Sale of Conservation Easement on Farm Subject to Current Use Valuation Triggers Recapture
If all the qualifications of IRC Sec. 2032A are met the value of real property for estate tax purposes can be determined based on the current use of the property, instead of the highest and best use. This is generally referred to as "current use valuation." The property so valued must continue in a qualified use and be owned by a qualified heir. If the property is disposed of or is changed in use, the estate tax otherwise due because of the lower valuation must be paid.
Since special use valuation was originally enacted conservation easement programs have became active. The U. S. Congress amended the current use law to support the use of conservation easements by providing that a disposition "by gift or otherwise" of a qualified conservation contribution on real property subject to current use valuation election will not trigger the recapture. The Congressional intent of ""by gift or otherwise" has been questioned, specifically does it include a sale of a conservation easement on real property subject to current use valuation.
Although private letter rulings issued by the IRS to a specific taxpayer cannot be cited as precedent, they are useful indicators of how the IRS approaches an issue. In Letter Ruling 200840018 (10/3/08) the IRS notified the taxpayer that the sale of a conservation easement on their farm would trigger the recapture of the estate tax saved by the lower valuation. A revenue ruling may eventually be published on this issue, or the law amended by Congress. But for now, it appears that only outright gifts of qualified conservation easements on land subject to current use valuation election will not trigger the recapture. Consult your tax counsel for additional information.