Any taxpayer who has or intends to take a deduction for a conservation easement needs to be aware that this deduction has faced ever increasing scrutiny from the Internal Revenue Service (“IRS”). For example, on December 23, 2016, the IRS issued Notice 2017-10. The Notice provides that any transaction entered into on or after January 1, 2010, where “an investor receives promotional materials that offer prospective investors in a pass-through entity the possibility of a charitable contribution deduction that equals or exceeds an amount that is two and one-half times the amount of the investor’s investment” are listed transactions. Notice 2017-10 requires participants and material advisors to disclose these transactions to the IRS.
The impact of Notice 2017-10 was immediate. On July 13, 2017, former IRS Commissioner John Koskinen wrote the Senate Finance Committee informing them that a preliminary analysis of the newly required Form 8886, Reportable Transaction Disclosure Statements, revealed that these investors were on average taking charitable deductions greater than 9 times the amount of the investor’s investment. The aggregate contribution deduction on just 40 of these disclosures was $217,067,598.
Then, on September 10, 2018, the IRS made Syndicated Conservation Easement Transactions part of their compliance campaigns. According to the IRS:
This campaign is intended to encourage taxpayer compliance and ensure consistent treatment of similarly situated taxpayers by ensuring the easement contributions meet the legal requirements for a deduction, and the fair market values are accurate.
On January 17, 2019, proposed legislation focusing on limiting qualifying conservation donations was reintroduced in the Senate. The Charitable Conservation Easement Program Integrity Act of 2019, first introduced in the U.S. House of Representatives on November 28, 2017, and in the U.S. Senate on February 15, 2018, proposes to limit conservation easement donations used for tax deductions to transactions not exceeding 2.5 times a partner’s adjusted basis.
The bill is sponsored by Senator Steve Daines (R-MT) of Montana and Senator Debbie Stabenow (D-MI) of Michigan. The Senate Finance Committee members sponsoring this bill cited to IRS data released on July 13, 2018, showing that abusive syndicated partnerships cost taxpayers approximately $8 billion between 2010 and 2016.
Conservation groups generally support the bill as they view abusive syndicated conservation easement transactions as a threat to all conservation easements. Kameran L. Onley, Director of US Government Relations, The Nature Conservancy spoke in support of the bill: “The abusive practices of a growing number of easement tax-shelter syndicators poses risk to legitimate efforts of the many philanthropic-minded easement donors and main-stream land conservation organizations working to protect the nation’s significant conservation areas. We believe that, if passed, this bill will curtail those practices to maintain the public’s confidence in the most important Federal tax-advantaged conservation tool.”
With bipartisan support, the support of conservation groups, and the Notice 2017-10 requirements, this proposed legislation has a strong wind at its back and therefore it would not be surprising if this bill were to become law.
Please contact Buck Buchanan at 404-222-7309 with any questions.