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Colorado farmer Marc Arnusch had a straightforward choice: accept millions of dollars from solar companies seeking to lease 2,700 acres of his family’s farmland, or keep the property in agriculture for the next generation.
He chose the farm. Now, after spending nearly $1 million documenting a conservation easement, he is facing an IRS audit over the tax deduction associated with it. Reporting by Just the News, recent statements from the Internal Revenue Service and reporting by Colorado Public Radio help illuminate the dispute and the broader debate over conservation easements. Arnusch, a third-generation farmer in Weld County, said the solar offers were tempting but ultimately incompatible with what he wanted for the land.Instead, his family pursued a conservation easement, a legal agreement that permanently limits certain uses of privately owned land in order to protect its conservation values. Federal law allows qualifying conservation easements to generate charitable tax deductions, provided the statutory requirements are met.The decision required extensive documentation. Arnusch’s family hired roughly a dozen specialists, including tax attorneys, engineers, solar experts, mineral geologists and land-use professionals.
Soil testing, core samples, zoning and boundary surveys and other studies were used to establish what is known as the property’s “highest and best use”, an appraisal concept that considers the most valuable use that is legally permissible, physically possible and financially feasible.The solar companies’ interest in the property was part of that equation. Their offers provided evidence that solar development could represent a significant economic use of the land.
An independent appraisal was then prepared using the information gathered by the family’s experts. Arnusch claimed a tax deduction based on the resulting valuation, although he says he has not yet been able to use the full deduction because he did not have sufficient income.Then, roughly three years after the deduction was claimed, the IRS opened an audit. According to Arnusch, an IRS employee visited the farm, and he questioned whether the person conducting the review had the expertise necessary to evaluate such a complicated property.Arnusch said the family had relied on numerous experts throughout the process, but the IRS later sent an auditor who, according to Arnusch, was conducting their first audit of a farm. The IRS did not respond to requests for comment.Arnusch’s experience is part of a much larger fight over conservation-easement valuations. Critics of the IRS’s approach argue that government reviews can reach dramatically lower valuations than those produced by taxpayers who commission extensive expert studies.Bernie Donachie, a value-analytics specialist with interests in conservation-easement properties, examined 10 publicly available cases. He found that taxpayers’ experts had collectively valued the properties at $358.2 million, while IRS valuations totaled about $1.57 million, a reduction of roughly 99 percent, according to his analysis reported by Just the News. Those figures represent Donachie’s sample, not an official governmentwide assessment.The controversy comes against the backdrop of years of IRS enforcement involving conservation easements. The agency has argued that legitimate conservation deductions should be protected while abusive transactions and inflated valuations should not receive tax benefits. Now, the IRS is changing how it handles the issue.On Aug. 19, the agency announced the creation of an Office of Conservation Easements, saying the new office will centralize technical expertise and coordinate policy, enforcement and case-resolution strategies involving conservation and historic-preservation easements.
The IRS simultaneously ended its current uniform settlement initiative, saying standardized settlement letters were not suited to the variety of cases it was handling.For taxpayers with pending cases, the change does not automatically mean their disputes will disappear. The IRS says they can continue seeking settlements through their assigned examination or Chief Counsel representatives, with individual cases potentially resolved on different terms depending on the circumstances and litigation risks.For Arnusch, however, the issue is more personal than a dispute over a tax bill. He chose conservation because he wanted his family’s land to remain a farm rather than become a solar development. Now he is waiting to see whether the government will accept the valuation that helped him make that choice.He does not want to keep fighting the government; he simply wants to protect the farm. For a family that has spent generations working the same ground, the question is whether preserving that future will ultimately come with a tax price they cannot afford.
