The Senate Finance Committee issued a report
yesterday raising questions about a range of
financial practices at the Arlington-based Nature
Conservancy and recommending regulatory changes
that would affect many of the nation's nonprofit
The report, the result of a two-year
investigation into the world's largest
environmental organization, questions whether the
charity's actions at times may have been
"inconsistent" with the policy underlying federal
tax laws. The committee raises concerns about the
size of tax breaks claimed by the Conservancy's
supporters, about the group's shortcomings in
monitoring development restrictions on some land
under its supervision, and about private "side
deals" with Conservancy "insiders."
The report refrains from making factual and
legal conclusions, stressing a desire to avoid
influencing an audit of the Conservancy begun by
the Internal Revenue Service in December 2003. But
the report spotlights the Conservancy's financial
dealings and highlights the organization's failure
to fully disclose transactions with Conservancy
officials and corporations whose officers sat on
the charity's board.
Changes sought by the committee include
creation of an accreditation system for
conservation groups, limits on tax deductions
associated with conservation easements and
increased public disclosure for charities.
Committee Chairman Charles E. Grassley
(R-Iowa) praised the Nature Conservancy for
enacting some reforms on its own.
"This report makes it clear that such
reforms were necessary, and I commend the Nature
Conservancy for making them," he said yesterday.
"Yet, in several areas, such as related party
transactions, public disclosure, conservation
buyer transactions, and the reporting and payment
of taxes, my hope is that this report will
encourage the Nature Conservancy to consider
Grassley also called for sweeping changes in
tax laws affecting charities. "There are real
shortcomings in current law in many areas," he
In a statement yesterday, the Conservancy
said that the committee's concerns largely focused
on past practices.
"The Conservancy remains confident that all
of our work is, and has been, in compliance with
the law and in furtherance of our mission," it
said. "Not everything we tried succeeded, and on
occasion we made mistakes, but all of our work was
done in good faith and was undertaken to
accomplish significant conservation goals."
Conservancy officials are to testify today
at a committee hearing.
The panel began investigating the
Conservancy in May 2003, in response to a series
in The Washington Post. The articles detailed the
organization's rapid growth -- its assets last
year reached $4 billion -- and described financial
transactions that benefited Conservancy
supporters, including corporations that had paid
pollution-related fines. The articles revealed
that the Conservancy had logged forests and
drilled for oil under the breeding ground of an
endangered bird species, and bought land and
services from corporations whose executives sat on
the nonprofit's governing board.
The series also revealed that the
Conservancy had repeatedly sold land to its own
trustees, in transactions that allowed the buyers
to claim significant tax breaks.
After the series, the Conservancy restructured its
board and banned some practices, including lending
money to insiders, selling land to trustees and
drilling on preserves.
The Finance Committee report recounts many
of the transactions described in the series and
explores their tax implications. Documents
relating to the transactions are contained in a
1,700-page appendix to the 200-page report.
The investigation looked extensively at
conservation easements -- development restrictions
placed on land to preserve wildlife habitat and
open space. The Conservancy holds easements on
1,600 tracts of land.
In some cases, the committee found, years
passed without the Conservancy formally
documenting that the easement restrictions had
been honored. Documents collected by the committee
"indicate a level of monitoring that may be
considered inadequate for the small conservation
easements and minimally adequate for the larger
easements," the report said.
In many cases, landowners donated the
easements to the Conservancy and claimed
substantial tax breaks for the charitable
contributions. The Conservancy acknowledged that
it had allowed a number of donors or subsequent
property owners to alter the terms of the
"perpetual" easements, presumably after donors had
already cashed in on their tax breaks.
Sometimes, the report said, the Conservancy
allowed property owners to expand a home on the
sites, construct additional buildings or cut
timber. Such changes could harm conservation
efforts and violate the law, the report said. In
the document, the Conservancy defended its
actions, saying it required landowners who sought
to change easement restrictions to agree to other
Without naming the Conservancy, the report
recommended that the IRS "consider revoking the
tax-exempt status of a conservation organization
that regularly and continuously fails to monitor
and enforce conservation easements." The committee
also called for a law that would allow the IRS to
fine officers and directors of charities that fail
to monitor and enforce easement restrictions.
The report questioned whether the
Conservancy's conservation buyer program allowed
participants to claim inflated tax deductions, and
whether they used the transactions to circumvent
tax laws. It recommended that the IRS look into
the transactions, which often benefited
Under the program, the Conservancy purchases
land, attaches conservation easement restrictions,
and then resells the property at a lesser amount
designed to reflect the decrease in land value
caused by the restrictions on development. The
buyers, in turn, make charitable contributions to
cover the difference between the Conservancy's
original purchase price and the lower resale
price. That cash gift allows the buyers to claim
substantial tax breaks.
Such transactions, the report said, "test
the limits" of the law, because in most of the
deals examined by the Finance Committee it
appeared as though the Conservancy would not have
sold the property if the buyer had not
simultaneously made the cash contribution. The
panel questioned whether the buyers could
legitimately claim the cash payments as
tax-deductible charitable donations.
The Conservancy appeared to have failed to
consider the effect such transactions "could have
on its tax-exempt status," the report said.
Until recently, the Conservancy generally
did not market the properties to the public, but
instead sold many of the tracts to its trustees,
staff members and other supporters, the report
said. The report questioned whether the buyers,
who often helped craft the terms of the land
deals, paid less than full price for the tracts.
The committee expressed concern that, although
the Conservancy had entered business transactions
with board members and their corporations, it
provided only limited details about the
transactions in its annual return to the IRS. In
many cases, the report added, "it appears that TNC
did not confirm that the transactions were done at
terms that were fair and reasonable to TNC."
The organization's public disclosure of the
deals "was oftentimes ambiguous or incomplete, and
in a few instances, misleading," the Finance
Committee said. It recommended that the IRS
require fuller disclosure of conflicts of interest
for all charities.
The Senate panel also looked into the
Conservancy's innovative emissions trading
program, under which U.S. companies that produce
air pollution gave the Conservancy $34 million
over a period of years to help preserve Latin
American forests. In return, General Motors Corp.,
American Electric Power Inc. and other large
businesses received "emissions credits." The
companies hope the transactions will one day allow
them to avoid spending millions of dollars for
emissions controls on their U.S. plants.
The report questioned whether the deals
would truly benefit the environment, and whether
the companies had "obtained an impermissible
private benefit as a result of the arrangements."
The report noted that during a period in
which the Conservancy sealed a $10 million
emission credit deal with General Motors, former
GM chairman John F. Smith Jr. sat on the boards of
the Conservancy and GM. The Conservancy reported
to the IRS in its annual return that Smith had not
taken part in the deal, to avoid a conflict of
"TNC's statement that Mr. Smith 'did not
participate or vote' . . . is misleading and
inaccurate," the report said. "TNC records
provided to the Committee show that Mr. Smith
voted on the transaction as a member of TNC's
Conservation Committee, and executed the agreement
on behalf of General Motors Corporation and GM's
Brazilian affiliate . . .
"Mr. Smith's role in the transaction should
have been more accurately described by TNC."
A Conservancy spokesman said Smith
mistakenly signed a ballot for a board vote on the