"Syndicated conservation easement transactions" | KPMG | US

"Syndicated conservation easement transactions" identified as tax avoidance "listed transactions"

"Syndicated conservation easement transactions"

The IRS today released an advance version of Notice 2017-10 that identifies certain "syndicated conservation easement transactions" as tax avoidance transactions and thus identifies these transactions, and substantially similar transactions, as "listed transactions" for purposes of Reg. section 1.6011-4(b)(2) and sections 6111 and 6112.

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Notice 2017-10 [PDF 23 KB] reports that the IRS and Treasury Department 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. In these syndicated conservation easement transactions, a promoter offers prospective investors in a partnership or other pass-through entity the possibility of a charitable contribution deduction for donation of a conservation easement.

The IRS notice provides the following example as representing the subject listed transaction. 

  • 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. 
  • The promotional materials may be oral or written. 
  • The investor purchases an interest, directly or indirectly (through one or more tiers of pass-through entities), 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 investors report on their federal income tax returns a charitable contribution deduction with respect to the conservation easement.

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