Foundation's Eased Property Value Ruled Excluded From Payout Base

Published date01 September 2020
Date01 September 2020
Bruce R. Hopkins’ Nonpr ofit Counsel DOI:10.10 02/n pc
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).
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
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)]
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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