Congress amended the Internal Revenue Code and set new parameters for qualified conservation contributions claimed by pass-through entities. Section 170(h)(7) aims to stop syndicators from abusing the conservation easement deduction.

The new law disallows deductions claimed by partnerships if the reported value of a conservation contribution exceeds certain financial limitations. A 3-year holding period and an exception for family partnerships work to preserve easement deductions associated with legitimate conservation transactions.

What to Know About the Charitable Conservation Easement Program Integrity Act:

→ Conservation easement donations made by partnerships or other pass-through entities will not be treated as qualified conservation contributions if the contribution exceeds 2.5 times the sum of each partner’s relevant basis in the entity.

→ Congress carved out exceptions to the new 2.5 factor rule that protect deductions associated with legitimate conservation easement donations. Contributions made outside a 3-year holding period or by family partnerships are exempt and will not be disallowed.

→ The IRS will assess penalties against entities claiming disallowed deductions at the level of gross valuation misstatement or 40% of any underpayment of tax liability.

→ Additional IRS reporting requirements will apply to conservation contributions.

→ Conservation contributions made in 2023 must adhere to the new rules.

→ Donors will have an opportunity to correct deed errors in previously recorded conservation easements. The IRS is required to publish safe harbor provisions regarding extinguishment clauses and boundary line adjustments before the end of April 2023. Landowners will then have a 90-day cure period to amend their deeds. Qualifying deed corrections are effective as of the original filing date.

Abusive syndicated conservation easements have cost taxpayers billions of dollars and threatened legitimate deductions. Under the Conservation Easement Integrity Act, family partnerships and pass-through entities adhering to the 3-year holding period will continue to enjoy significant tax benefits associated with donated conservation easements.

Disclaimer: This blog does not constitute legal advice and is intended for educational purposes only.