Defenders of Wildlife * Earth Share of Washington Endangered Species Coalition * Environmental and Energy Study Institute Environmental League of Massachusetts * Environmental Support Center Friends of the Earth * Legal Environmental Assistance Foundation, Inc. Natural Resources Council of Maine * Natural Resources Defense Council Maine Center for Economic Policy * Oregon Center for Public Policy Redefining Progress * 20/20 Vision

May 4, 2001

Dear Senator:

We are writing to draw your attention to a little-noticed issue in the current efforts to repeal the estate tax - land conservation. We are concerned that repealing the Estate Tax may have unforeseen, negative consequences for land conservation and may not appropriately address threats to family farms.

As conservationists interested in protecting open space, forests and farms, we are concerned that current legislative proposals to change Estate Tax law would reduce an important incentive to permanently protect land. The Internal Revenue Code currently allows a deduction from the estate tax for the voluntary donation of land to qualified organizations for permanent conservation. This tax code provision, IRC 2031(c), has helped to permanently protect millions of acres by providing an incentive for willing landowners to donate land for conservation purposes as they limit the estate tax liability for their heirs.

Very little is known about how a repeal of the Estate Tax will impact farm ownership, forest lands, or land conservation. To our knowledge, neither the Joint Committee on Tax, General Accounting Office, nor the Treasury Department has ever seriously investigated the issue. From the limited evidence that exists, it appears that repealing the Estate Tax will not help most farmers or forest land owners.

Estate Tax repeal advocates cite anecdotal evidence of heirs subdividing farms and liquidating habitat to pay the Estate Tax. While this can be a problem in theory, there is little credible evidence that suggests this is a widespread dilemma. Neil Harl, an attorney and farm tax expert at Iowa State University, notes that, to his knowledge, no farm has been sold because of estate taxes. Several provisions have been established in the estate tax to reduce unintended impacts on farmers. For example, heirs who continue farming agricultural estates are allowed to pay any incurred estate tax over 14 years. Another provision allows farmers to value their land based on its "use-value" as farmland rather than the potentially higher market value that developers might be willing to pay.

A more modest reform of the Estate Tax could address concerns about family farms while preserving the incentive to conserve land. The estate tax could easily be adjusted to protect family farms and small businesses from any undue burdens during transition between generations. Simply raising the amount exempted from the estate tax to $2 million per individual and $4 million for a couple or family business would go a long way to eliminating the problem.

In fact, Congress could modify the Estate Tax in several ways that would preserve more land. First, Congress could remove existing geographic restrictions on eligibility of land donations. Currently, almost one-third of the continental United States is ineligible for the exemption under §2031(c). Not included are areas near national wildlife refuges, national forests, and many non-urban areas. These restrictions exclude many pristine and sensitive lands -- precisely the places that we most need to protect.

Second, Congress could remove the cap on conservation easements. When fully phased in, the current conservation deduction will be limited to $500,000. In many parts of the country, this amount will only protect small farms and forests. An uncapped exclusion would protect larger blocks of land, which are critical to healthy ecosystems.

Finally, key farm provisions of the Estate Tax, such as deferred payment options and special use valuation, could be used to protect critical forest and timber lands. Currently, most heirs, including forest and timber land owners, must pay any incurred estate taxes within nine months. Providing for a deferred payment of some or all of the estate taxes due on forest lands could reduce the pressure to hastily sell off precious habitat. This deferral would provide time for heirs to consider the use of conservation easements or other tools that would enable them to protect their forest and timber lands permanently. Several modifications can also be made to the special use valuation provisions of the current tax law to allow greater conservation of forest lands such as, eliminating the requirement that forest ownerships qualify as businesses and utilizing standard valuation procedures specific to forest land to simplify access to the provision.

Numerous improvements can be made to the Estate Tax, both in terms of reducing its threat to farmland and increasing incentives for land conservation. As the Senate debates the elimination of the Estate Tax, we urge you to utilize this opportunity to preserve and expand these incentives for land conservation. Thank you for your consideration.

Sincerely,