THE WATER BANK TRUST
WaterBankSM Trust is a private, non-profit trust, originally established in 1994. It is dedicated to to the use of market-based methods to maintain, restore, and replace ground-water and surface water resources throughout the United States. WaterBankSM Trust works cooperatively with willing water users to acquire part or all of existing in-stream and out-of-stream water rights.
WaterBankSM Trust works to acquire water rights to establish a balance between paper water rights and the actual physical supply of water subject to interstate stream compacts. WaterBankSM Trust also acquires water rights to provide for in-stream flow requirement, watershed restoration and runoff augmentation, and restoration of riparian habitat.
WaterBankSM Trust may trade water rights with other non-profit entities throughout the United States and abroad in return for water rights they may own in areas where WaterBankSM Trust has on-going programs.
WaterBankSM Trust may lease water rights it owns but is not using for project purposes to provide operating funds.
WaterBankSM Trust is authorized to receive grants and funds from public and private sources for the purpose of purchasing water rights in areas targeted by donors.
Individuals and business can donate water rights or any other property, including water utilities, to WaterBankSM Trust receive income tax deductions based on the fair market value of the property donated.
As a general rule, there shall be allowed as a deduction to any charitable contribution for the use of a qualified 501(c)(3) entity if it is to be used within the United States and if it is made within the taxable year. A charitable contribution shall be allowable as a deduction for use as a qualified conservation contribution if it is a qualified real property interest donated to a qualified organization such as WaterBankSM Trust. If the water rights are passed on to heirs, the heirs can continue to take deductions by donating the water rights in appropriate amounts exclusively for conservation purposes. The term "qualified real property interest" means the entire interest of the donor where the interest donated is the right to the use of property where the property is a qualified conservation contribution. To be considered a "qualified conservation contribution," the donation must be used for preservation or protection of relatively natural habitat of fish, wildlife, or plant, or similar ecosystem where such preservation is pursuant to a clearly delineated Federal, State, or local government conservation policy, and will yield a significant public benefit in perpetuity.
The amount of the deduction allowed shall not exceed 50 percent of the taxpayers contribution base for the taxable year. The contribution base is the taxpayers adjusted gross income computed without regard to any net operating loss carryback to the taxable year.
In most cases, water rights contributed to WaterBankSM Trust will be appreciated property. That is, the acquisition cost or the taxpayers basis or what he paid for the water rights is commonly very low compared with the present fair market value of the water rights. Appreciated property is called "capital gain property." In this case, the amount of the contribution to WaterBankSM Trust is the amount of gain, which would have been long-term capital gain if the property contributed, had been sold by the taxpayer at its fair market value. Water rights that have been used for a trade or business are treated as a capital asset.
Consequently, if water rights are contributed to WaterBankSM Trust, and if the amount of the contribution exceeds 50 percent of the taxpayers contribution base for the such taxable year, the excess contribution shall be treated as a charitable contribution paid in each of the 5 succeeding taxable years, in order of time, but, with respect to the succeeding taxable years, only to the extent of the lesser of the two following amounts: the amount by which 50 percent of the taxpayers contribution base for such succeeding taxable year exceeds the sum of the charitable contributions payment which is made by the taxpayer within such succeeding taxable year and the charitable contributions payment which was made in taxable years before the contribution year which are treated as having been paid in such succeeding taxable year; or, in the case of the first succeeding taxable year, the amount of such excess, and in the case of the second, third, fourth, or fifth succeeding taxable years the portion of such excess paid in any taxable year intervening between the contribution year and such succeeding taxable year.
In simple language, if the value of the donation to WaterBankSM Trust exceeds 50 percent of the taxpayers adjusted gross income, appropriate donations from tax may be taken in the five succeeding years.
If the value of the water rights cannot be fully used to offset the taxpayers ordinary income in any five-year period, then the amount of water rights donated should be divided so as to benefit fully from the deductions allowed by the tax code. That is, every six years a block of water rights can be donated.
If you think that you have insufficient income to take advantage of the deductions, you may gift them or sell them to relatives or other individuals so that they can donate them to WaterBankSM Trust at their appreciated, fair market value, and take tax deductions. That is, you can sell a tax deduction. This is perfectly legal and is done every day. Such transactions are sought by individuals in high income tax brackets and we have buyers for water rights to be donated to WaterBankSM Trust for conservation purposes.
You will not receive the full value of the water rights in this kind of transaction because there must be some incentive for an individual who needs deductions to buy your water rights. After all, the buyer bears the considerable risk of ownership and attempts by the State Engineers and water courts to void water rights. As a general rule, you will receive from one-fourth to one-third of the fair market value of the water rights. That is, in the Middle Rio Grande, for example, a consumptive use water right that has a fair market value when bought and successfully transferred to a new location will have a fair market value of about $12,000 to $14,000 per acre foot of consumptive use water rights.
If you own less than 20 acre feet of consumptive use water rights and do not have good documentary proof of the date of first use and if you cannot prove continuous use for at least one year out of four years, many western states in the United States can void your water rights or cause you to end up in a hearing or in court. In the Arab world, this can also occur under the principle of Indirass. New water legislation in other countries is adopting this principle also because it is contrary to sound public policy to allow our natural resources to be tied up forever and not used for the economic betterment of the citizenry.
Defending your water rights can be expensive and time consuming. In our experience the review of an application by the State Engineer normally can take from 6 months to 1.5 years. Water rights purchase contracts are written so that you only are paid when the water rights sale and transfer is approved by a regulatory agency. You bear considerable risk unless you have validated the water rights in advance. So, it can be better in some cases to donate the water rights.
The trustee of WaterBankSM Trust is Dr. William Turner. Dr. Turner has managed trusts for more than 20 years. Dr. Turner has more than 30 years of experience in water. He has worked throughout the United States and 20 foreign countries on water issues. Dr. Turner is presently, the Natural Resources Trustee for the State of New Mexico, a gubernatorial appointment and department of state government, and a Member of the Governor's Blue Ribbon Task Force on Water. He regularly teaches courses on water rights.
A legal opinion by a professional tax attorney regarding donations will be provided to any donor of water rights to WaterBankSM Trust.
For more information contact: Dr. William M. Turner, Trustee