12.28.2016 | Articles / Publications
Burr Alert: IRS to Treat Some Conservation Easement Syndicated Deals and Similar Transactions as Listed Transactions
The IRS has announced it will begin treating certain syndicated conservation easement transactions and “substantially similar” transactions as “listed transactions.” Notice 2017-20 published on December 23, 2016 (the “Notice”) provides that the IRS intends to challenge the proposed tax benefits offered by certain transactions involving the promotion and syndication of conservation easements.
Under the Notice, an example of a syndicated conservation easement transaction included the following fact pattern. Oral or written promotional materials offer an investment in a pass-through entity (generally a partnership or LLC) to prospective investors that may entitle an investor to a charitable contribution deduction that equals or exceeds an amount that is two and a half times (2.5x) the investor’s investment. In furtherance of the transaction, the promoter syndicates ownership in a pass-through entity that holds or acquires certain real property. The promoter selects real estate property which could qualify for a charitable deduction if contributed for a conservation easement to encumber said property. The promoter obtains an appraisal for the real property that inflates the value of the conservation easement based on certain (potentially unreasonable) conclusions about the development potential and future value of the real property. The pass through entity contributes a conservation easement encumbering the property to a tax-exempt entity and allocates the charitable deduction to the investor that the investor reports on his or her tax return.
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