July 17,2003

Grassley Seeks Answers on Nature Conservancy Donations, Deals

WASHINGTON – Sen. Chuck Grassley, chairman of the Committee on Finance, with the committee’ ranking member, Sen. Max Baucus, has asked The Nature Conservancy a series of detailed questions about the group’s practices. Prompted by an extensive newspaper examination, Grassley said his concerns include the tax implications of The Nature Conservancy’s activities.

“People who donate property and dollars to help protect the environment deserve to knowThe Nature Conservancy won’t betray them,” Grassley said. “In addition, taxpayers deserveprotection from abuse of the favorable tax treatment that’s given to these kinds of charitabledonations. The tax code contains many incentives to encourage giving. Those same incentives alsocreate opportunities for abuse. Our goal in asking these detailed questions is to shed daylight onwhat’s happened so we can hold the bad actors accountable and prevent wrongdoing in the future.”

The text of the Grassley-Baucus letter follows.

July 16, 2003

Mr. Steven J. McCormick
President and Chief Executive Officer
The Nature Conservancy
4245 North Fairfax Drive
Arlington, VA 22203-1606

Dear Mr. McCormick:

The recent articles in the Washington Post regarding The Nature Conservancy (TNC) posed serious questions about TNC’s practices regarding land sales, purchases, and donations; executive compensation; and corporate governance, among others. In addition, the Finance Committee has begun its own independent review that has found additional areas of concern. Given TNC’s varied roles as government grantee and vendor, as well as its status as a tax-exempt organization, we, asChairman and Ranking Member of the Finance Committee, seek answers and information aboutcertain of TNC’s policies and practices. We appreciate your repeated assurances of cooperation asthe Committee seeks to review TNC documents, filings, transactions and other related materialrelating to the following TNC programs and practices.

1. Conservation Buyer Program

The May 29, 2003 letter to Congress from TNC has an attachment that provides a descriptionof TNC’s “Conservation Buyer Projects” (CBP). In it, the TNC states that since 1990, 220 parcelsof land have been sold under the CBP program.

Please provide, for each CBP transaction within the last 10 years, the following: thedescription and location of the relevant property; the dates of TNC’s purchase and sale of the land;TNC’s purchase price and its sale price for the parcel of land; the terms of the easement or otherproperty limitation imposed on the property by TNC; the individual(s) or entity(ies) that sold theproperty to TNC (including SSN or EIN); the individual(s) or entity(ies) that purchased the propertyfrom TNC (including SSN or EIN); any relationship, past or present, of CBP buyers or sellers withTNC or its subsidiaries or affiliates; any donations or contributions totaling at least $1000 made bya CBP purchaser or seller to TNC or its related organizations within two years of TNC’s sale orpurchase; all appraisals of the property, including appraisals made prior to TNC’s purchase of theland, after an easement or other restriction was imposed, and at or after the point of sale to a CBPbuyer; any analysis in the possession or control of TNC or its related organizations regarding the taxtreatment of the sale or purchase; Form 8283: “Noncash Charitable Contributions” for both purchaseand sale, where applicable; and, Form 8282 “Donee Information Return,” where applicable.Please provide all information that TNC has in its control or possession regarding anytransactions with Mr. Jerry Jung, Mr. and Mrs. James Dougherty and the Wallace Family.

Please confirm that CBP is the sole program by which TNC or its related organizations havesold to non-government entities land, interests in land, or water rights that are subject to aconservation easement or option of conservation easement. If there are other programs by whichTNC or its related organizations has sold to non-government entities land, interests in land, or waterrights subject to a conservation easement or option of conservation easement, please describe theseprograms in detail. In addition, please discuss any other programs other than CBP, sales togovernment, Trade Land or purchase of easements in which TNC purchases or sells land or interestsin land.

Lastly, the Board of Governors announced on June 13, 2003, that all CBP transactions mustbe “legally documented as part of the transaction.” Please explain specifically what that means andwhat information will be made available to the public and the IRS.

2. Government

It is our understanding that TNC sells or exchanges land or interests in land to local, state andfederal government entities. For example, in its most recent Form 990 filing, TNC reports $181million in income from government sales.

Please provide a list of all land or interests in land sold or exchanged by TNC or its relatedorganizations since January 1, 1998, to local, state and federal government entities. This list shouldinclude a description and location of each property; the date of TNC’s purchase and sale; the amountTNC paid for the property (note if the seller considered the sale to be a bargain sale and pleaseprovide a Form 8283 for any bargain sale or gift as well as the Form 8282 where applicable); theappraised value of the property at the time of TNC’s acquisition of the property and at the time ofthe sale (including proof of compliance with federal appraisal standards); the individual or entity thatsold/donated the property (include SSN/EIC); the amount for which TNC sold the property; theamount (together with all appraisals) that TNC determined was the value of the property for purposesof Form 990, (e.g., in Part II, line 43 TNC listed in “Statement 8" of the 2002 Form 990 line itemsfor “Cost of Goods Sold to Govt. - Cost” and “Cost of Goods Sold to Govt. - Gift” – (please alsoprovide a description of what these two terms reflect); the government entity that purchased theproperty; and the specific source of funding that enabled TNC to purchase the property (for example,a charitable contribution from an individual; a government grant/contract; grant/contract fromcorporation or a nonprofit organization, etc.). Finally, for each year, please provide the total amountof income from such sales, a detailed breakdown of expenses direct and indirect related to the salesand the amount of net profit from the sales.

Please provide a list including dollar amount, brief description of purpose and identificationof each grant, contract, appropriation or other financial benefit to TNC conferred by a governmentagency (and program, example North American Wetlands grant awards, Forest Legacy Grant awards)since January 1, 1998. In addition, please provide a similar listing for grants and contracts receivedfrom or given to the National Fish and Wildlife Foundation; the National Forest Foundation; and theNational Park Foundation since January 1, 1998.

3. Trade Land

TNC has a program called “Trade Lands” that targets donations or below market sales of landby corporations and individuals for resale by TNC. Please describe in detail this program, includingthe number and value of gifts from corporations and individuals. Please list the ten largest giftsreceived (by dollar value of the claimed charitable donation) per year under this program sinceJanuary 1, 1993 along with the Form 8283 and Form 8282 (where applicable). If there is no Form8282, please provide the total amount the property was sold for, the date it was sold and identify theparty who purchased the land.

4. Loans

A. Employee. Please list all loans provided to officers, federal and state board members,employees, donors, TNC contractors and TNC related organizations. Please provide the loan terms (including security and value of the security), date of issue, current status, name of loan recipient andEIN/TIN. Please provide the dates and amounts of repayment and whether there was anyforgiveness of the loan.

TNC provided a home loan of $1.55 million with a 1-year adjustable interest rate at 4.59percent to Mr. McCormick. TNC states that this rate was “based on outside advice as to what amarket rate would be.” Please provide a copy of that advice. TNC states that recently Mr.McCormick has refinanced the loan with a commercial lender. Please provide a copy of the loanterms and contract.

B. Other Loans. TNC in its 2002 Form 990 reports the $1.55 million loan to Mr.McCormick. TNC Form 990 also discloses $26.1 million in other loans. The return provides athumbnail description of these loans. Many of these loans are to for-profit entities or individuals.

Please provide a description of all loans made (or receivable) to individuals or for-profit entities forthe past ten years and include a description of any relationship between the company (includingofficers and directors) or individual with TNC. This description should include the original purposeof the loan, whether that purpose was met, the interest rate and payment schedule when the loan wasmade, the security (and value) for the loan and whether there were any changes to the terms of theloan.

Please describe in particular all of the above loans that have a 0% interest rate and all loansthat defaulted or in which there was partial or full loan forgiveness. Please describe the process ofTNC in approving loans, how the interest rate is determined and the material that is prepared in support of such loans.

For all loans above in A and B, where applicable, please describe how TNC and the individualcomplied with Section 7872 of the Internal Revenue Code: Treatment of loans with below-marketinterest rates. Please provide copies of all related TNC filings with the Internal Revenue Service.

5. Internal Reports, Audits and Studies

Please provide the name and contact information for the lead partner for TNC external audits since January 1, 1998. Please provide copies of all draft or final external and internal audits, evaluations and reviews conducted by or for TNC or its related organizations since January 1, 1998.

In particular, please provide any such material that reviews, discusses or relates to payment of taxes (including payroll) of TNC or its related organizations, TNC or its related organizations’ employees or contractors as well as any material that discusses the tax situation regarding donors, sellers, buyersor other recipients.

6. Easements

Please provide a copy of the December 4th, 2002 memo cited in the Washington Post that states:

“If you look at our revenues from last year, they’re up from the year before, mostly due tothe valuation of easements, which can be viewed as subjective and a tool we used to inflateour income.”

Please provide all other information in TNC’s possession or control related to thatteleconference that is discussed in the December 4th memo.

In addition, for all easements above $25,000 (as valued by the donor or purchase price) please provide a list valuing all easements purchased by or donated to TNC since January 1, 1998, including the dollar amount of the easement, where the land was located, and the identity of the donor or seller.Please note all easements purchased or donated that involved officials, governors, or trustees of TNCor its state affiliates.

7. Board Membership and Organization

Please provide a current list of all officers, directors, board members of TNC (state andnational) or its related organizations. In addition, please include the current reorganization chart andbylaws of TNC and any related organizations. Please include a list of all other for-profit and nonprofitorganizations that these individuals serve as employees, officers, directors, board members orsimilar capacity.

Finally, please provide a list of all TNC (state and national) board and staff who serve onfederal and state government boards. Please note those federal and state boards that award grantsor contracts to TNC.

8. Executive Compensation

Please provide TNC’s Form 990 for the last 10 years. In addition, please provide the minutesof the Compensation Committee or Board of Governors meetings relating to compensation (including loans) for officials listed in Form 990 since January 1, 1998, as well as all employment contracts forthese individuals. Please provide a detailed discussion, including value, of any deferred compensationprograms that TNC or its related organizations operates for any of its employees.

9. President’s Discretionary Fund

The Committee would like information regarding the policies and procedures with respect tothe President’s discretionary fund (and its successor the Quick Strike Fund). Please explain howfunds become part of the discretionary fund; whether there are or have ever been any limitations onthe amount of money in the discretionary fund; who can authorize the fund’s use; and any limits on the use of the funds. In addition, please provide all yearly statements indicating the amount of money in the fund since January 1, 1993, and an accounting of the fund’s use since January 1, 1998,including a description of each withdrawal; for what purpose the withdrawal was made; and the names of the recipient (please note any relationship to TNC). Please provide the source of funding for the discretionary fund year-by-year since 1993.

10. Major Donations/Sales/Exchanges of Land

Please provide since January 1, 1998 year-by-year the top ten donations by value (includingbargain sales) of land to the TNC or its related organizations. Please provide the EIN/TIN of theentity or individual making the donation, the location of the land, the value of the land at the timeof the donation, as well as relevant Forms 8283 (and Form 8282 where appropriate). Please providethe current status and use of the donated land, including whether the land has been sold by TNC and,if so, the date and amount of TNC’s sale.

11. Valuation

The Washington Post quotes a TNC state trustee regarding charitable deductions:“Generally, the buyer puts too much value on it [for tax purposes]. Land donators almostalways try to value their land at more than the [true] value. This is a business. We sort ofwince and look away at some of the values buyers put on these transactions. We’re not theIRS.” (Emphasis added).

Please provide TNC’s viewpoint on this statement.

12. Related Organizations

Please describe the activities of all TNC-related organizations cited in the most recent Form990 for the last five years. Please provide a copy of the Form 990 for related nonprofit organizationsand a copy of the tax return for related for-profit organizations for the past five years. In addition,please provide for the last five years TNC’s Form 990-T and the Form 990-T of related organizations.

13. Travel, Conferences, Meetings and Other

The most recent Form 990 filed by TNC shows that TNC spent over $13 million dollars ontravel, conferences, conventions and meetings. Please provide a description (including dollar amount, location, hotel) of each activity with respect to which more than $2,000 was spent on behalf of anindividual since January 1, 2002. Finally, please provide a detailed breakdown of the $23 milliondollars in “other expenses” listed in the Form 990 for 2002.

14. Transactions With Board Members

Please list all land transactions between TNC and any Trustees, Governors, or staff (nationaland state) since January 1, 1998. Please provide copies of all material that was submitted to anyTNC Board (national and/or state) for determining their approval. Please also provide any boardminutes regarding these decisions. Finally, please provide the same information for each of these landtransactions as was requested for CBP transactions in #1 above.

15. Conservation

TNC states to the Washington Post that it consulted with the U.S. Fish and Wildlife Service regarding the drilling for gas in Texas. Please provide copies of all material related to thatconsultation.

16. Litigation

Please provide the names of the parties, a brief description of the issue, the date of settlementor court order and the amount paid by TNC or its related organizations to settle or resolve alllitigation or potential litigation since January 1, 1998. Please provide this information only wheretotal cash value of payments were over $50,000.

17. Grants

The Form 990 fails to provide a list of grantees. For the last five years provide a list of each grant, the dollar amount (as well as noncash amount), the recipient and purpose of the grant. Inaddition, please note any relationship with TNC and its related organizations, board, officers,employees, etc. Finally, provide all other information required under the instructions for Form 990published by the IRS: “Specific Instructions for Form 990.”

18. Cash Donations

Please list the name and address of all donors – both individuals and business entities – who provided a cash donation of $50,000 or more in any year since January 1, 1998.

Please provide the requested information by August 18, 2003. We would suggest that as information to separate questions is completed it should be forward without awaiting answers and information for all questions. We recognize that some of the information requested is sensitive andwill work with TNC in ensuring protection of such identified information.

Cordially yours,

Charles E. Grassley 

Max Baucus
Ranking Member