The IRS has had quite a good year or two on the conservation easement issue. It won cases where the legal document specified that if the easement is extinguished in the future and the property sold, then the proceeds are to be allocated according to a percentage that does not include the FMV of improvements made after the date of the donation. This causes the easement to fail the perpetuity requirement. I believe that that same failure causes the donation to be a taxable gift.
IRC Sec. 2522(c)(2) disallows the charitable deduction if the donation is of a partial interest, unless the interest meets the requirements of IRC Sec. 170(f)(3)(B).
To meet the requirements of Sec. 170(f)(3)(B), the donation must be a qualified conservation contribution.
A qualified conservation contribution is defined in IRC Sec. 170(h) and includes the requirement that the restriction on the property be granted in perpetuity. Reg. 1.170A-14(g)(6)(ii) further discusses the meaning of "enforceable in perpetuity" and the importance of the extinguishment clause ensuring that the charity's interest is protected.
Therefore, the gift does not qualify for the charitable deduction on the gift tax return (Form 709, Part 4, line 7), and the value of the donation less $15,000 is a taxable gift.
Agree, disagree? The reason I am second guessing myself is that the IRS has won some very significant cases, and I haven't heard anyone discuss the related gift tax return issues.