Keeping You Informed of New IRS Notice 2017-10
“Listing Notice 2017-10” as to “Syndicated Conservation Easement Transactions” was issued by the Treasury Department last week and represents the IRS’s decision to more actively address abuses the Department and Agency see occurring with people or entities misusing or simply thwarting the valid conservation purposes of Section 170(h) of the IRS Code. As has been described by current and former IRS officials, the general purpose of the use of this type of enforcement tool is to require taxpayers to disclose transactions that are potentially abusive, which otherwise could not be discerned by the IRS from a tax return alone.
In this specific instance, through Notice 2017-10 the IRS has made clear its intent to challenge purported tax benefits of land donations based on “overvaluation” of the conservation easement, or other deficiencies that are not consistent with current tax doctrine in this area. In the Notice itself, the IRS points to its concern with conservation easements that have “appraisals that purport[] to be qualified appraisal[s]”, and “greatly inflate[] the value of the conservation easement based upon unreasonable conclusions about the development potential of the real property.” The problem with overvaluation of conservation easements donations is not new, it is real, and the IRS’s recent Notice reflects the Agency’s view that such donations should be looked at closely to ensure that they truly meet and comply with the requirements of Section 107(h) relative to valid deductions based upon proper land conservation donations.
Ethos’ approach to land planning has always included a high quality of work and multiple thorough appraisals by the best in the business. This level of quality, accuracy and detail is what separates an Ethos land project. Donations of conservation easements under Section 107(h)are subject to numerous rules and regulations that must be followed. This is true whether the donor is an individual or partnership. The potential for abuse with conservation easement donations generally comes from overvaluation of the property, which determines the amount of the tax deduction when a person or a partnership decides and elects to make a conservation easement donation.
The Land Trust Alliance, a national land conservation organization working to save the places people love by strengthening land conservation across America, reported this month that land trusts across the nation have conserved a staggering 56 million acres. The Census making such reporting also noted other key findings, including the fact that protecting and preserving important natural areas and wildlife habitats, maintaining water quality and preserving working farms or ranchlands are the top three conservation priorities across all land trusts, and that more than 4.6 million people are active financial supporters of land trusts. This Census report just reaffirms the wonderful benefits that come when people from all parts of this county make well intentioned and meaningful land donations to land trusts. And, it cannot be overlooked that this report’s release by the Land Trust Alliance coincides with the one-year anniversary of Congress enacting one of the most powerful conservation measures in decades: the enhanced federal tax incentive for conservation easement donations. As the LTA has stated, “the permanent conservation easement tax incentive is a powerful tool that helps Americans conserve their land voluntarily”.
So, while some may feel that the recent IRS Notice and its broad-brushed approach of designating conservation easements as “listed transactions” in order to obtain more information is unnecessary, the fact is that there are abuses and we agree they should rightfully be addressed. The new reporting requirements do not change, undo or impact the validity of conservation donations, and they do not impact or effect how Ethos approaches land development projects.