“Syndicated Conservation Easement Transactions” Identified as Tax Avoidance “Listed Transactions”

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The IRS and Treasury Department have become aware that some promoters are syndicating conservation easement transactions that purport to give investors the opportunity to claim charitable contribution deductions in amounts that significantly exceed the amount invested. In these syndicated conservation easement transactions, a promoter offers prospective investors in a partnership or other pass-through entity the possibility of a charitable contribution deduction for donation of a conservation easement.

In Notice 2017-10 the IRS notifies investors in and promoters of syndicated conservation easements with the following characteristics that such arrangements are “Listed Transactions:”

  1. Promotional materials offer investors in a pass-through entity the possibility of a charitable contribution deduction that equals or exceeds two and one half times the amount invested.
  2. Investor purchases an interest in the pass-through entity that holds real property.
  3. The pass-through entity contributes a conservation easement encumbering the real property to a tax-exempt entity that allocates a charitable contribution deduction to the investor.
  4. Following the contribution of the easement, the investor reports a charitable contribution deduction with respect to the conversation easement on his/her return.

The IRS says it intends to challenge the purported tax benefits from transactions that are the same or similar to the one described above based on the overvaluation of the conservation easement. The IRS may also challenge the tax benefits from this transaction based on the partnership anti-abuse rules, economic substance, or other rules or doctrines.

Notice 2017-10 provides that transactions that were entered into on or after January 1, 2010 are “listed transactions” subject to disclosure with the Office of Tax Shelter Analysis. In addition, material advisors (as defined by the IRS) to the transaction will also be required to file a Material Advisor Disclosure Statement with the Office of Tax Shelter Analysis.

Disclaimer: Any written tax content, comments, or advice contained in this article is limited to the matters specifically set forth herein. Such content, comments, or advice may be based on tax statutes, regulations, and administrative and judicial interpretations thereof and we have no obligation to update any content, comments or advice for retroactive or prospective changes to such authorities. This communication is not intended to address the potential application of penalties and interest, for which the taxpayer is responsible, that may be imposed for non-compliance with tax law.

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