Foundation's Eased Property Value Ruled Excluded From Payout Base

• Published date: 01 September 2020
• Date: 01 September 2020
• DOI: http://doi.org/10.1002/npc.30760

Bruce R. Hopkins’ NONPROFIT COUNSEL

2 September 2020 THE LAW OF TAX-EXEMP T ORGANIZATIONS MONTHLY

Bruce R. Hopkins’ Nonpr ofit Counsel DOI:10.10 02/n pc

FOUNDATION’S EASED

PROPERTY VALUE RULED

EXCLUDED FROM PAYOUT

BASE

The IRS ruled that the fair market value of land, subject

to a conservation easement, owned by a private founda-

tion may be excluded in computing the foundation’s

payout requirement and that its expenses in maintaining

and using the property for exempt purposes will consti-

tute qualifying distributions (Priv. Ltr. Rul. 202024014).

Facts

A private foundation’s charitable purposes include

conservation and protection of natural resources. It

acquired a parcel of real property, which is home to

many native varieties of trees threatened by non-na-

tive invasive species and several types of at-risk plants,

including two wildflower species, one of which is threat-

ened and the other endangered. The property is also

an important habitat for various animals that roam the

property, including two clusters of an endangered bird

species.

This foundation granted a conservation easement

on the property to a public charity. The purposes of this

easement include protection and enhancement of the

character of the property as predominantly hardwood

bottomland and upland pine forests, wildlife and game

habitat, native flora and fauna, and watershed protec-

tion of a river running through the property.

The foundation’s governing board adopted a timber

management plan and strategic vision policy, which pro-

vide a framework for managing the property. A research

program involves the building of academic networks

and promotion of scientific research on the property.

Two hunting leases, subject to the easement, are on the

property, with the foundation representing that hunting

is an extremely important aspect of land conservation

and maintenance of a healthy ecosystem.

Law and Analysis

The IRS ruled that the fair market value of the por-

tion of the property owned used or held for use directly

in carrying out the foundation’s exempt purposes can

be excluded in determining its minimum investment

return (IRC § 4942(e)) and that the expenses incurred

in operating and maintaining the exempt use portion of

the property will constitute qualifying distributions (IRC

§ 4942(g)(1)). The fair market value of the exempt use

portion of the property is its value, reduced by the value

of the leases and of a lodge and other improvements

located on land subject to one of the leases. [12.4(b)] ◆

GAO THOROUGHLY ANALYZES,

CRITIQUES IRS EXAMINATION-

SELECTION PROCESSES

The Government Accountability Office, in a report

made public on June 16, provides an extensive analysis

of the processes the IRS employs in selecting tax-exempt

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