Exempt Organizations Advisory - IRS Designates Certain Syndicated Conservation Easement Transactions as Listed Transactions

December 23, 2016

Today the IRS released Notice 2017-10, which alerts taxpayers and their representatives that certain syndicated conservation easement transactions are tax avoidance transactions and identifies these transactions, and substantially similar transactions, as listed transactions.  The notice states that Treasury and the IRS 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.  

The notice describes the listed transaction as one where an investor receives promotional materials, written or oral, that offer prospective investors in a pass-through entity the possibility of a charitable deduction that equals or exceeds an amount that is two and one-half times the amount of the investor’s investment.  The investor purchases an interest, directly or indirectly, in the pass-through entity that holds real property.  The pass-through entity that holds the real property contributes a conservation easement encumbering the property to a tax-exempt entity and allocates, directly or through one or more tiers of pass-through entities, a charitable contribution deduction to the investor.  Following that contribution, the investor reports on his or her federal income tax return a charitable contribution deduction with respect to the conservation easement.  

Transactions entered into on or after January 1, 2010 that are the same as, or substantially similar to, such a transaction are listed transactions under the notice.  Consequently, persons who have entered into such transactions since 2010 or who enter into such transactions prospectively must comply with certain disclosure requirements.  Material advisors to such transactions, including appraisers, must comply with certain disclosure and list maintenance obligations.