” to mean “of or relating to commerce” and “having profit as a primary aim.”  Because FBES was organized as a nonprofit corporation with educational purposes, it did not have profit as a primary aim, even if it might substantially grow its programs at the new location.  The court also pointed out that the potential size and scope of the educational programs and structures was nevertheless consistent with the easement because only minimal restrictions were placed on the Residence/Farm Area.

On the reference issue, given the absence of case law from the Maine Supreme Court, the Superior Court judge adopted a general rule of deed construction that any reference to general laws refers to laws as they may change over time, unless there is a clear expression of contrary intent.  In contrast, references to specific statutory provisions refer to the law in place at the time of the reference, unless provided otherwise, such as by adding the words “as amended” after the reference.  Because the conservation easement used the former approach, its general reference to local land use laws was intended to mean those laws as they might evolve in the future.  As the court noted, to hold otherwise would mean that decades or even centuries in the future, the parties would have to interpret a proposed action’s consistency with the City’s 1998 land use laws.

As this case shows, land trusts and landowners cannot rely on a blanket prohibition of commercial uses to prevent all high-impact uses of a protected property.  By the logic of this decision, a nonprofit hospital could also be placed within the Residence/Farm Area.  Moreover, easement drafters should take note of any references to general laws or specific statutes, and make sure the intent is consistent with the rule of construction expressed in this decision.

One remaining loose thread, which prevented a full dismissal in Merrill’s favor, is that FBES still must obtain final site plan approvals from the City, although that appears to be a likely next step.  In addition, Merrill brought conflict-of-interest claims against SVLT because two of its Board directors own nearby property and allegedly should have recused themselves from SVLT’s internal decision making process.  But this decision doesn’t address that issue.  Finally, SVLT could still seek to defeat the project on the architectural consistency issue, also not addressed in this decision.  It’s not clear at this point whether SVLT will appeal the decision to the Maine Supreme Court.  In any event, such appeal would likely have to wait until the remaining zoning approvals are resolved by the City.

The court’s decision is not currently online.  Please email me if you’d like a copy.

Maine Supreme Court Decides Conservation Easement Standing Case

In January, the Maine Supreme Court issued an important opinion (Estate of Robbins v. Chebeague and Cumberland Land Trust) that sharply circumscribes who has standing to enforce conservation easements in Maine.  In my view this case reaches the right policy outcome, and a judicious resolution of this particular dispute.  Although the specific issue that was decided by the court concerns a relatively rare situation, the broader and far more significant implication of the opinion is to confirm that Maine’s conservation easement enabling act does not confer standing on neighbors or the public at large.

Here are the key background facts: In 1997, Marion Payson donated a conservation easement on 100 acres of coastal land in the Town of Cumberland to the Chebeague & Cumberland Land Trust (CCLT).  The easement allowed for 10 building lots, each on separate dividable parcels.  In June 2014, the Payson heirs agreed to sell the bulk of the protected property to a developer, and the family retained only a 2-acre parcel.  Between the execution of the purchase and sale contract and the closing, the developer (unbeknownst to the Payson family) worked out a deal to sell the Town a 25-acre portion of the protected property for $3 million.  The Town proceeded with plans to develop a beachfront park, including the paving of an existing unpaved access road and the establishment of a parking area, portable toilets, and a pier.  The Town had been seeking public beach and shore access for many years, and this property was one of the few remaining undeveloped parcels available.  Meanwhile, CCLT determined that the paved road, parking area and recreational structures would not violate the conservation easement.  Cumberland voters narrowly approved the beach park purchase in November 2014.  The Payson family (acting through the Estate of Merrill Robbins, the record owner of the 2 acres) objected to the sale to the Town and filed suit against CCLT and the Town in December, claiming that the park improvements would violate the conservation easement.  The Town and CCLT filed motions to dismiss, contending that the Estate had no standing because it owned only the 2-acre parcel, which was separate from the 25-acre parcel to be developed into the beach park.  Maine’s conservation easement act confers standing on “an owner of an interest in the real property burdened by the easement.” 33 M.R.S. § 478(1)(C).  At issue on the motions to dismiss was whether any one landowner can bring an action to enforce the conservation easement as it pertains to another landowner under the same easement (i.e., a broad standing application).  Or does a landowner have standing only with respect to her specific portion of the protected property (i.e., a narrow standing application)?  The trial court held in favor of the narrow application and dismissed all claims against the Town and CCLT (opinion available here by typing “Woodworth” in plaintiff line), and the Estate appealed.

The Maine Attorney General filed an amicus brief in support of the landowners on appeal.  The AG took no position on the merits of the landowners’ argument about the correct interpretation of the conservation easement, but rather argued for the broader standing interpretation, finding no ambiguity in the enabling statute.  Meanwhile, the Maine Farmland Trust filed an amicus brief in favor of a narrow application of the standing provision, focusing on the policy implications.

The Maine Supreme Judicial Court affirmed the trial court in a 3-2 decision, holding that a landowner of one geographic portion of a conservation easement protected property does not have standing to enforce that easement as it pertains to a separate area of the protected property owned by another person.  The court found that the phrase “owner of an interest in the real property burdened by the easement” was ambiguous, insofar as it could reasonably be interpreted to mean either the broad or the narrow standing application.  The court went on to conclude that the underlying policy and legislative intent of the Maine conservation easement enabling statute supports the narrow reading.  In particular, the court cited a comment to the Uniform Conservation Easement Act (UCEA), upon which Maine’s enabling statute is based.  This comment suggests that the principal purpose of granting standing to the landowner is to allow that landowner to hold the easement holder accountable with respect to any affirmative obligations owed by the holder to that landowner, and not generally to all landowners under the easement.

The court likened the Payson heirs’ attempt to enforce the easement to a private attorney general action.  And because Maine’s enabling statute was amended in 2007 to allow for only limited standing by the Maine Attorney General, the court concluded that the Maine Legislature did not intend to allow for expanded standing by members of the public acting as private attorneys general.  Moreover, the court observed that from a policy perspective, a broad standing application is not needed because the Attorney General has standing under Maine’s statute in the event that a holder fails to enforce a clear violation.  Moreover, the court noted that a broad standing rule would expose the easement holder to “expensive and complicated enforcement lawsuits” that often would not serve the public interest, such as in the instant case where the plaintiffs’ apparent motivation was to limit public access.

The dissent took a different approach, finding that the key phrase, “an owner of an interest in the real property burdened by the easement,” was not ambiguous.  The dissent reasoned that because the word “the” is a definite article, its plain meaning “must refer to all of the real property” burdened by the easement, not just that portion owned by a particular landowner.  The fact that this was a split 3-2 decision reflected that the statutory construction issue was far from a no-brainer.  Some of my legal colleagues and land trust professionals, committed conservationists all, think the dissent had the better legal argument here.

Nevertheless, I’m quite pleased with this opinion from a policy perspective.  The circumstances present in this case, where the owner of a portion of an easement-protected property seeks to enforce the easement with respect to a portion owned by another landowner, are relatively unusual.  The true impact of this opinion is in resolving the broader and much more common question of whether neighbors or the general public have standing under Maine’s conservation easement enabling statute.  All of the reasons cited by the Maine Supreme Court in denying standing to these particular plaintiffs are even more applicable and persuasive with respect to a typical neighbor or citizen with no ownership interest in the protected property.  Until now, the only decision on neighbor or citizen standing in Maine came from a one-page trial court order rejecting such standing.  Cluff  Miller v. Gallop, No. RE-03-022 (York Cty. Super. Ct. July 2, 2003).  But the Estate of Robbins opinion effectively confirms that neighbors, as well as the general public at large, do not have any such standing to enforce conservation easements in Maine.

Foreclosing neighbor or citizen standing is the right policy outcome because nine times out of ten, these suits further the private interests of the plaintiffs rather than the public interests of land protection, just as the Maine Supreme Court pointed out.  And for the very occasional instance where a neighbor or citizen seeks to step in because the easement holder has been genuinely remiss in its enforcement responsibilities, that person can petition the Maine Attorney General to exercise its enforcement powers under Maine’s enabling act.  Although the Maine Attorney General’s office does not have the resources to take on numerous enforcement actions, surely it has the ability to step in for the once-in-a-blue-moon situation where a land trust (or more, likely, a government holder) is asleep at the wheel.

On the narrower question of whether the owner of a portion of a protected property should have standing to enforce the easement vis a vis another portion of the property, I think the equity issues are more debatable, but still militate in favor of denying standing.  Looking prospectively, attorneys representing landowners should be alert to this issue whenever the easement will allow division of the protected property or when the property already has multiple parcels with different landowners.  In these cases, the easement can be drafted so as to override the narrow standing under the statute, although of course this will be a double-edged sword, subjecting every parcel owner to the whims of every other parcel’s owner.  On the one occasion over the past couple years where I have seen the issue arise during the drafting of an easement, both landowners declined to assume any standing authority over each other, and trusted that the holder would responsibly enforce the easement.

Meanwhile, it’s unclear to what extent this opinion will or should have applicability outside of Maine.  Although the specific language at issue, “an owner of an interest in the real property burdened by the easement,” comes directly from the UCEA and is found in dozens of state enabling statutes, Maine’s enabling statute diverges from the UCEA in two respects.  First, Maine’s statute expressly grants the Maine Attorney General limited standing to initiate and intervene in conservation easement suits.  Only a handful of other states have similar AG standing provisions.  Second, Maine’s statute omits a provision of the UCEA that grants standing to “a person authorized by other law.”  In fact, the trial court rejected standing on a “special interest” theory precisely because of this omission.  The omitted language arguably allows the owner of a portion of an easement-protected property such standing on a “special interest” or “intended beneficiary” common law theory.  In the only case that is directly on point, a Connecticut trial court judge in McEvoy v. Palumbo, 52 Conn. L. Rptr. 745 (Conn. Super. Ct. Nov. 16, 2011) also applied the narrow standing approach.

Maine Land Conservation Law E-Bulletin – May 2017
May 16, 2017
In this issue:
  • Land Trusts Fend Off Governor’s Property Tax Assault (Again)
  • Maine Trial Court Rules Against Land Trust in Conservation Easement Dispute
  • Maine Supreme Court Decides Conservation Easement Standing Case
  • E-Bulletin Information

Land Trusts Fend Off Governor’s Property Tax Assault (Again)

In what is becoming an annual exercise, Maine land trusts are once again fending off attempts by the Governor and his conservative allies in the Legislature to weaken the property tax laws as applied to land trusts in particular and nonprofit organizations in general.  Two separate bills, LD 727and LD 1521, are at issue.  Last year, similar bills were unanimously defeated in committee, but recently LD 727 received support from four Republican members of the Taxation Committee.  Meanwhile, the Committee voted 9 to 3 Ought Not To Pass on LD 1521 last Thursday.  Now both bills will go before the full Legislature.  For more information on what these bills would do, see MCHT’s analysis.

Now is the time once again to let your Representatives and Senators know that support for land conservation is bipartisan, and that the property tax laws do not need a legislative fix.  Click here to find your legislators and their contact information.  Hearing from even three or four constituents can make a big difference on these bills.  And the property tax issue is a great entree to speaking about the overall work of your local land trust.

Maine Trial Court Rules Against Land Trust in Conservation Easement Dispute

In an April 29 decision, Justice John O’Neil of the Maine Superior Court ruled that a nonprofit school was not a “commercial use” and therefore did not violate a conservation easement held by the Saco Valley Land Trust (SVLT).  The court further held that the easement’s reference to “local land use laws” referred to those laws as they may change over time, and not at the time the easement was executed.

Here’s the backstory:  SVLT accepted a donated conservation easement from Mary Merrill in 1998 on her 105-acre property in Saco.  The easement designated 96 acres as the “Protected Property” and the other 9 acres as the “Residence/Farm Area,” where an existing residence and some outbuildings were located.  The restrictions on the 96 acres are fairly typical of a conservation easement, with only minimal structures and surface alterations permitted.  In contrast, the Residence/Farm Area was largely unrestricted, with two key exceptions: (1) no “commercial uses” were allowed (except forestry or agriculture); and (2) any structures had to be “permitted by local land use laws and… in keeping architecturally with the other structures in the Residence/Farm Area.”

In 2015, the Ferry Beach Ecology School (FBES), a Maine nonprofit corporation and 501(c)(3) tax-exempt organization, worked out a deal to purchase the 105 acres from Thomas Merrill (Mary’s nephew, who inherited the property upon Mary’s death).  FBES sought to relocate its educational programs to a new campus on the property, and proposed to establish two 9,000-square-foot dormitories and a 7,000-square-foot dining hall for 120 students within the Residence/Farm Area.  SVLT’s approval of the project was a contingency of the purchase and sale agreement, as was the City’s land use approvals.  The City of Saco approved a contract zone application for the property in early 2016, but site plan review was placed on hold pending SVLT’s approval.

SVLT objected to the FBES proposal, claiming that the size and scope of the school’s activities rendered it a commercial use that was not consistent with Mary’s intentions as set forth in the easement and in her subsequent last will and testament.  SVLT also contended that the easement’s reference to structures “permitted by local land use laws” referred to the laws in effect as of 1998, when the easement was executed.  And because the 1998 zoning classification would not have allowed the school, the FBES proposal could not meet the “local land use laws” condition of the easement.

Thomas Merrill filed suit against SVLT, seeking a declaratory judgment that the school’s activities and structures did not constitute a “commercial use,” and that the easement’s reference to local laws referred to laws in existence moving forward to time, and not the laws in effect at the time of the easement’s conveyance.

On summary judgment, the Superior Court sided with Merrill on both points.  As for commercial use, the court followed past Maine Supreme Court decisions that cited the dictionary definition of the word “commercial” to mean “of or relating to commerce” and “having profit as a primary aim.”  Because FBES was organized as a nonprofit corporation with educational purposes, it did not have profit as a primary aim, even if it might substantially grow its programs at the new location.  The court also pointed out that the potential size and scope of the educational programs and structures was nevertheless consistent with the easement because only minimal restrictions were placed on the Residence/Farm Area.

On the reference issue, given the absence of case law from the Maine Supreme Court, the Superior Court judge adopted a general rule of deed construction that any reference to general laws refers to laws as they may change over time, unless there is a clear expression of contrary intent.  In contrast, references to specific statutory provisions refer to the law in place at the time of the reference, unless provided otherwise, such as by adding the words “as amended” after the reference.  Because the conservation easement used the former approach, its general reference to local land use laws was intended to mean those laws as they might evolve in the future.  As the court noted, to hold otherwise would mean that decades or even centuries in the future, the parties would have to interpret a proposed action’s consistency with the City’s 1998 land use laws.

As this case shows, land trusts and landowners cannot rely on a blanket prohibition of commercial uses to prevent all high-impact uses of a protected property.  By the logic of this decision, a nonprofit hospital could also be placed within the Residence/Farm Area.  Moreover, easement drafters should take note of any references to general laws or specific statutes, and make sure the intent is consistent with the rule of construction expressed in this decision.

One remaining loose thread, which prevented a full dismissal in Merrill’s favor, is that FBES still must obtain final site plan approvals from the City, although that appears to be a likely next step.  In addition, Merrill brought conflict-of-interest claims against SVLT because two of its Board directors own nearby property and allegedly should have recused themselves from SVLT’s internal decision making process.  But this decision doesn’t address that issue.  Finally, SVLT could still seek to defeat the project on the architectural consistency issue, also not addressed in this decision.  It’s not clear at this point whether SVLT will appeal the decision to the Maine Supreme Court.  In any event, such appeal would likely have to wait until the remaining zoning approvals are resolved by the City.

The court’s decision is not currently online.  Please email me if you’d like a copy.

Maine Supreme Court Decides Conservation Easement Standing Case

In January, the Maine Supreme Court issued an important opinion (Estate of Robbins v. Chebeague and Cumberland Land Trust) that sharply circumscribes who has standing to enforce conservation easements in Maine.  In my view this case reaches the right policy outcome, and a judicious resolution of this particular dispute.  Although the specific issue that was decided by the court concerns a relatively rare situation, the broader and far more significant implication of the opinion is to confirm that Maine’s conservation easement enabling act does not confer standing on neighbors or the public at large.

Here are the key background facts: In 1997, Marion Payson donated a conservation easement on 100 acres of coastal land in the Town of Cumberland to the Chebeague & Cumberland Land Trust (CCLT).  The easement allowed for 10 building lots, each on separate dividable parcels.  In June 2014, the Payson heirs agreed to sell the bulk of the protected property to a developer, and the family retained only a 2-acre parcel.  Between the execution of the purchase and sale contract and the closing, the developer (unbeknownst to the Payson family) worked out a deal to sell the Town a 25-acre portion of the protected property for $3 million.  The Town proceeded with plans to develop a beachfront park, including the paving of an existing unpaved access road and the establishment of a parking area, portable toilets, and a pier.  The Town had been seeking public beach and shore access for many years, and this property was one of the few remaining undeveloped parcels available.  Meanwhile, CCLT determined that the paved road, parking area and recreational structures would not violate the conservation easement.  Cumberland voters narrowly approved the beach park purchase in November 2014.  The Payson family (acting through the Estate of Merrill Robbins, the record owner of the 2 acres) objected to the sale to the Town and filed suit against CCLT and the Town in December, claiming that the park improvements would violate the conservation easement.  The Town and CCLT filed motions to dismiss, contending that the Estate had no standing because it owned only the 2-acre parcel, which was separate from the 25-acre parcel to be developed into the beach park.  Maine’s conservation easement act confers standing on “an owner of an interest in the real property burdened by the easement.” 33 M.R.S. § 478(1)(C).  At issue on the motions to dismiss was whether any one landowner can bring an action to enforce the conservation easement as it pertains to another landowner under the same easement (i.e., a broad standing application).  Or does a landowner have standing only with respect to her specific portion of the protected property (i.e., a narrow standing application)?  The trial court held in favor of the narrow application and dismissed all claims against the Town and CCLT (opinion available here by typing “Woodworth” in plaintiff line), and the Estate appealed.

The Maine Attorney General filed an amicus brief in support of the landowners on appeal.  The AG took no position on the merits of the landowners’ argument about the correct interpretation of the conservation easement, but rather argued for the broader standing interpretation, finding no ambiguity in the enabling statute.  Meanwhile, the Maine Farmland Trust filed an amicus brief in favor of a narrow application of the standing provision, focusing on the policy implications.

The Maine Supreme Judicial Court affirmed the trial court in a 3-2 decision, holding that a landowner of one geographic portion of a conservation easement protected property does not have standing to enforce that easement as it pertains to a separate area of the protected property owned by another person.  The court found that the phrase “owner of an interest in the real property burdened by the easement” was ambiguous, insofar as it could reasonably be interpreted to mean either the broad or the narrow standing application.  The court went on to conclude that the underlying policy and legislative intent of the Maine conservation easement enabling statute supports the narrow reading.  In particular, the court cited a comment to the Uniform Conservation Easement Act (UCEA), upon which Maine’s enabling statute is based.  This comment suggests that the principal purpose of granting standing to the landowner is to allow that landowner to hold the easement holder accountable with respect to any affirmative obligations owed by the holder to that landowner, and not generally to all landowners under the easement.

The court likened the Payson heirs’ attempt to enforce the easement to a private attorney general action.  And because Maine’s enabling statute was amended in 2007 to allow for only limited standing by the Maine Attorney General, the court concluded that the Maine Legislature did not intend to allow for expanded standing by members of the public acting as private attorneys general.  Moreover, the court observed that from a policy perspective, a broad standing application is not needed because the Attorney General has standing under Maine’s statute in the event that a holder fails to enforce a clear violation.  Moreover, the court noted that a broad standing rule would expose the easement holder to “expensive and complicated enforcement lawsuits” that often would not serve the public interest, such as in the instant case where the plaintiffs’ apparent motivation was to limit public access.

The dissent took a different approach, finding that the key phrase, “an owner of an interest in the real property burdened by the easement,” was not ambiguous.  The dissent reasoned that because the word “the” is a definite article, its plain meaning “must refer to all of the real property” burdened by the easement, not just that portion owned by a particular landowner.  The fact that this was a split 3-2 decision reflected that the statutory construction issue was far from a no-brainer.  Some of my legal colleagues and land trust professionals, committed conservationists all, think the dissent had the better legal argument here.

Nevertheless, I’m quite pleased with this opinion from a policy perspective.  The circumstances present in this case, where the owner of a portion of an easement-protected property seeks to enforce the easement with respect to a portion owned by another landowner, are relatively unusual.  The true impact of this opinion is in resolving the broader and much more common question of whether neighbors or the general public have standing under Maine’s conservation easement enabling statute.  All of the reasons cited by the Maine Supreme Court in denying standing to these particular plaintiffs are even more applicable and persuasive with respect to a typical neighbor or citizen with no ownership interest in the protected property.  Until now, the only decision on neighbor or citizen standing in Maine came from a one-page trial court order rejecting such standing.  Cluff  Miller v. Gallop, No. RE-03-022 (York Cty. Super. Ct. July 2, 2003).  But the Estate of Robbins opinion effectively confirms that neighbors, as well as the general public at large, do not have any such standing to enforce conservation easements in Maine.

Foreclosing neighbor or citizen standing is the right policy outcome because nine times out of ten, these suits further the private interests of the plaintiffs rather than the public interests of land protection, just as the Maine Supreme Court pointed out.  And for the very occasional instance where a neighbor or citizen seeks to step in because the easement holder has been genuinely remiss in its enforcement responsibilities, that person can petition the Maine Attorney General to exercise its enforcement powers under Maine’s enabling act.  Although the Maine Attorney General’s office does not have the resources to take on numerous enforcement actions, surely it has the ability to step in for the once-in-a-blue-moon situation where a land trust (or more, likely, a government holder) is asleep at the wheel.

On the narrower question of whether the owner of a portion of a protected property should have standing to enforce the easement vis a vis another portion of the property, I think the equity issues are more debatable, but still militate in favor of denying standing.  Looking prospectively, attorneys representing landowners should be alert to this issue whenever the easement will allow division of the protected property or when the property already has multiple parcels with different landowners.  In these cases, the easement can be drafted so as to override the narrow standing under the statute, although of course this will be a double-edged sword, subjecting every parcel owner to the whims of every other parcel’s owner.  On the one occasion over the past couple years where I have seen the issue arise during the drafting of an easement, both landowners declined to assume any standing authority over each other, and trusted that the holder would responsibly enforce the easement.

Meanwhile, it’s unclear to what extent this opinion will or should have applicability outside of Maine.  Although the specific language at issue, “an owner of an interest in the real property burdened by the easement,” comes directly from the UCEA and is found in dozens of state enabling statutes, Maine’s enabling statute diverges from the UCEA in two respects.  First, Maine’s statute expressly grants the Maine Attorney General limited standing to initiate and intervene in conservation easement suits.  Only a handful of other states have similar AG standing provisions.  Second, Maine’s statute omits a provision of the UCEA that grants standing to “a person authorized by other law.”  In fact, the trial court rejected standing on a “special interest” theory precisely because of this omission.  The omitted language arguably allows the owner of a portion of an easement-protected property such standing on a “special interest” or “intended beneficiary” common law theory.  In the only case that is directly on point, a Connecticut trial court judge in McEvoy v. Palumbo, 52 Conn. L. Rptr. 745 (Conn. Super. Ct. Nov. 16, 2011) also applied the narrow standing approach.

Maine Land Conservation Law E-Bulletin – December 2016
December 16, 2016
In this issue:
  • What Will Unified Republican Control Mean for Land Conservation?
  • IRS and Conservation Easement Amendments
  • Tax Shelter Advisory Guidance Coming
  • E-Bulletin Information

What Will Unified Republican Control Mean For Land Conservation?

If Donald Trump and Congressional Republicans were your candidates of choice, then congratulations, and may you be correct in placing your faith in them.  On the other hand, if you view last month’s election results as alarming, then read on for more reasons to be concerned.  In particular, what does the new regime mean for land conservation?  With the caveat that everything here is speculation, and that a Trump presidency is going to be wildly unpredictable, here are some initial thoughts, all of them rather sobering.

  • Lowered tax rates will likely hurt all nonprofit charities. Both Trump’s tax plan and the House Republican plan call for lowering tax rates on the wealthy (from a current top rate of 39.6% to 33%).  Likewise, the proposed elimination of the estate tax would reduce incentives for end-of-life giving.  Although not all experts agree, most consider it likely that charitable giving will decline due to decreased incentives.  The nonpartisan Tax Policy Center estimated that Trump’s overall tax plan would reduce individual charitable giving by 4.5 percent to 9 percent ($13.5 billion and $26.1 billion) in 2017.  On the other hand, if Trump’s environmental policies prove as abominable as feared, one small consolation is that land trusts could see increased charitable giving in response.
  • Limits on charitable deductions are in the mix. Trump’s tax plan and the House Republican plan call for very different treatment of charitable deductions.  Trump’s plan would cap all itemized deductions — including for charitable donations — at $100,000 for single people and $200,000 for married couples.  In contrast, the House plan would eliminate all deductions except for the charitable deduction and the mortgage interest deduction.  Trump’s plan would be devastating for land trusts, as it would substantially erode the tax incentives that support many fee land and conservation easement donations.  On the bright side, it seems intuitive that Trump will cede these sorts of policy details to Paul Ryan and the House Republicans.  Then again, it’s Trump, so who knows what will happen.  Capping the charitable giving deduction is not an inherently partisan idea; Obama proposed a similar plan in some of his earlier budgets.  But deduction limits coupled with lower tax rates would be a double blow for land trusts.  In any event, whether to impose charitable deduction limits could be a significant policy matter as a tax bill winds its way through Congress, and land trusts should be on the alert for opportunities to influence their representatives.  All of Maine’s members of Congress are probably persuadable on this issue.
  • Spending cuts will affect all charitable sectors, including land trusts. It should come as no surprise that significantly reduced tax revenues will lead to all sorts of pressures on the spending side.  Any and all domestic discretionary spending is at risk of substantial cuts in the coming years.  This will mean reduced direct outlays from the federal government, as well as increased need for nonprofit services as federally funded programs contract.
  • Public conservation lands will face substantial threats – Trump’s nomination of Montana Congressman Ryan Zinke as Secretary of the Interior is not a propitious sign for the administration of federal conservation lands. Zinke has received a three percent rating from the League of Conservation Voters over his two terms in Congress, and generally favors expansive fossil fuel and other natural resource extraction on public lands.  Meanwhile, the rumor is that Trump is eyeing North Dakota Democratic Senator Heidi Heitkamp to head the Department of Agriculture.  Although Heitkamp has a middling 49% lifetime score from the League of Conservation Voters, the land conservation community could do a lot worse.  To boot, the roster of climate deniers in Trump’s cabinet (starting with EPA nominee Scott Pruitt) does not bode well for the long-term health of our public and private conserved lands or our planet.    
  • Greater leeway to lobby and campaign? On the campaign trail, candidate Trump discussed repealing or scaling back the limitations on lobbying and campaigning activities by 501(c)(3) organizations.  See here for more details.  In particular, churches have pressed for such loosening of the rules over the past several years.  I don’t support these changes and am skeptical that they would become law, but stranger things have happened (see, e.g., the 2016 election).

The point of this discussion is not to depress anyone further, but rather to be clear-eyed about the challenges facing us as land conservationists.  I, for one, intend to remain on the front lines at the local, state, and federal levels to continue to advocate for all that I hold dear.  I hope you will join me.

One step you can take right this minute:  Sign up to become a Land Trust Alliance Advocacy Ambassador to receive timely prompts to assist with federal land conservation lobbying efforts.

IRS and Conservation Easement Amendments

In recent Tax Court cases and through statements at the Land Trust Alliance Rally, the Internal Revenue Service has signaled its continuing interest in conservation easement amendments.  Let’s take a closer look at each of these developments and see what’s going on.

First, to the Tax Court.  In four pending cases, the IRS has challenged the deductibility of conservation easements based in part on what it contends is an overly broad amendment provision.  The IRS argument is sweeping and vague, and seeks to link these provisions to the holdings in the recent decisions in Belk, Balsam Mountain, and Bosque Canyon.  However, the amendment provisions in these four pending cases are easily distinguishable from those three earlier cases, which dealt with very non-traditional substitution provisions.  In fact, the currently disputed amendment provisions are typical of those found in well-drafted conservation easements throughout the nation, as they prohibit the easement holders from approving an amendment unless it is consistent with the easement’s conservation purposes.  The Land Trust Alliance is currently considering filing a friend-of-the-court brief in the pending cases.

Meanwhile, at the Rally in October, Karin Gross, a senior attorney at the IRS who has focused on conservation easements for many years, announced her intention to undertake a process in 2017 to issue regulatory guidance around the subject of amendments.  She solicited feedback from the land trust community as to what should be included in this guidance.  It is unclear at this point if the guidance would be issued as a full-blown regulation, or something less formal, and whether the incoming Trump administration could delay or upend this new initiative.  Gross indicated that possible topics to be addressed by the guidance would be whether and how to implement third party review of amendments, how to ensure that amendments do not result in impermissible private benefit, and ensuring that amendments keep faith with the perpetuity requirement of § 170(h).

Whatever the IRS comes up with, it is certain to significantly impact how we draft and administer conservation easements in Maine and throughout the country.  A poorly conceived product could do much damage to land conservation efforts, so it’s important that the IRS gets it right and does not overreach.  Some in the land trust community believe that the IRs should be dissuaded from issuing any guidance at all.  If you or your land trust would like to offer feedback to the IRS, including whether to proceed with this guidance initiative, please e-mail me for the relevant contact information.

Tax Shelter Advisory Guidance Coming

Another issue that has received IRS and Land Trust Alliance attention is the use of conservation easements as syndicated tax shelters.  This is a complicated legal and tax issue, best summarized in this post from the Alliance.  Fortunately, we are not seeing much, if any, such abuses occurring in Maine.  Nevertheless, land trusts and their attorneys are advised to be on the lookout for deals that seem suspect.  One key indicator of abusive tax shelters is a recently formed a limited liability company having multiple non-related individuals as members. For starters, the Alliance is recommending the use of this flow chart to guide land trusts.

At Rally in October, Karin Gross announced that the IRS will issue by the end of 2016 a notice on abusive conservation easement transactions.  We are not certain what form that guidance will take, and the hope is that this notice will have a chilling effect on abusive transactions but will not discourage legitimate ones.

Maine Land Conservation Law E-Bulletin – March 2016
April 14, 2016
In this issue:
  • Major New Hampshire CE Amendment Approved
  • Tax Court Case Sheds Light on Habitat and Open Space Tests
  • Disappointing Virginia Case Highlights Importance of Easement Construction Provision
  • Sabbatical Time… See You in the Fall!
  • E-Bulletin Information

Major New Hampshire CE Amendment Approved

In New Hampshire, conservation easement amendments are reviewed by the Charitable Trust Unit of the New Hampshire Attorney General’s Office.  This office recently issued a no-action letter approving a proposed amendment to a 2012 conservation easement held by the Society for the Protection of New Hampshire Forests.  The easement protects 5,690 acres of the Balsams Resort in Dixville Notch.  (The Forest Society is New Hampshire’s biggest land trust, and similar in scale to MCHT in Maine.)

At its peak, the Balsams Resort included a grand hotel and a downhill ski area, while employing 500 people.  The Resort was shuttered in 2011 and was purchased in 2014 by Les Otten (who has considerable business, charitable, and political interests in Maine).  Otten now seeks to reopen the hotel and adjoining ski area, and views the easement amendment as crucial to his plans.

The easement amendment would allow for portions of three new ski lifts and new ski trails on the protected property.  As mitigation for these additional structures and surface alterations, the landowner agreed to a host of steps, including increased protections on a 90-acre parcel and purchase and protection of two additional parcels totaling 116 acres.  An appraisal found that the value to Otten from the changes was more than offset by the mitigation package.

The agreement between Otten and the Forest Society was not without controversy.  As the no-action letter recognizes, the Forest Society solicited input from all of the 1,600 donors to its 2011 fundraising campaign that led to protection of the property.  Ultimately, two donors and a member of the public objected to the proposal, and the process was the subject of heavy media coverage.

In the thorough and well-reasoned no-action letter, the Attorney General’s Office concluded that the amendment proposal met the seven amendment principles contained in a guidance document published by the Forest Society and the AG’s Office.  These seven principles are the same as those enumerated in the Land Trust Alliance’s 2007 Amendment Report, and are incorporated in many land trusts’ amendment policies.  Thus, this particular amendment process in New Hampshire may be used as an instructive case study for other land trusts, in Maine and elsewhere.

Tax Court Case Sheds Light on Habitat and Open Space Tests

A new case out of the United States Tax Court, Atkinson v. Commissioner, T.C. Memo 2015-236 (U.S.T.C. 2015), provides a detailed analysis of how a conservation easement might fail both the habitat and open space prongs of the conservation purposes test under I.R.C. § 170(h)(4)(A).  The two easements at issue encumbered golf course properties within a gated residential community, and the Tax Court was persuaded by the IRS that neither easement protected significant habitat or open space.  The court analyzed but rejected a variety of habitat-related arguments by the taxpayers.  In particular, the court focused on the lack of evidence that any threatened or endangered plant or animal species were present in substantial numbers.  The court also noted that for whatever habitat did exist, the easement was not written in such a way to ensure that it would be protected.

Disappointing Virginia Case Highlights Importance of Easement Construction Provision

The Virginia Supreme Court has issued a disappointing decision in the recent case of Wetlands America Trust, Inc. v. White Could Ventures, No. 141577, — A.3d — (Va. February 12, 2016).  A key issue at trial and on appeal was whether a conservation easement should be subject to the strict construction rule that applies to traditional restrictive covenants.  This rule holds that restrictive covenants should be construed in favor of the free use of land.  After reviewing Virginia’s conservation easement enabling statute, which is similar in many respects to Maine’s and many other states’ enabling statute because it is based on the Uniform Conservation Easement Act, the Supreme Court, in a 5 to 2 decision, held that this traditional construction rule did indeed apply to conservation easements.  The decision points to the importance of including a pro-conservation construction provision in the easement proper; the easement at issue in this case had no such provision.

The underlying substantive issue in the case also offers lessons for other conservation easements, because it addressed what sort of structures might be allowed in an easement that permits wide-ranging agricultural activities.  The dispute arose over a large building erected by the landowner that served as a combination creamery, bakery, wine tasting room, and retail store.  Some of the products involved in these commercial activities were derived from the protected property or an abutting property owned by the same landowner.  The trial court found that this building was indeed a permitted “farm building” within the meaning of the easement.  The Virginia Supreme Court affirmed, noting that production, preparation and marketing were inherent components of agricultural activities and therefore permitted under the terms of the easement.

Sabbatical Time…  See You in the Fall!

On a personal note, the E-Bulletin will be on a hiatus as I take a sabbatical this year from April through September.  I will attempt to bike across the country (Delaware to Seattle) with my wife Sarah and our daughter Cedar.  If you’re interested in following our progress, you can e-mail me and I’ll add you to our trip journal list.  See you in the fall!

Maine Land Conservation Law E-Bulletin – December 2015
December 16, 2015
In this issue:
  • LMF Breakthrough!
  • Conservation Easement Tax Incentives Breakthrough!
  • Land and Water Conservation Fund Partial Breakthrough!
  • Important Open Space Tax Case
  • E-Bulletin Information

LMF Breakthrough!

Governor LePage has reversed course and now will allow the sale of Land for Maine’s Future bonds in the coming months.  This is great news for the more than 30 approved projects that were put on hold due to his previous attempts to sandbag the LMF program. Land trusts and conservation groups will now see to it that the Governor follows through on his commitment.

Perhaps the Governor was responding to polling results showing that Mainers across the political spectrum overwhelmingly support the LMF program.  In fact 74% of respondents, including 54% of Republicans, think the Governor should release the LMF bond funds.

For more on this encouraging development, see the BDN’s editorial piece and the Press Herald’s news story.

Conservation Easement Tax Incentives Breakthrough!

Ever since the enhanced giving incentives for conservation easements first went into effect in 2006, they have been extended for a year or two at a time.  Now, Congress is on the cusp of making these incentives permanent as part of a blockbuster tax deal   For more on the breaking news, check out the Land Trust Alliance.

To review, the enhanced easement incentives do the following:

  • Raise the maximum deduction a donor can take for donating a conservation easement from 30% of their adjusted gross income (AGI) in any year to 50%;
  • Allow qualified farmers and ranchers to deduct up to 100% of their AGI; and
  • Increase the number of years over which a donor can take deductions from 6 years to 16 years.

Together, the enhanced incentives make it more likely that easement donors having modest levels of income will be able to claim more of their deduction, rather than letting it go unused due to the AGI cap and carryover limitations.

Land and Water Conservation Fund Partial Breakthrough!

And the good news just keeps on rolling.  The same bill that makes the conservation easement tax incentives permanent also reauthorizes the Land and Water Conservation Fund for three years.  The LWCF has provided billions of dollars in funding for land conservation and outdoor recreation since its inception in 1965.  Maine alone has received $172 million in funding, including projects in Acadia National Park, our three National Wildlife Refuges, and many local parks.  Unfortunately, some conservative Republicans in western states let the LWCF expire in September and were seeking radical changes to the program before reauthorizing it.  Although a permanent LWCF authorization would have been much better, the three-year extension is a step in the right direction.  Check the LWCF Coalition page as more information becomes available.

Important Open Space Tax Case

The recent decision by the Maine Board of Property Tax Review (BPTR) in Greenleaf Cove Ass’n v. Town of Westport Island, No. 2015-003 (BPTR Sept. 28, 2015) interpreted two important provisions of Maine’s Open Space Tax Program.

The Town of Westport had rejected an Open Space application by the Greenleaf Cove Association, a residential homeowner association.  The Association owned a 1.1-acre common lot on the shore of the Sheepscot River and allowed public to access the parcel.  Furthermore, a restrictive covenant enforceable by the lot owners required the parcel to remain undeveloped except for trail-related structures and a dock and seasonal ramp and float located on the parcel.

The Association applied for a 45% reduction in taxes, 20% for the basic Open Space category and 25% for the public access category. The Town initially determined that there was insufficient evidence showing any public benefit (a key requirement of eligibility for Open Space classification) from keeping such a small parcel in Open Space.  But the town backed off on this argument and conceded the issue before the BPTR.

Three issues remained for the BPTR’s determination. First, did the dock disqualify the parcel from Open Space eligibility because it was a “principal or accessory structure” or a “substantial improvement… inconsistent with the preservation of the land as open space”?  If the dock fit either of those definitions, then the entire parcel would be excluded from the Open Space area under 36 M.R.S. § 1109(3), because Westport Island’s minimum lot size is two acres.  The BPTR found that the dock was not a “principal or accessory structure” but was a “substantial improvement,” and that in this case it was consistent with Open Space classification because it provided recreational water access to the general public and a “scenic platform for scenic views association with that access.”  I think the key to making sense of this conclusion is to realize that the dock here was publicly accessible.  In contrast, a dock or similar improvement that was not accessible to the public and therefore did not facilitate recreational uses of the parcel presumably would not be consistent with Open Space classification.

The second issue was whether in order to qualify under the public access category for an additional 25% reduction, there needed to be a deeded right of access to the public that is enforceable by a third party (e.g., a conservation easement or trail easement).  The BPTR ruled that no such deeded public access is necessary under the language of § 1106-A(3)(C).  I think this is the right policy outcome here, as it will encourage landowners to open their property to the public, without making them commit to perpetual public access.

Finally, the BPTR found that the public could reach the parcel by reasonable means (driving down a dirt road and then walking down a path) and that the Association’s establishment of signs, two parking spaces, and trail improvements was enough to encourage the general public to use the parcel for recreational purposes.

Keep in mind that decisions of the BPTR are not binding legal precedent, but they can be useful as persuasive authority in negotiations with municipalities and in litigation briefs.

Maine Land Conservation Law E-Bulletin – September 2015
September 17, 2015
In this issue:
  • Governor Ups Ante Against LMF  – Republicans in State House Stand By and Watch
  • New Hampshire Agritourism Case
  • Federal Land and Water Conservation Fund At Risk – Contact Bruce Poliquin’s Office
  • E-Bulletin Information

Governor Ups Ante Against LMF — Republicans in State House Stand By and Watch

Governor LePage’s vendetta against the Land For Maine’s Future program shows no signs of ending.  I wrote about this issue in the March and June E-Bulletins, and the situation has worsened since then.  The Governor has now frozen $2 million in already existing LMF funds and prevented the program from accessing private donations.  Furthermore, the three administration cabinet members of the LMF Board have failed to attend the last two LMF Board meetings, resulting in the lack of a quorum to do any business.  For recent press coverage, see here.

Meanwhile, most Republicans in the State House have stood by the Governor.  In June, the Legislature approved LD 1378, a bill that would require the Governor to release voter-approved bonds unless there are legitimate, objective reasons for holding them.  But the Governor vetoed the bill and although the Senate voted to override the veto, the House sustained it due to most Republican members bowing to pressure from their leadership.  To see how your state senator and representative voted the on the veto, click here and here (a No vote sided with the Governor against LMF).  I strongly encourage citizens in any district with a senator or representative who voted no on the veto to contact that legislator to express your disappointment.  And if your representative voted yes, please go out of your way to thank him or her.  With no end to the dispute in sight, it is looking increasingly likely that LMF will become a campaign issue in 2016.

New Hampshire Agritourism Case

A recent decision by the New Hampshire Supreme Court should be of interest to Maine land trusts, especially those with agricultural conservation easements.  In Forster v. Town of Henniker, — A.3d — (N.H. 2015), the Court held that “agritourism” is not included in the statutory definition of “agriculture” for local zoning purposes.

Here is the background:  Stephen Forster owned a 110-acre property in the Town of Henniker on which he operated a Christmas tree farm.  The property was located in a rural residential zone in which agriculture was permitted.  Home businesses and bed and breakfasts were also permitted by special exception.  In 2011, Forster began offering the farm as a rental space for weddings and other private events.  The Town cited him for violating the zoning ordinance, claiming that private events were not accessory agricultural uses and were not otherwise permitted in the rural residential zone.  The Town’s zoning ordinance defined “agriculture” by reference to a state statute’s definition.  This same statute contained a separate definition of “agritourism” as an activity that was “ancillary” to a farm operation.  Forster claimed that “agritourism” was included in the statutory definition of “agriculture.”  Alternatively, Forster argued that even if the rental events were not a form of agriculture, state law and policy in support of agritourism preempts the local zoning ordinance.

As part of its opinion, the New Hampshire Supreme Court found that state statutes did not create a comprehensive and detailed scheme in support of agritourism and thus did not impliedly preempt the zoning ordinance.  The Court further held that agritourism was not an ancillary use to agriculture because it was not “commonly, habitually and by long practice… established as reasonably associated” with agriculture.  The court noted that Forster had proffered examples of only nine other New Hampshire farms engaged in agritourism, and a handful in other New England states.

This is not a land conservation case per se, but because many agricultural conservation easements are imprecise on what constitutes “agriculture,” it certainly merits attention.  Land trusts are often asked to decide whether various agritourism activities are permitted on agricultural easements.  Whether agritourism is a customary and longstanding practice for farms is certainly open to debate.  In fact, one of the justices strongly dissented on this very point, noting that “none of my four colleagues have spent a summer in East Colebrook, an area where weddings on farms are customary.”  As with many other issues regarding agricultural easements, it is recommended that drafters deal with agritourism explicitly by defining it and either allowing it (perhaps subject to holder approval), prohibiting it, or delegating to a management plan.

Federal Land and Water Conservation Fund at Risk – Contact Bruce Poliquin’s Office

The federal Land and Water Conservation Fund is set to expire on September 30, unless reauthorized by Congress.  LWCF provides key funding for parks, playgrounds, and other conservation projects throughout Maine and the nation.  Reauthorizing LWCF is a key priority of the Land Trust Alliance right now, and they are supporting a letter from Republicans to Speaker of the House John Boehner.  Representative Bruce Poliquin of Maine’s Second District is one of the Congresspersons who has not yet signed the letter.  For more information, click here.  If you live in the Second District, please call Representative Poliquin’s office at (202) 225-6306.  Kate Shorr is the Legislative Aide responsible for natural resources.  Her e-mail is Kate.Shorr@mail.house.gov.

Maine Land Conservation Law E-Bulletin – June 2015
June 30, 2015
In this issue:
  • Important Maine Conservation Easement Standing Case
  • Governor Still Holding LMF Hostage – Speak Up to Support Veto Override of LD 1378!
  • E-Bulletin Information

Important Maine Conservation Easement Standing Case

A case is winding its way through the Maine court system that will have state and national implications for who has standing to enforce a conservation easement. The Cumberland County Superior Court recently ruled that a landowner subject to one geographic portion of a conservation easement protected property does not have standing to sue to enforce that easement as it pertains to a separate area of the protected property owned by another landowner. Woodworth v. Chebeague & Cumberland Land Trust, No. CUMSCCV-14-523 (Me. Super. Ct., Cum. Cnty. May 5, 2015)(Mills, J.)(available online here by typing “Woodworth” in plaintiff line).  However, the plaintiff has appealed, and the matter will now go before the Maine Supreme Court.

Here’s the background: In 1997, Marion Payson donated a conservation easement on 100 acres of coastal land in the Town of Cumberland to the Chebeague & Cumberland Land Trust (CCLT). The easement allowed for numerous building lots, and for unlimited subdivision. In June 2014, the Payson heirs agreed to sell the bulk of the protected property to a developer, and the family retained only a 2-acre parcel. Between locking down the property under contract and the closing, the developer (unbeknownst to the Payson heirs) worked out a deal to sell the Town a 25-acre portion of the protected property for $3 million. The Town proceeded with plans to develop a beachfront park, including an access road, parking area, and a pier, as the Town had been seeking public beach and shore access for many years. Meanwhile, CCLT determined that the road, parking area and recreational structures would not violate the conservation easement. Cumberland voters narrowly approved the beach park purchase in November 2014. The Payson family (acting through the Estate of Merrill Robbins, the record owner of the 2 acres) objected to the sale to the Town and filed suit against CCLT and the Town in December, claiming that the public park would violate the conservation easement.

The Town and CCLT filed motions to dismiss for lack of standing. In particular, they argued that the Estate had no standing because it didn’t own the shorefront and roadway to be developed into the beach park. Maine’s conservation easement act confers standing on “an owner of an interest in the real property burdened by the easement.” 33 M.R.S. § 478(1)(C). Generally, this is a straightforward matter because most conservation easements prohibit division of the protected property, and so there is only one landowner. But what happens if a conservation easement is originally granted by multiple landowners over separately owned parcels, or if the easement allows later division of the protected property? Can any one of those landowners bring an action to enforce the conservation easement as it pertains to another landowner (i.e., a broad reading of the statute)? Or does the landowner have standing only with respect to her portion of the protected property (i.e., a narrow reading of the statute)?

This is a novel issue in Maine and in just about every state. The only Maine conservation easement standing case is Cluff Miller v. Gallop, No. YORSC-2003-022 (York Cnty. Super. Ct. July 8, 2003)(Fritzsche, J.), where the Superior Court ruled that an abutter does not have standing to enforce a conservation easement. Meanwhile, in the only case that is directly on point, a Connecticut trial court judge in McEvoy v. Palumbo, 52 Conn. L. Rptr. 745 (Conn. Super. Ct. Nov. 16, 2011) held that a landowner who owned a portion of a protected property did not have standing to enforce the conservation easement as it pertained to another landowner’s portion of the protected property.

In Woodworth, Justice Mills found that the phrase “owner of an interest in the real property burdened by the easement” is ambiguous, insofar as it could reasonably be interpreted to mean either the broad reading or the narrow reading. However, the court went on to conclude that the underlying policy and legislative intent of the Maine conservation easement enabling statute supports the narrower reading. In particular, she noted that the Maine comment to this provision suggests a particular emphasis on narrowing the range of parties having standing. In turn, the relevant Uniform Conservation Easement Act (UCEA) comment implies the intent to ensure that a landowner can hold an easement holder accountable with respect to affirmative obligations owed to that landowner, and not generally to all landowners under the easement. Next, Justice Mills cited McEvoy and a Massachusetts case limiting conservation easement standing. She also noted that from a policy perspective, standing in this context is not needed because the Attorney General has standing under Maine’s statute in the event that a holder fails to enforce a clear violation. Finally, she rejected standing on a “special interest” theory because Maine’s enabling statute expressly omits the UCEA provision granting standing to “a person authorized by other law.”

In my view, Justice Mills’ opinion is well reasoned and clearly written. However, the Office of the Maine Attorney General has signaled its intent to file an amicus brief in support of the landowners on appeal. Although the AG will take no position on the merits of the landowners’ argument about the correct interpretation of the conservation easement, the AG apparently disagrees with the trial court on the standing issue.

From a policy perspective, I think Justice Mills reaches the right outcome because on the whole, neighbors’ attempts to enforce easements are usually not due to irresponsible land trust holders, but rather to overzealous neighbors. In other words, for every occasional instance where a neighbor might bravely and rightly try to hold a lax land trust to account, there are nine other times where the neighbor is simply unhappy about a land trust’s reasonable interpretation of its easement. Although the neighbor in this case was not just any neighbor, and held an interest in a portion of the easement, the same basic dynamics apply. Therefore, the Maine Supreme Court should affirm this decision.

Governor Still Holding LMF Hostage – Speak Up to Support Veto Override of LD 1378!

Unfortunately, the Land For Maine’s Future program remains in limbo due to the antics of our Governor. I wrote in March about how Governor LePage is refusing to release LMF bond funds unless the Legislature yielded to his aggressive timber cutting policies on Public Reserved Lands. In June, the Legislature approved by over a two-thirds vote LD 1378, as amended, a bill that would require the Governor to release voter-approved bonds unless there are legitimate, objective reasons for holding them. The Governor is expected to veto the bill any day now, and then it will return to the Legislature for a possible override. The Senate vote was 26 to 9 in favor, enough of a cushion to afford the loss of a few Republican votes. But the House vote was 102 to 48 in favor, and if only 3 Republicans bail on the bill and choose to support the Governor, the bill will fail. Thus, if you live in a district represented by a Republican House Representative or Senator, it’s critical that you speak up and tell him/her that you’re paying close attention to the override vote and would like to see this bill passed. To see how your senator and representative voted the first time around click here and here.  Representatives who voted Yes voted in support of the bill. The vote in the Senate was on whether or not to kill the bill; Senators who voted No voted against killing the bill. (Hat tip to Maine Audubon for providing this information.)

Maine Land Conservation Law E-Bulletin – March 2015
April 24, 2015
In this issue:
  • Governor LePage Holding LMF Hostage – Your Voice Needed!
  • Land Trust Property Tax Exemption Update
  • E-Bulletin Information

Governor Holding LMF Hostage – Your Voice Needed!

For the second time in three years, Governor LePage is refusing to release Land For Maine’s Future bond funds unless the Legislature yields to an unrelated policy goal. Maine voters have approved LMF bonds by nearly 2 to 1 margins seven times since the program’s inception in 1987. Never before has a governor shown such disdain for the will of the voters by politicizing a popular bond program that enjoys broad bipartisan support. Moreover, LePage is breaking an express promise he made in 2013 to release these specific LMF funds. Although I disagree with many of the Governor’s ideas, politics is politics and he was fairly re-elected. That said, I believe his integrity has reached a new low with this move.

For an especially withering analysis of the governor’s ploy, see this column by George Smith, former Executive Director of the Sportsmen’s Alliance of Maine. For another overview of the issue, see this press release from Maine Coast Heritage Trust and The Nature Conservancy.

Land trusts, sportsmen’s organizations, and other conservationists statewide are encouraging members and supporters to contact their elected officials to voice their disapproval of LePage’s actions. In particular, it is thought that contacts with Republican State Senators or State House members will be most useful in pressuring LePage to make good on his promise to spend the LMF money in an expedited fashion.  You can find your legislators’ contact information here.

Land Trust Property Tax Exemption Update

Just a few months after land trusts celebrated a historic victory before the Maine Supreme Court in the Francis Small Heritage Trust case, Governor LePage is seeking to weaken the property tax exemption laws for all nonprofit charities. The Maine Legislature is currently considering the Governor’s proposal to tax charities with real estate valued over $500,000 in a municipality. Any amount over the $500,000 threshold would be taxed at 50% of the ordinary tax rate. Many land trusts would face steep taxes as a result of this plan. Current sources tell me that the Governor’s bill is facing strong bipartisan headwinds in the Legislature, and if nonprofits keep up the pressure there is a good chance the proposal will be defeated. Tellingly, no municipality appeared in support of the plan at a public hearing in February, and the Maine Municipal Association did not take a position for or against.

However, there are other bills afoot that might weaken the property tax exemption for conservation land. Some of these bills have yet to be printed, so we don’t know all the details. For example, we expect the State House Representative from Limington, where FSHT operates, to introduce “An Act To Implement a Local Ballot Referendum for Municipalities To Allow or Disallow Nonprofit Landowners of Large Parcels To Be Tax-exempt.”  Based on its title, this bill appears to be an attempt to weaken or overturn the FSHT case.  It is still early in the legislative session and a lot can happen in the next three months.  To see an MCHT list (updated periodically) of all bills affecting land conservation, click here.

On Saturday, April 25 at the Maine Land Conservation Conference, Karin Marchetti Ponte and I will be outlining the state of play regarding land trust property tax exemption in the wake of the FSHT case. A representative from Francis Small will tell about their decisions to pursue litigation and their relationship with the town after the landmark decision.

Maine Land Conservation Law E-Bulletin – December 2014
December 17, 2014
In this issue:
  • Maine Attorney General Prevents Termination of Conservation Easement
  • Conservation Easement Enhanced Tax Incentives – Your Voice Needed
  • E-Bulletin Information

Maine Attorney General Prevents Termination of Conservation Easement

Over the past two years, the Office of the Maine Attorney General has upheld the continued existence of a conservation easement that a landowner had sought to terminate.

The conservation easement protects a 13-acre stream corridor on a parcel in the Town of Buckfield.  The easement had been granted to the Town by a previous landowner in 2003 as one of the conditions of a subdivision approval by the Town.  But only one lot of the subdivision was sold, and the remainder of the lots was purchased by the current landowner in 2005.  Thus, in 2006 the Town revoked the subdivision approval at the current landowner’s request.  In 2011 the landowner enrolled part of her land, including the conservation easement protected property, in Tree Growth and commissioned a forest management plan for this area.  The landowner then sought the Town’s consent to terminate the conservation easement, declaring that the forest management plan would uphold the conservation values of the property, and the easement was no longer needed, especially because the subdivision had never been built.  The Town approved the termination request in a special town meeting in December 2012.  If the story had ended there, the easement would likely have been terminated and no one in the land conservation community would have even heard about the incident.

However, since 2007 the Maine Conservation Easement Act has required judicial approval of any conservation easement termination.  Furthermore, the Maine Attorney General must be made a party in such an action.  Thus, the landowner wrote the Attorney General in February 2013 to obtain its consent to the termination.  Amy Mills, an Assistant Attorney General at the time, replied by a letter stating that the Office would not support the termination.  Mills wrote that even though the easement had been created out of a subdivision approval process, “it does not necessarily follow that the foregoing conservation values of the protected property no longer persist in the absence of development of an adjacent subdivision.”  Mills then referred to the provision of the statute requiring judicial approval for termination.

In January 2014 the landowner filed suit in District Court and named the Town and the Attorney General as respondents.  The Attorney General successfully moved to remove the case to Superior Court, and continued to oppose the termination.  Eventually, Lauren Parker, an Assistant Attorney General who succeeded Mills, entered into discussions with the Town’s attorney and the landowner’s attorney, and the parties reached a stipulated dismissal by which the landowner essentially agreed to drop her request for termination of the easement.  The parties are still awaiting the court’s adoption of the dismissal, but that is expected to be a mere formality.

In my view, the process unfolded exactly as it should have, and the Office of the Attorney General should be applauded for its efforts. Given that conservation easements are intended to last in perpetuity, it should be very difficult for a conservation easement to be terminated. Requiring court approval and Attorney General involvement ensures that an ill-considered termination will not occur. This will not be the last time the Attorney General will have to step in to protect a conservation easement. In fact, right now an upscale retirement residential facility in the Town of Scarborough is seeking to terminate a conservation easement in order to expand its campus by another 52 units. See this Bangor Daily News article for more information.

Conservation Easement Enhanced Tax Incentives – Your Help Needed!

The land trust community is oh so close to achieving one of its key policy goals of the past several years: the permanent extension of the conservation easement enhanced income tax incentives. This provision is part of a larger bundle of charity-related extensions included in the America Gives More Act (H.R.4719) that was passed by the House of Representatives in the fall. And the charity-related extensions are part of a larger “tax extenders” bill under negotiation in the House, Senate, and the White House.

The Land Trust Alliance is urging conservationists to meet with and contact their Senators to urge passage of this bill. For more information on how to lend a quick hand to the effort, see the Alliance’s policy page. Both Senator Collins and Senator King have co-sponsored a bill that would make the easement incentives permanent, but they need to hear from us about how important it is that this occur by the end of the year. Collins can be reached at (202) 224-2523 and King can be reached at (202) 224-5344.

Maine Land Conservation Law E-Bulletin – August 2014
August 21, 2014
In this issue:
  • Introduction
  • Major Court Victory for Maine Land Trusts
  • Portland Park Group Wins Legal and Electoral Victory

Major Court Victory for Maine Land Trusts

In early August, the Maine Supreme Judicial Court issued a landmark pro-conservation decision in Francis Small Heritage Trust, Inc. v. Town of Limington, 2014 ME 102 (Me. 2014). The opinion puts to rest several arguments that municipalities have raised over the years in denying property tax exemption applications. I was pleased to play a role in this process by co-authoring with Karin Marchetti Ponte a joint Land Trust Alliance – Maine Coast Heritage Trust amici brief in support of FSHT. Here are the major findings and issues discussed by the Law Court:

Land Conservation Is a Charitable Purpose – Francis Small Heritage Trust leaves no doubt that land conservation is indeed a charitable purpose within the meaning of 36 M.R.S. § 652(1)(a) and that the typical land trust preserve is eligible for property tax exemption. The Court quoted extensively from three Maine statutes (the Natural Resources Protection Act, the Land For Maine’s Future enabling act, and the Growth Management Act) in declaring that “the Legislature has enunciated a strong public policy in favor of the protection and conservation of the natural resources and scenic beauty of Maine.” Because FSHT assists the state in achieving these conservation goals, its land conservation activities are charitable. This analysis follows the traditional “lessen the burdens of government” prong for demonstrating that an activity is charitable.

The Court also cited to a growing body of case law from other states finding that conservation is charitable for property tax purposes. The most recent of these is a seminal May 2014 decision by the Massachusetts Supreme Judicial Court in New England Forestry Foundation v. Board of Assessors of the Town of Hawley, 9 N.E.3d 310 (Mass. 2014), which dealt with many of the same issues as the FSHT case. These cases have emphasized that land conservation benefits the general public in a number of ways.

Public Access is Not Essential For Exemption, But It Helps — Significantly, the Law Court distinguished the typical Maine land trust preserve, where public access is permitted and encouraged, from the facts of a troublesome older case, Holbrook Island Sanctuary v. Inhabitants of the Town of Brooksville, 161 Me. 476 (Me. 1965), involving a wildlife sanctuary where public access was heavily restricted and discouraged. Thus, although the Law Court doesn’t go so far as to say that public access is a prerequisite for exemption, a land trust seeking exemption where public access is prohibited or significantly restricted will have a heavier burden in demonstrating public benefit. This outcome tracks the analysis of the Massachusetts high court’s opinion in New England Forestry Foundation.

Incidental Commercial Activities and Accompanying Purpose Provisions in Articles Won’t Defeat Exemption – The Law Court also dispensed with the Town’s contention that a section of FSHT’s Articles of Incorporation reflected a non-charitable purpose. The key disputed phrase was that FSHT’ purposes included “protect[ing] appropriate uses such as logging, farming and other compatible commercial activities.” Because there was no evidence that FSHT engaged in any purely commercial activities, the Law Court did not find this language disqualifying. In a key footnote, the court noted that even if an organization engages in incidental commercial activities, language in the Articles that authorizes these activities will not defeat an otherwise legitimate exemption request. This holding should be very helpful in preventing municipalities from denying exemptions based on minor drafting ambiguities.

Open Space Tax Program Does Not Supplant Property Tax Exemption – Finally, the Law Court ruled that the Open Space Tax Program, whereby landowners can apply for reduced taxation of open space parcels, does not supplant property tax exemption for Maine land trusts. The two legislative schemes can coexist, and land trusts can elect to apply for Open Space, exemption, or neither. The Law Court’s resolution of this issue resolves a niggling issue from a 1991 trial court decision (Cushing Nature Preserve), where the lower court ruled that Open Space did preclude and supplant exemption.

Clarity for Land Trusts and Towns – As a result of the comprehensive decision in Francis Small Heritage Trust, both land trusts and towns have much-needed clarity. Hopefully, the conflict points will be greatly reduced. At the same time, land trusts and all nonprofits must recognize that towns are increasingly pressed for revenues, and there will be ongoing attempts to limit the scope of the charitable exemption through the legislative process. Along these lines, some land trusts might continue their policies of paying property taxes in full, or applying for Open Space, even though exemption is now clearly an option.

For more analysis, see Maine Coast Heritage Trust’s summary and the Land Trust Alliance’s summary.

Portland Park Group Wins Legal and Electoral Victory

Earlier this Spring, a small nonprofit parks organization won a significant court case in Friends of Congress Square Park v. City of Portland, 2014 ME 63 (Me. 2014). The Law Court ruled that the group had the right to bring a citizens’ initiative to protect 60 different park properties throughout the City of Portland. The initiative was then placed on the June ballot, and was narrowly passed by Portland voters, 51.5% to 48.5%.

The list of protected properties includes Congress Square Park, which the City Council had been trying to sell for development into a hotel event center. In the wake of the election, an ad hoc committee is working on plans for improving and redesigning the park. And following up on the Law Court’s decision, the trial court recently awarded the Friends its attorneys’ fees after the City conceded liability for violating their members’ civil rights by denying the initiative petition. See the September 2013 and January 2014 E-Bulletins for more background on the controversy and the issues. Along with litigation co-counsel Sarah McDaniel, I was honored to represent Friends of Congress Square Park in this matter.

The plight of Congress Square Park highlights the lack of protection for municipal parks throughout Maine. Unlike certain other states, Maine has no statutory protections for municipal parks. Although the occasional town park or forest is protected through deed restrictions, conservation easements, or town ordinances, the vast majority of town parks or forests could be sold just like any other town-owned land. Through the citizens’ initiative process, the Friends sought to establish a heightened standard for the City to sell all or a portion of its parks. Portland had already taken certain steps in this direction in 1999 by enacting the Land Bank. The citizens’ initiative expands and strengthens the Land Bank by adding dozens of properties to it and establishing a higher supermajority for selling a park or converting it to non-park uses.

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CIRCULAR 230 DISCLOSURE: Any federal tax advice contained in this communication or attachment is not to be used for the purpose of avoiding penalties under the Internal Revenue Code or promoting, marketing or recommending any transaction or matter addressed in this communication.

Maine Land Conservation Law E-Bulletin – April 2014
April 14, 2014
In this issue:
  • Introduction
  • Maine Law Court Finds E-mails Can Constitute Binding Real Estate Contract
  • Oral Arguments Scheduled in Francis Small Case
  • More Changes to Maine Charitable Solicitations Act

Maine Law Court Finds E-mails Can Constitute Binding Real Estate Contract

A recent Maine Supreme Judicial Court (also known as the Law Court) case should be of interest to any land trust volunteers or staff conducting land transaction negotiations. In McClare v. Rocha, 2014 ME 4, the Law Court held that a series of e-mails between parties or their attorneys may constitute a signed writing and can establish a binding contract for the sale of real property. In this case, attorneys for each party exchanged e-mails that established a purchase price for a particular parcel of land, and the words “offer” and “acceptance” were used.

To be clear, e-mails will not always establish a contract. Much depends on the details such as the intent of parties, whether there was an offer and acceptance, and whether all of the material terms of the deal were included. But as a result of this case, negotiators should be aware that they could inadvertently establish a contract even without signing anything on paper.

Most land trusts make it a standard practice to consider a contract created only upon the signing of a formal purchase and sale agreement, and this is almost always the best approach to avoid any confusion or misunderstanding. In order to preclude any claim that e-mails (or any other document short of a signed purchase and sale agreement) should be interpreted as a contract, it is best to be clear with a landowner from the outset about this organizational practice.

Oral Arguments Scheduled in the Francis Small Heritage Trust Case

Speaking of the Law Court, it will hear Oral Arguments in the property tax exemption case of Francis Small Heritage Trust v. Town of Limington on Thursday, May 15 at 9:00 a.m. Any member of the public is welcome to attend the proceedings, which are held in Portland at the state courthouse on Newbury Street. If you cannot make it in person, but would like to listen (either live or later), you can stream it from the Law Court’s web page at http://www.courts.state.me.us/maine_courts/supreme/oral_arguments.shtml.  The Oral Argument process typically lasts about one half hour. A decision from the court is expected several months after the argument.

More Changes to Maine Charitable Solicitations Act

In early April, the Maine Legislature passed (and the Governor did not veto!) a bill that simplifies the Maine Charitable Solicitations Act. L.D. 1799, passed into law as 2013 P.L. c. 539, streamlines the Act in three principal ways:

(1)   The bill eliminates all filing requirements for “professional fund-raising counsel” such as independent consultants hired by charitable organizations to assist with capital campaigns or other fundraising programs. Eliminating this category from the statute will significantly reduce paperwork for both the consultants and the charities that hire them. At the same time, charities will have slightly more responsibility to make sure they are hiring a reputable and proficient consultant, as they can no longer look to see whether someone has been licensed or disciplined by the Maine Department of Professional and Financial Regulation. Note that “professional solicitors,” i.e., those who solicit contributions from the public on behalf of a charitable organization, must still be licensed.

(2)   The bill eliminates the annual filing requirement for organizations that qualify as exempt from the annual registration requirement. The most common exemptions for land trusts are if solicitations are conducted primarily within their membership or if contributions from the public (not including foundation or government grants) are $35,000 or below or from 35 persons or fewer during a calendar year. (Note that these exemption thresholds were raised by the Maine Legislature in 2013, up from $10,000 and 10 persons.) Instead of filing an annual exemption statement, the organization now must only file once to establish its exemption, and then only has to file anything again if it no qualifies as exempt. The small downside of eliminating the annual exemption filing is that an organization should have an internal way of tracking contributions to confirm that it remains exempt from one year to the next, or else a growing organization could find itself out of compliance if it exceeds the $35,000/35 person threshold or no longer solicits primarily within its membership.

(3)   The bill eliminates the requirement that charitable organizations submit an IRS determination letter along with their initial registration application. Due to the time delays from the IRS in issuing determination letters, many new organizations were tripped up by this requirement. It was also a problem for certain 501(c)(4) social welfare organizations that were never required to obtain an IRS determination letter.

Coming on top of 2013 amendments to the Charitable Solicitations Act, this bill further streamlines and simplifies the statute. Although L.D. 1799 as originally submitted would have eliminated all filing requirements for charitable organizations and not just for fund-raising counsel, the Legislature backed off that sweeping change and instead went for more these more limited, but still helpful, amendments.

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CIRCULAR 230 DISCLOSURE: Any federal tax advice contained in this communication or attachment is not to be used for the purpose of avoiding penalties under the Internal Revenue Code or promoting, marketing or recommending any transaction or matter addressed in this communication.

Maine Land Conservation Law E-Bulletin – January 2014
February 21, 2014
In this issue:
  • Introduction
  • Park Initiative Wins in Superior Court, But City of Portland Is Appealing
  • Land Trust Alliance and Maine Coast Heritage Trust to File Joint Amicus Brief in FSHT Case
  • Property Tax Exemption Bill Before Taxation Committee
  • Upcoming Event: Fourth Symposium on Advanced Legal Topics in Land Conservation

Park Initiative Wins in Superior Court, But City of Portland Is Appealing

(Note: Along with litigation co-counsel Sarah McDaniel, I represent Friends of Congress Square Park.)

In the September 2013 E-Bulletin, I wrote about the City of Portland’s attempt to sell most of a downtown city park to an adjacent hotel. Meanwhile Friends of Congress Square Park, a local nonprofit organization, is seeking to bring a citizens’ initiative that would protect that particular park and a host of other city parks from being sold or developed. However, the City’s attorney rejected the Park Initiative on a variety of technical grounds, and the Friends filed suit.

In a decisive ruling on October 31, the Cumberland County Superior Court ordered the City to issue the petition forms, resoundingly rejecting the City’s technical objections. Although the petitions were issued and the Friends are gathering signatures, the City has appealed to the Maine Supreme Court. Assuming the Supreme Court upholds the Superior Court, the initiative will likely go to the voters in June.

First enacted as part of the Maine Constitution in 1908, the citizens’ initiative (and its cousin, the People’s Veto) is a powerful tool for Maine citizens to bring about change in state law or municipal law. At the municipal level, citizens’ initiatives for Maine towns are governed by 30-A M.R.S. Ch. 121. However, most of Maine’s 23 cities have their own ordinances that govern citizens’ initiatives, and the case against Portland dealt mostly with the City ordinance and not state law.

Although most land trusts do not commonly engage in political activities such as promoting referenda of citizens’ initiatives, this case is still worth keeping an eye on for its implications for the protection of municipal park properties. The Friends hope that this case will set precedent in the right direction throughout Maine by affirming the right of citizens and nonprofit corporations to bring citizens’ initiatives affecting municipal parks.

Land Trust Alliance and Maine Coast Heritage Trust to File Joint Amicus Brief in FSHT Case

In the May 2013 E-Bulletin and September 2013 E-Bulletin, I wrote about Francis Small Heritage Trust’s (FSHT) court action against the Town of Limington to obtain property tax exemption. The case is currently on appeal to the Maine Supreme Court. The Land Trust Alliance and Maine Coast Heritage Trust have agreed to file a joint amicus curiae brief in support of FSHT. On behalf of the Alliance, I will be co-counseling with Karin Marchetti Ponte to write this brief. The brief is expected to focus on the various ways in which land conservation is a charitable purpose, and the public benefits derived from land conservation activities.

Property Tax Exemption Bill Before Taxation Committee

Speaking of property tax exemption, a bill is coming to a work session before the Taxation Committee of the Maine Legislature next week that could undermine the current exemption law that benefits many Maine land trusts. L.D. 936 is a placeholder bill that was carried over from the last legislative session, and would expanding municipalities’ ability to charge tax-exempt nonprofit property owners service charges for municipal services. Land trusts are likely to be especially affected by any changes, because more so than any other kind of nonprofits, their principal assets are in the form of real property.

The Maine Association of Nonprofits is strongly encouraging nonprofits of all kinds to contact members of the Taxation Committee to let them know how changes to the property tax exemption laws might affect their organizations.

Upcoming Event: Upcoming Event: Fourth Symposium on Advanced Legal Topics in Land Conservation

Date: February 5 & 6, 2014
Location: Reno, Nevada

Sponsor: Land Trust Alliance

I will be one of the panelists at this Symposium, speaking on how various states, including Maine, have altered their conservation easement laws to regulate amendment and termination.

The Symposium is specifically tailored to attorneys who work with land trusts, and will deliver information that is impossible to find at any other single program.

Gather with your colleagues to take advantage of this rare opportunity to discuss and contribute insight on these complex legal issues:

Dissect a breach of contract conservation case to develop cogent pretrial strategies.

  • Analyze four leading conservation and tax cases for practice implications and new trends.
  • Drill down into nuances and negotiation of surface use agreements for oil and gas extraction.
  • Bring your collaborative problem-solving skills to an intensive six-hour practical examination of land trust risk assessment focusing on the challenges of conservation easement modification.

For more information and to register, click here.

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CIRCULAR 230 DISCLOSURE: Any federal tax advice contained in this communication or attachment is not to be used for the purpose of avoiding penalties under the Internal Revenue Code or promoting, marketing or recommending any transaction or matter addressed in this communication.

Maine Land Conservation Law E-Bulletin – September 2013
December 5, 2013
In this issue:
  • Introduction
  • FSHT Wins In Superior Court, But Town Will Appeal
  • Portland Council Votes to Sell Park, Opponents Bring Citizens’ Initiative
  • Upcoming Event: Nonprofit and Tax-Exempt Organization Seminar

FSHT Wins in Superior Court, But Town Will Appeal

In the May 2013 E-Bulletin, I wrote about Francis Small Heritage Trust’s (FSHT) court action against the Town of Limington to obtain property tax exemption.  Later in May, the Superior Court ruled soundly in favor of FSHT.  See the decision here.  The Town of Limington has since signaled its intention to appeal to the Maine Supreme Court.  The moment that Maine land trusts have been anticipating for 20 years will soon be at hand: Will the Maine Supreme Court clearly declare land conservation a charitable purpose for property tax exemption?

First, let’s review the basic facts in the FSHT case.  FSHT is a land trust that owns several contiguous parcels of land comprising the Sawyer Mountain Highlands Preserve in the Town of Limington.  All of the parcels were open to the general public for a variety of recreational uses, and FSHT held occasional educational events on the parcels.  FSHT acquired the parcels at different times, and enrolled some of the parcels in the current use Tree Growth program, while others were enrolled in the current use Open Space program, both of which allowed for reduced property tax assessments.  Nevertheless, in 2009 FSHT’s annual property tax assessment for these parcels was doubled to $6,000, and FSHT applied for and was denied property tax exemption by the Town.  After applying for an abatement and then petitioning the Maine Board of Property Tax Review, FSHT filed a court appeal.  One of the reasons cited by the Town in denying FSHT’s application was a lengthy purpose statement in its Articles of Incorporation that included “protecting appropriate uses such as logging, farming and other compatible commercial activities.”  The Town and subsequent local and state administrative bodies ruled that this language meant that FSHT was not organized for exclusively charitable purposes because it could engage in commercial activities on its properties.  The Town also argued that the Open Space property tax program was intended by the Legislature to pre-empt outright exemption for land trust conservation properties.  Also at issue was whether land conservation in and of itself is a charitable use within the meaning of Maine’s property tax exemption statute.  Finally, FSHT claimed federal civil rights violations based on evidence that the Town had denied the exemption application because FSHT had successfully brought a lawsuit against the Town relating to an abutter’s subdivision application.

The Superior Court (Justice Fritzsche) held for FSHT on the exemption issue, finding in very forceful language that land conservation is charitable.  In its key paragraph, the Court wrote:

It is time to directly declare that a legitimate land trust, such as this one, which meets the statutory and case law requirements, is a benevolent and charitable institution exempt from local property taxes.  The direct and indirect value of open space preservation particularly when, in appropriate cases, it is coupled with access for a wide variety of recreational activity is within any modern definition of a charitable institution.  In addition to the ecological and environmental benefit of land preservation there are numerous physical, psychological and, for some, even spiritual benefits to having access to undeveloped land.

Furthermore, the court rejected the Town’s interpretation of the purpose language in the Articles, noting that this provision permits the “protection” of logging, farming and other compatible commercial activities, but does not directly authorize or require such activities be conducted by FSHT.  The court noted that no such commercial activities had taken place on the disputed parcels, and even if it had, limited commercial activities would likely be incidental and therefore not disqualifying of exemption.  Finally, the court found that the Open Space statute did not pre-empt the property tax exemption statute.

FSHT’s federal civil rights claims remain outstanding before the Superior Court, and the appeal to the Maine Supreme Court will not go forward until these are resolved.  Maine Coast Heritage Trust filed an amicus curiae brief in support of FSHT, which brief was credited by the court as helpful in clarifying the issues.  We can expect MCHT to once again participate at the appeal level.  It will likely take at least a year or two before the Supreme Court will rule on the case.  Meanwhile, Maine land trusts can point to the Superior Court decision in fending off a town’s exemption challenge, but its impact will be muted by the fact of the appeal to the Supreme Court.

Portland Council Votes to Sell Park, Opponents Bring Citizens’ Initiative

(Note:  I represent the nonprofit organization Friends of Congress Square Park, which is featured in this E-Bulletin item.)

On September 16, the Portland City Council voted 6-3 to sell approximately two-thirds of Congress Square Park, located at the corners of High and Congress Streets in the heart of the Arts District.  The lost park land would be used to build an event center by the adjacent hotel, formerly the Eastland, about to reopen as the Westin Hotel).  The decision on the sale has been very controversial, with the Council hearing over three hours of testimony during a Public Comment period the previous week.  Opponents of the sale outnumbered supporters by more than 2-1, according to news reports.  This sale of parkland to a private developer is thought to be an unprecedented move by the City of Portland.

Meanwhile, a group known as Friends of Congress Square Park incorporated and decided to prepare a submit a Citizens’ Initiative that would afford better protection to 60 of Portland’s park properties by strengthening the already existing Land Bank Ordinance.  The Initiative papers were filed with the City on September 6, and included a retroactive provision that could effectively nullify the City Council’s decision with respect to Congress Square Park.  However, the City Corporation Counsel has rejected the Initiative, claiming that it is an appropriations measure and an administrative (as opposed to legislative) measure, both of which are prohibited under the City’s initiative and referendum ordinance (and both of which limitations are not in the statewide initiative and referenda efforts).  As this E-Bulletin went to press, the Friends were preparing litigation papers to challenge this decision, and a memo outlining its legal position can be found on the Friends’ website (click on Letter to Corporation Counsel).

Upcoming Event:  Nonprofit and Tax-Exempt Organization Seminar

Date: October 17, 2013, 8:30am – 4:40 pm
Location: Fireside Inn & Suites, Portland

Sponsor:  National Business Institute

The IRS has intensified its enforcement efforts and continues to revoke tax-exempt status for a growing number of organizations. Are your legal, accounting and business practices in compliance with the complex regulations governing nonprofits? This practical course offers essential strategies for creating and operating a successful tax-exempt organization that complies with laws and disclosure requirements.

Presented by attorneys Robert H. Levin, Leonard M. Cole, and Nathaniel S. Putnam, but designed for both attorneys and non-attorneys, this workshop will be valuable to the eager novice as well as the skilled nonprofit veteran, and will include:

Common actions that endanger nonprofits.

  • Recent court cases and legislation affecting Maine nonprofits
  • Insurance issues for nonprofits
  • Accounting issues for nonprofits
  • Unrelated Business Income Tax

For more information and to register, click here.

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CIRCULAR 230 DISCLOSURE: Any federal tax advice contained in this communication or attachment is not to be used for the purpose of avoiding penalties under the Internal Revenue Code or promoting, marketing or recommending any transaction or matter addressed in this communication.

Maine Land Conservation Law E-Bulletin – May 2013
May 6, 2013
In this issue:
  • Introduction
  • Property Tax Exemption for Maine Land Trusts
  • Case Law: Board Officer Immune From Liability

Property Tax Exemption For Maine Land Trusts

There is anecdotal evidence that Maine municipalities are increasingly denying or revoking property tax exemptions for all different kinds of nonprofit organizations, including land trusts.  The ongoing ordeal of Francis Small Heritage Trust (FSH) is a prime example.  A couple years ago FSHT was denied exemption for several parcels it owns in Limington.  FSHT then applied for an abatement and was again denied.  Eventually, it appealed to the Maine Board of Property Tax Review, which upheld the Town’s denial.  Currently, FSHT is appealing in Superior Court, and Maine Coast Heritage Trust has filed an amicus brief in support of FSHT.

Although Maine law is not completely settled on the issue, there are sound reasons for believing that land conservation is a charitable purpose in a property tax exemption context.  Land conservation is clearly a policy of the State, as Maine has enacted dozens of laws to protect the state’s open spaces and natural resources over the past few decades.  In addition, many municipalities have passed ordinances or comprehensive plans that make land conservation an official goal or policy.  Most courts in other states that have considered the issue have found land conservation to be charitable.  For a detailed legal analysis of the issue, see Karin Marchetti Ponte’s recent article.

Meanwhile, here are a couple key points for land trust staff and boards to consider:

  • Make sure your Articles of Incorporation and Bylaws have narrowly focused mission statements.  One of the reasons cited by the Town and the Board of Property Tax Review in denying FSHT’s application was a lengthy purpose statement that included “protecting appropriate uses such as logging, farming and other compatible commercial activities.”  The BPTR ruled that this language meant that FSHT was not organized for exclusively charitable purposes.
  • Be aware of your rights.  An assessor’s denial or revocation of exemption is not the final word on the matter.  Maine law provides several different ways to challenge this decision.  Assistance from an attorney who is experienced in tax exemption matters will be very useful in determining a sound course of action.  In the coming weeks, I plan to write a summary of the procedural options for land trusts that have been denied exemption; look for this summary to be posted on the Maine Land Trust Network website, www.mltn.org.

Case Law: Board Officer Immune From Liability

Under contract with the Land Trust Alliance, I research and compile a comprehensive database of land conservation-related court opinions.  The current edition of Land Conservation Case Law Summaries includes 308 cases and is available to Alliance members at http://learningcenter.lta.org.  Occasionally, I discuss particularly important or interesting cases in this E-Bulletin.

A recent court decision out of Connecticut demonstrates the value of state volunteer immunity laws in protecting volunteers from tort liability exposure.  In Sweeney v. Friends of Hammonasset, Inc., 140 Conn. App. 40; 58 A.3d 293 (Conn. App. Ct. 2013), a man was injured after slipping on ice during a nighttime owling outing.  The man sued both a nonprofit corporation, Friends of Hammonasset, as well as its volunteer Board president.  The suit claimed that the president was negligent in her supervising, training and oversight duties.  The president invoked Connecticut’s volunteer immunity statute as a defense.  

The appellate court upheld the trial court in ruling for the president on summary judgment, finding that Connecticut’s volunteer immunity statute (which provides complete immunity) applied and was not preempted by the federal volunteer immunity statute (which provides immunity only for economic losses and not non-economic losses such as pain and suffering).  The court pointed to the federal statute’s section on preemption, which provides that any state law extending additional protection from liability relating to volunteers would not be preempted by the federal statute.  The court also broadly interpreted a director’s “policy or decision-making responsibilities” to include supervision, oversight, and training matters, the crux of plaintiff’s allegations against the president.

It is comforting to see an appellate court issue a broad interpretation of a state volunteer immunity statute.  Note that a typical commercial general liability (CGL) insurance policy would provide defense and liability coverage for both Friends and the president in this kind of litigation, as both the corporation and its officers, directors, and other volunteers are generally named insureds.  In contrast, a typical directors and officers (D&O) policy would not be of any use here because that sort of policy generally excludes bodily injury and property damage claims.

Maine, too, has a rather broad volunteer immunity statute, found at 14 M.R.S. § 158-A.  Immunity is extended to anyone who provides service to a charitable organization without compensation, whether a Board director or just an ordinary volunteer.  Moreover, receiving payment for expenses does not jeopardize one’s volunteer status.  “Charitable organization” is defined broadly to include all 501(c)(3) organizations, as well as many other kinds of nonprofits.  Immunity attaches to claims based on personal injury, death or property damage, including any monetary loss.  The immunity covers claims sounding in negligence (but not gross negligence or intentional or malicious acts) if arising from an act by the volunteer herself.  And the immunity covers all claims that do not involve the personal acts of the volunteer.  Finally, there is a limited waiver of the immunity for claims involving the volunteers’ operation of a motor vehicle, vessel, aircraft or other vehicle for which the operator or the owner of the vehicle, vessel or craft is required to possess an operator’s license or maintain insurance.

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CIRCULAR 230 DISCLOSURE: Any federal tax advice contained in this communication or attachment is not to be used for the purpose of avoiding penalties under the Internal Revenue Code or promoting, marketing or recommending any transaction or matter addressed in this communication.