Determination of the Entire Contiguous Parcel

 Valuing Conservation Easements under § 1.170A-14(h)(3) of the Income Tax
Regulations
This Chief Counsel Advice responds to your request for assistance regarding the
valuation of perpetual conservation restrictions, or “conservation easements.”
Specifically, you have asked about the application of the “Contiguous Parcel Rule” and
the “Enhancement Rule” found in § 1.170A-14(h)(3)(i) of the Income Tax Regulations.
Section 170 of the Internal Revenue Code allows as a deduction any charitable
contribution payment of which is made within the taxable year.
Under § 170(f)(3), no deduction is allowed for a contribution of an interest in property
that consists of less than the taxpayer’s entire interest in the property. However,
under § 170(f)(3)(B)(iii), a deduction is allowed for a qualified conservation
contribution, even though it is a contribution of a partial interest.
Section 170(h)(1) and § 1.170A-14(a) provide that a qualified conservation
contribution is a contribution of a qualified real property interest to a qualified
organization exclusively for conservation purposes. One such qualified real property
interest is a conservation easement.

To prepare a conservation easement appraisal for which the Internal Revenue Service is an intended user, we must value the entire contiguous parcel, as directed by Treasury Regulation §1.170A‐14 (h)(3)(i).

The amount of the deduction in the case of a charitable contribution of a
perpetual conservation restriction covering a portion of the contiguous
property owned by a donor and the donor’s family (as defined in section
267(c)(4) ) is the difference between the fair market value of the entire
contiguous parcel of property before and after the granting of the restriction.1
The Internal Revenue Service Code defines the donor’s family as follows:
The family of an individual shall include only his brothers and sisters (whether
by the whole or half blood), spouse, ancestors, and lineal descendants.2
Therefore, in order to comply with Treasury Regulations, Conservation Values will appraise
the proposed easement tract, as well as any contiguous properties to which the test of
family status is met
Valuation of Enhanced Properties
The Treasury Regulations also provide for the reduction in the amount of a contribution, to
the extent that a parcel owned by a family member or a related party benefits from the
donation of the easement.
If the granting of a perpetual conservation restriction after January 14, 1986,
has the effect of increasing the value of any other property owned by the
donor or a related person, the amount of the deduction for the conservation
contribution shall be reduced by the amount of the increase in the value of the
other property, whether or not such property is contiguous.3
To further complicate matters, the regulations have two sets of code references to
determine the applicability of related parties (shown on the next page). To the extent that
the donation of an easement could enhance a property owned by any of the following
parties, such property must be evaluated for potential enhancement and appraised
separately, if necessary.
IRC §267 (b)
Members of a family, as defined in subsection (c)(4);
An individual and a corporation more than 50 percent in value of the outstanding
stock of which is owned, directly or indirectly, by or for such individual;
Two corporations which are members of the same controlled group (as defined in
subsection (f));
A grantor and a fiduciary of any trust;A fiduciary of a trust and a fiduciary of another
trust, if the same person is a grantor of both trusts;
A fiduciary of a trust and a beneficiary of such trust;
A fiduciary of a trust and a beneficiary of another trust, if the same person is a
grantor of both trusts;
A fiduciary of a trust and a corporation more than 50 percent in value of the
outstanding stock of which is owned, directly or indirectly, by or for the trust or by or
for a person who is a grantor of the trust;
A person and an organization to which section 501 (relating to certain educational
and charitable organizations which are exempt from tax) applies and which is
controlled directly or indirectly by such person or (if such person is an individual) by
members of the family of such individual;
A corporation and a partnership if the same persons own‐‐ (A) more than 50 percent
in value of the outstanding stock of the corporation, and (B) more than 50 percent of
the capital interest, or the profits interest, in the partnership;
An S corporation and another S corporation if the same persons own more than 50
percent in value of the outstanding stock of each corporation;
An S corporation and a C corporation, if the same persons own more than 50 percent
in value of the outstanding stock of each corporation; or
Except in the case of a sale or exchange in satisfaction of a pecuniary bequest, an
executor of an estate and a beneficiary of such estate.
Section 707(b)
A partnership and a person owning, directly or indirectly, more than 50 percent of
the capital interest, or the profits interest, in such partnership, or
Two partnerships in which the same persons own, directly or indirectly, more than 50
percent of the capital interests or profits interests.
1 Treasury Reg. 26 CFR § 1.170A‐14 (h)(3)(i)
2 IRC §267 (c) (4)
3 Treasury Reg. 26 CFR § 1.170A‐14 (h)(3)(i)