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Maine's North Woods are part of a conservation easement banning development and limiting logging while allowing public access for recreation. Conservation easements came under scrutiny by Adam Looney of Brookings Institution, who found that some landowners were taking large charitable deductions for conservation easements on land that was unlikely to ever be developed and of questionable conservation value, like golf courses. (Robert F. Bukaty/The Associated Press file)

They Were Selling Charitable Tax Deductions for Profit’

A policy report on a wonky tax topic led to a Department of Justice lawsuit and a Senate investigation — and showed how important it is to shine a light on issues most of America, and even many legislators, can’t see.

Adam Looney couldn’t believe what he was hearing.

People were abusing a charitable tax deduction intended to encourage land conservation: They were making millions off their scam, cheating the government out of revenue, and doing very little to actually benefit the environment.

Looney, a tax policy expert in the U.S. Treasury Department during the Obama administration, had never heard of the deduction, let alone the abuse. He was shocked when IRS officials came to Treasury identifying it as a priority compliance issue in need of attention and investigation.

Among all these things that the enormous tax system does, the IRS identified conservation easements as one of the issues they most wanted help solving,” said Looney, who at the time was the deputy assistant secretary for tax analysis at Treasury. This was a provision I never heard of, few people had heard of, and yet they raised the flag internally saying somebody should look into this.”

The provision, which has been around for 40 years, allows property owners to take a charitable deduction for permanently giving up their right to develop a chunk of their land and donating that right, or easement, to a conservation nonprofit.

Essentially, the tax deduction gives property owners an incentive to preserve land. But some don’t see conservation as the ultimate goal — they see dollar signs. Some landowners take large charitable deductions for conservation easements on land that was unlikely to ever be developed and of questionable conservation value, like golf courses. Others are abusing the provision by getting improperly inflated land appraisals in order to get a bigger tax break.

Looney wanted to get to the bottom of the issue, but there was little he could do. The data on conservation easements wasn’t broadly available, and, while he was able to do a little digging into how the deductions were being used and abused, few people in the Treasury Department had the time to analyze what was on hand and turn it into something that would engage policymakers and compel them to take action.

But if not them, who? The IRS was already understaffed and buried under work. Not many academics would have an interest.

Meanwhile, the abuse not only continued — it grew.

A Complicated Issue’

It’s easy to see how unintended consequences can happen within the country’s sprawling tax system —most of the general public tends to ignore it because of how huge and complicated it is.

You have the caricature of a policymaker trundling out volumes of paper that describe the regulation of the internal revenue code,” said Looney, now a Senior Fellow in economic studies at the Brookings Institution. It’s a complicated issue to measure income and describe how all these individual elements of tax code are supposed to work.”

Which is one reason why Arnold Ventures has taken on public finance as one of its core focus areas — to shine a light on what most of America, and even many legislators, can’t see.

There’s an interest in making sure that the system that’s in place is as effective and as efficient as possible,” said Matthew Cook, public finance manager at Arnold Ventures. Part of what we’re trying to achieve is to mitigate bad tax policy, and ensure that data and evidence are driving the conversation — not just specific interested parties.”

You have the caricature of a policymaker trundling out volumes of paper that describe the regulation of the internal revenue code. It’s a complicated issue to measure income and describe how all these individual elements of tax code are supposed to work.
Adam Looney Brookings Institution

When it comes to federal tax issues, Arnold Ventures has funneled much of its funding to groups like the nonpartisan, research-based Tax Policy Center, which help translate to the public the decisions policymakers are making at the federal level and explain what the impact will be on economic growth broadly, but also on individual taxpayers,” Cook said.

The Tax Policy Center, a joint venture of the Urban Institute and Brookings Institution, has been an extremely helpful resource, Cook said, not only to government committees and the Congressional Budget Office but to the public.

Looney is a scholar with the Tax Policy Center through his job at Brookings, which he joined in March 2017 after leaving the Treasury Department. His work at Brookings is focused on tax policy, and his job is to identify issues, problems, and opportunities in the tax system and come up with ways to raise revenue or cut taxes in an effective way — with the idea that policymakers would find that information useful to improve the tax system. Staff also work on real-time issues, such as when a presidential candidate offers a new tax plan; they’ll analyze and interpret the proposal and share how much revenue it would raise and who would pay for the tax.

When Looney left Treasury, he couldn’t help but think about the issue flagged by the IRS — and the actors who were abusing the conservation easement tax deduction. He desperately wanted to get his hands on data, cultivate it, get at the magnitude of the problem, and describe the who and where and why this provision was being abused. Legislators had enacted this provision for a reason; he wanted to make sure they understood how it was being used.

So he sought support from philanthropies — specifically Arnold Ventures — to study problems with the tax code, propose solutions, and come up with strategies to communicate the problems and the solutions in ways that would make them relevant and actionable, and make policymakers want to do something about it.

People Read That and Felt Really Outraged’

What followed were months of research. Looney and his research assistants pored over thousands of tax forms and a public database of charity financial statements. They did text searches on the Securities and Exchange Commission website and a lot of Googling. And in May 2017, Looney published the report Charitable Contributions of Conservation Easements,” which specified the various — and at times outrageous — ways that some taxpayers and real estate developers were abusing the charitable tax deduction.

Some donors abuse the provision by applying grossly inflated appraisals to the value of the easement to increase their charitable deduction or by taking donations for easements that do not fulfill bona fide conservation purposes,” Looney wrote in the report’s introduction. But even more costly to the federal government have been syndicated partnerships, where charitable tax deductions for conservation easements are sold to investors — costing taxpayers hundreds of millions of dollars a year and undermining the provision’s conservation goals.

Looney discovered that abusive transactions had surged in recent years, with deductions for conservation easement donations tripling in 2014 alone — to $3.2 billion. It appeared, Looney wrote, that syndications were the main source of this surge.


Deductions for conservation easement donations in 2014, triple the previous year

As he researched the issue, Looney was shocked to discover how deep the scam went.

The magnitude of dollars — that they were selling charitable tax deductions for profit — and seeing the scale of it and how rapidly it was expanding and the relative absence of any conservation purpose associated with the transactions was shocking,” Looney said.

After the report was published, Looney pitched the story to ProPublica and worked with a reporter to track down the people at the center of the scandal and explain the story in such a way that readers would understand the wonky subject. He also wrote a follow-up analysis as more information came to light and published a link to the database he created of public SEC filings related to dubious conservation easement deductions. 

The important thing from my perspective was to identify that there was a problem, describe how it was being operated and who was involved, and tell a story, first in a relatively wonky academic sense of what the revenue and economic consequences of the abuse were and then tell more of the narrative journalistic story of who the characters involved were to give people a real feel for what was going on there,” Looney said. People read that story and felt really outraged.”

A Scheme to Cash In at the Expense of Federal Revenue’

Among those who were angered by what Looney’s research turned up: the U.S. Department of Justice and Congress. 

This past December, the DOJ filed a lawsuit against one of the syndication businesses named in the ProPublica article and a half dozen promoters, claiming that they were responsible for $2 billion in fraudulent tax deductions over the past several years.

And in March, Senate Finance Committee Chairman Chuck Grassley (R‑Iowa) and Ranking Member Ron Wyden (D‑Ore.) launched an investigation into the potential abuse of syndicated conservation easement transactions and sent letters to 14 of the promoters listed in Looney’s database, asking for documentation of their transactions.

There are very legitimate purposes for the conservation easement provisions of the tax code,” Grassley said in a news release that quoted from Looney’s report. But when a handful of individuals cook up a scheme to cash in at the expense of federal revenue and in violation of Congress’ intent, something needs to change. There’s no reason that the rest of the taxpaying American public should be left with such a raw deal.”

Grassley noted that going after syndicated transactions was just their first step in getting to the bottom of how these tax provisions are being abused.”

Senate Finance Committee Chairman Chuck Grassley (R‑Iowa) and Ranking Member Ron Wyden (D‑Ore.) launched an investigation into the potential abuse of syndicated conservation easement transactions in March. (The Associated Press)

Reputable conservation nonprofits like the Land Trust Alliance also are fighting back against those who have been exploiting the tax deduction, pushing Congress to enact the Charitable Conservation Easement Program Integrity Act, which would curb abuses of the tax incentive and ensure that the deduction remains available to those whose sole ambition is to conserve land — not make a profit.

It’s been gratifying, Looney said, to see so many people responding to the evidence and taking action to try to stop the abuse. Cook, the public finance manager for Arnold Ventures, echoed the sentiment.

The notion that really good, nonpartisan data and evidence can lead to positive change is a core part of our approach to philanthropy,” Cook said. That’s the great part of funding a group like the Tax Policy Center; they asked these complicated questions that wouldn’t be obvious to a layperson, but they were able to dig into them and diagnose a problem that impacts the nation broadly.”

Looney knows that with a tax code as large and complicated as ours is, there are likely other abuses and unintended consequences to uncover. And his research continues. His current focus has been on Opportunity Zones, a new provision enacted in the 2017 Tax Cuts and Jobs Act.

There are plenty of examples of places where opportunistic taxpayers have taken advantage of what was intended to be a relatively anodyne subsidy and turned it into a shelter or have used it for unintended purposes,” Looney said.

Tax abuses often take years to surface — and many more years to shut down.

I’m pretty sure that when Congress enacted the conservation easement provision, they did not intend for it to be used this way, they were unaware of the abuses, few people really knew how much the provision was costing them, and how it effectively had been weaponized from a relatively innocuous tool of conservation policy to the world’s largest tax shelter,” Looney said. I was in a position to make people aware we had a big problem and then to describe that problem and propose a range of solutions for policymakers to choose among.”

Looney, for one, is grateful to have the opportunity to research these issues because without documentation, the problems will only continue to grow.


Arnold Ventures funds projects to understand problems and identify policy solutions.