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Issues With a Maryland Taxpayer’s Qualified Appraisal: When Conservation Easements Go Wrong

Updated: Jul 8, 2020

Sign that says Farmland Forever (Source Howard County Government).

This post should not be relied upon for legal advice or tax advice (if you take tax advice from Paul you have a bunch of issues).

Today, I delve into a world I rarely discuss: conservation easements. Earlier this month, the U.S. Tax Court found issues with a Maryland taxpayer’s qualified appraisal needed when claiming a conservation easement donation for a charitable deduction. Let’s focus on what issues the Tax Court had with the appraisal to help you avoid the same pitfalls when donating your own conservation easement.

The Costellos owned a large farm in Howard County and first met with the Howard County Department of Planning and Zoning in 2000 about selling their developmental rights on their farm to the county. According to county policy, the county’s Agricultural Land Preservation Program could acquire a conservation easement in one of three ways:

Birds eye view of land (Photo by Edwin Remsberg).
  1. County could purchase development rights;

  2. Landowner could donate development rights to county (rarely happens); or

  3. Landowner could have conservation easement placed on property as a condition for selling development rights to a third party.

The Costellos went with the third option, sold their development rights to a developer, and placed a conservation easement on the property.

The Costellos next received an appraisal of the before and after hypothetical sale of the development rights. This appraisal is where all the issues developed in the eyes of the Federal tax court. The appraisal did not mention that the Costellos had granted the easement (the appraisal actually stated there were no easements on the property), did not acknowledge that the easement was granted on condition of the sale of developmental rights, and did not mention that the property would support fewer residences due to percolation issues.

According to the tax court, because the appraisal did not include wording showing the conservation easement was being donated, it did not qualify as the appraisal required for the charitable deduction. The appraisal also failed to include a date the easement was made. Finally, the appraisal did not include the terms of the conservation easement. In the minds of the Tax Court, the appraiser was unaware of the easement being made.

Other issues existed with the appraisal summary as well. The donee (in this case Howard County) did not sign the summary as required. The signature is important because it shows the donee agrees that a contribution was made. The summary also failed to show any value (read money) the Costellos had received. Because of these issues, the tax court found that the summary did not comply with the statute.

Road that leads to a farm (Photo by Edwin Remsberg).

With all these defects in the Costellos appraisal and appraisal summary, the tax court upheld the penalties assessed to the Costellos for underpayment of taxes, amounting to close to $300,000 owed.

The take away point from this tax court decision is this: when donating a conservation easement, have your paperwork in order. Disclose to the appraiser that a conservation easement is being donated, how the transaction will work, and any other details to help the appraiser make an accurate appraisal of the donation.

For more information on conservation easements, check out:

  1. Taxes and Land Preservation: Computing the Capital Gains Tax by Lori Lynch and Paul Goeringer (

  2. Estate Planning and Conservation Easements by Lori Lynch and Paul Goeringer (

  3. Do Agricultural Land Preservation Programs Reduce Overall Farmland Loss? by Lori Lynch and Xiangping Liu (

And please send us additional thoughts on conservation easement topics you would like to see covered.


Costello v. Comm’r, T.C. Memo. 2015-87.

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