In Schedule D, Part II, you’re reporting on any property you own that subject to conservation easements. This doesn’t include utility easements, but does include other interests in real estate if, under state law, they have attributes similar to a conservation easement and exist for the purpose of conservation and preservation.
On line 1, check the box(es) for the purpose(s) of easements you owned during the fiscal year you’re reporting on your Form 990. On line 2a, list the number of conservation easements you owned at the end of the fiscal year, and list the total number of acres in the easements on line 2b. For line 2b, don’t include the acreage for easements on certified historic structures. For easements with partial acres, use decimal points, e.g. three and a quarter acres would be 3.25. On line 2c, put the number of easements you own that are on certified historic structures. Certified historic structures are buildings and structures listed in the National Register of Historic Places, plus buildings certified as being of historic significance to a registered historic district. On line 2d, put the number of easements listed on 2c that you acquired after July 25, 2006, and that are not on a historic structure listed in the National Register.
On line 3, put the total number of easements that you modified, transferred, released, extinguished, or terminated during the fiscal year. For example, if you transferred 2, modified 1, and extinguished 1, then put “4” here. For each easement indicated on this line, describe the circumstances and changes in Part XIII. Note that, in most cases, for the donation of a conservation to qualify as a charitable deduction for federal tax purposes, it must be granted in perpetuity. Also, a nonprofit receiving easements generally must protect the easements it holds in perpetuity, in order to maintain its tax exemption. Consult with an attorney prior to modifying, terminating, etc. a conservation easement to see how these restrictions will impact your plans.
On line 4, put the number of states where you own property that’s subject to conservation easements.
Nonprofits holding property subject to easements must commit to protecting the conservation purposes of the easement, and have the resources to enforce any restrictions. On line 5, check off whether you have a written policy about how you’ll monitor, inspect, handle violations, and enforce the easements. If you do have a written policy, describe it in Part XIII. Monitoring refers to checking on the use and condition of the property subject to the easement, to make sure the property owner is honoring the restrictions in the easement. Inspection refers to onsite visits, to observe the property, which is part of the monitoring process. Enforcement of the easement includes actions you take when you become aware of violations of the easement, in order to get the property owner to comply with the terms of the easement.
On lines 6 and 7, list the amount of work hours and expenses you incurred to monitor, inspect, and enforce easement, and handle violations. For line 6, include work performed by paid and unpaid staff, as well as your organization’s agents and independent contractors. For both lines, monitoring, inspecting, and enforcement have the same definitions as they do on line 5.
On line 8, check off whether all of the easements you reported on line 2d meet the 2 requirements listed here. The first section referenced requires you to preserve the entire exterior of the building – its front, sides, rear, and height – and prohibits you from changing the exterior in any way that’s inconsistent with its historical nature. The second section referenced requires that you, and the donor who gave you the property, have a written agreement that, among other things, you have the resources to manage and enforce the easement, and commit to doing so.
Line 9 asks you to describe in Part XIII how you record conservation easements in your revenue and expense statement and balance sheet. If your financial statements include a footnote about your accounting for easements, include that in Part XIII.
Schedule D can be found here, and more detailed instructions for filling it out are provided here. I am covering other parts of Schedule D in additional blog posts. (Part I | Part III | Part V | Parts VI – X | Parts XI – XII)