Legislative History

Four laws passed by Congress, beginning in 1976, contain provisions that established and continue to govern the Federal Historic Preservation Tax Incentive Program and the charitable donation of historic preservation easements.

The Public Laws are:

 Existing Legislation

  Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, PL 111-312

On December 17, 2010, President Obama signed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (H.R. 4853), commonly known as the 2010 Tax Relief Act. The enhanced conservation easement incentive included in the 2010 Tax Relief Act had strong backing from preservation and land conservation groups because it extended for another two years temporary incentives first contained in the Pension Protection Act of 2006. The extensions had expired on December 31, 2009. The 2010 Tax Relief Act continues the enhanced incentives retroactive to January 1, 2010 and through December 31, 2011. The enhanced incentives temporarily raise the deduction limitation for certain noncash, capital gain donations, including donations of qualified historic preservation easements, from 30% of adjusted gross income to 50% of the donor’s adjusted gross income. Further, in the event the fair market value of the qualified historic preservation easement contribution exceeds 50% of the donor’s adjusted gross income in the year of the donation, the legislation increases the number of years over which a donor may carry forward any excess qualified conservation contribution from five years to fifteen years.

 Food, Conservation and Energy Act of 2008, PL 110-246

On May 22, 2008, Congress voted to override President Bush’s veto of the Food, Conservation, and Energy Act of 2008 (H.R. 6124), commonly known as the Farm Bill. The Farm Bill (P.L. 110-246) had strong backing from preservation and land conservation groups because it included a two-year extension of enhanced tax incentives for conservation contained in the Pension Protection Act of 2006, which had expired on December 31, 2007. The provisions of the Farm Bill continue the enhanced incentives retroactive to January 1, 2008 and through December 31, 2009. The enhanced incentives temporarily raise the deduction limitation for certain noncash, capital gain donations, including donations of qualified historic preservation easements, from 30% of adjusted gross income to 50% of the donor’s adjusted gross income. Further, in the event the fair market value of the qualified historic preservation easement contribution exceeds 50% of the donor’s adjusted gross income in the year of the donation, the legislation increases the number of years over which a donor may carry forward any excess qualified conservation contribution from five years to fifteen years.

 Pension Protection Act of 2006, PL 109-280

On August 17, 2006, the President signed into law H.R. 4. The Pension Protection Act of 2006 (P.L. 109-280) includes provisions to curb potential abuses of the Program and temporarily increased incentives for property owners to donate conservation easements.

Reforms

The Pension Protection Act (the “PPA”) includes a number of amendments to Internal Revenue Code section 170(h), tightening the requirements for making qualified conservation contributions of certain easements located in registered historic districts.

The following section summarizes the added requirements for historic preservation easement donations on properties located in registered historic districts.

  • A historic preservation easement must preserve the entire building exterior, including the space above the building, the sides, and the rear of the building – as opposed to just those sections of the historic building that are visible to the public.
  • A historic preservation easement must prohibit any changes in the exterior of the building that are inconsistent with the building’s historical character.
  • The donor must include with his federal income tax filing a qualified appraisal of the property donation, photographs of the entire exterior of the building, and a description of all restrictions on the development of the building.
  • For any historic preservation easement donation valued in excess of $10,000, the donor is required to pay a filing fee to the Internal Revenue Service (the “IRS”) of $500.
  • The written agreement evidencing the historic preservation easement must contain a pledge from the donee organization that it has both the resources and the commitment to effectively manage and enforce the terms of the easement in perpetuity.

The following section summarizes amendments to the defined meaning of “qualified appraiser” and “qualified appraisal.”

  • The PPA defines a qualified appraiser as an individual who (1) has earned an appraisal designation from a recognized professional appraiser organization or has otherwise met minimum education and experience requirements to be determined by the IRS in regulations; (2) regularly performs appraisals for which he or she receives compensation; (3) can demonstrate verifiable education and experience in valuing the type of property for which the appraisal is being performed; (4) has not been prohibited from practicing before the IRS by the Secretary at any time during the three years preceding the conduct of the appraisal; and (5) is not excluded from being a qualified appraiser under applicable Treasury Regulations.
  • In addition to the current definition of a “qualified appraisal” contained in the Treasury Regulations, a qualified appraisal must be prepared by a “qualified appraiser” (as newly defined) in accordance with generally accepted appraisal standards.

The following section summarizes amendments to applicable penalty provisions relating to substantial and gross overstatements of value. The amendments lowered the threshold for imposing accuracy-related penalties on taxpayers and established a civil penalty which may be assessed against appraisers.

  • The threshold for a “substantial” valuation misstatement relating to an underpayment of income tax is lowered from 200% to 150% of the amount determined to be the proper valuation. The threshold for “gross” valuation misstatement relating to an underpayment of income tax is lowered from 400% to 200% of the amount determined to be the proper valuation. The penalty amounts remain unchanged. The penalty is 20% of the underpayment of tax resulting from a “substantial” valuation misstatement and is 40% of the underpayment of tax resulting from a “gross” valuation misstatement.
  • The law removes the “reasonable cause” exception to accuracy-related penalties in the event of a gross valuation misstatement with respect to any contribution of a historic preservation easement.
  • A civil penalty will be imposed on an appraiser who prepares an appraisal that the appraiser knew or “reasonably should have known” would be used in connection with a tax return, if such appraisal results in a substantial or gross overvaluation on a tax return. The penalty is equal to the greater of $1,000 or 10% of the understatement of tax, up to a maximum of 125% of the gross income derived from the appraisal.
  • The law further provides that the penalty does not apply if the appraiser establishes that it was “more likely than not” that the appraisal was correct.

Temporary Incentives

The PPA temporarily raised the deduction limitation for certain noncash, capital gain donations, including donations of qualified historic preservation easements, from 30% of adjusted gross income to 50% of the donor’s adjusted gross income. Further, in the event the fair market value of the qualified historic preservation easement contribution exceeded 50% of the donor’s adjusted gross income in the year of the donation, the legislation increased the number of years over which a donor may carry forward any excess qualified conservation contribution from five years to fifteen years.   These provisions only applied to qualified contributions made after December 31, 2005 and before January 1, 2008. The incentives were extended through December 31, 2009 by the Food, Conservation, and Energy Act of 2008.

 Tax Treatment Extension Act of 1980, PL 96-541

In 1980, Congress revised and made permanent the 1976 Tax Reform Act with the Tax Treatment Extension Act of 1980 (Public Law 96-541). This legislation strengthened and clarified Congress’ commitment to promoting historic preservation through the Federal Historic Preservation Tax Incentive Program.

 Tax Reform Act of 1976, PL 94-445

In 1976, Congress passed the Tax Reform Act (P.L. 94-445). This legislation introduced federal tax incentives for the preservation of properties certified as historically significant by the Secretary of the Interior. This was the first time that federal tax incentives were merged with historic preservation goals. These tax incentives made the rehabilitation and preservation of historic buildings economically competitive with new construction.   The Historic Preservation Tax Incentive Program was created to protect and preserve historic properties without burdening the country with the expense of purchasing and maintaining those properties and without removing them from the tax rolls. As incentive, the program offers owners of “certified historic buildings” a one-time reduction in their federal income tax if they agree to preserve the historical character of their property’s exterior in perpetuity.