Notice for Conservation Easement Grantors of Bargain-sale and Donated Easements:
IRS Updates Safe Harbor Provisions for Conservation Easements
Conservation easement donors who claimed a charitable deduction may wish to consult with their legal and tax advisors to determine whether they are impacted by the IRS Notice.
What has changed?
Congress passed the Charitable Conservation Easement Program Integrity Act (the “Integrity Act”) as part of the year-end omnibus spending bill, signed into law on December 29, 2022. This legislation effectively disallows certain abusive and fraudulent deductions seeking to use the federal conservation easement tax incentive as a tax avoidance scheme.
The Integrity Act also provides taxpayers the time-limited opportunity to replace specific provisions of their conservation easements pertaining to boundary line adjustments and extinguishment proceeds. The IRS has deemed this language problematic, and may use it for grounds to deny a federal tax deduction. However, the IRS has issued “safe harbor” language with which to amend existing conservation easements.
Who does this effect?
Conservation easement donors who claimed a charitable deduction may wish to consult with their legal and tax advisors to determine whether they are impacted by the Notice (see below). This is a complex topic, largely dependent on the donor’s specific situation. The IRS has provided a narrow window of time to take action, before July 24, 2023.
According to the Notice, conservation easement donors are not required to amend their conservation easements to include the safe harbor language. However, doing so might protect federal tax deductions from an audit on the basis of language that differs substantially from the new safe harbor language. Please note that amending an easement pursuant to this Notice does not protect a deduction from audit or from being denied by the IRS on other grounds.
When does this take effect?
The IRS published the safe harbor language in Notice 2023-30 (the “Notice”) on April 10, 2023, and it became effective April 24, 2023. Pursuant to the Notice, some conservation easement donors may have the opportunity to amend their conservation easements to substitute the safe harbor language for the corresponding language in the original easement. However, according to the Notice, these amendments must be signed and recorded on or before July 24, 2023.
What are the next steps to take?
If you donated all or part of the value of a conservation easement to SAHC, and if you took, or plan to take a federal income tax deduction for that gift, we recommend that you contact your tax and legal advisors to see whether you would benefit from amending the conservation easement to incorporate the IRS’ safe harbor provisions.
If, after such consultation, an easement donor would like to request an amendment pursuant to the Notice, they should contact Jess Laggis at email@example.com. Be aware that SAHC has determined that it is not realistic to review, implement, and record amendments by the July deadline. All conservation easement amendments, including any related to the Notice, must meet SAHC’s Amendment Policy. Please note that under this policy, all amendment costs are the responsibility of the party requesting the amendment.
We are sharing this information as a courtesy. SAHC cannot provide any legal or tax advice and therefore offers no opinion as to whether a donor is impacted by the Notice, whether specific conservation easements comply with the IRS safe harbor language, or whether a donor should seek an amendment. There can be no assurance than any request for an amendment will be agreed to by SAHC.
For more information and help:
The Land Trust Alliance, a conservation organization that represents land trusts across the country, including SAHC, has provided additional information regarding the safe harbor provisions.
The IRS published its notice on April 10, 2023 and land trusts across the country are currently identifying how best to support people who generously donated conservation easements.
For more information, or to request an amendment to your conservation easement, please contact Kyle Shute at firstname.lastname@example.org, 828 490 1366.
Thank you for your partnership and commitment to conservation.