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TAXFAX EDITOR George W. Benson Counsel McDermott Will & Emery LLP 444 West Lake Street Suite 4000 Chicago, IL 60606 (312) 984-7529 gbenson@mwe.com
IRS OFFERS SETTLEMENT TERMS FOR SYNDICATED CONSERVATION EASEMENT CASES By Samuel G. Graber Taxpayers can generally deduct the fair market value of a donated conservation easement that preserves land in perpetuity if a number of technical requirements are satisfied. See IRC § 170(f)(3)(B)(iii) and (h); Treasury Regulation § 1.170A-7(b)(5) and § 1.170A-1(c)(1). In order to claim a deduction, a taxpayer must, among other things, obtain a qualified appraisal to determine the easement’s fair market value. Treasury Regulation § 1.170A-13(c). Where there is a lack of comparable easement sales on which to base a valuation (as will generally be the case), an appraiser will determine the highest and best use and fair market value of the property without regard to the easement and then will determine the property’s value after it is encumbered with the easement. The value of the charitable contribution deduction equals the reduction in the property’s fair market value due to the easement restrictions. See Treasury Regulation § 1.170A-14(h)(3). The Internal Revenue Service (the “IRS”) has been concerned for a number of years with syndicated conservation easement transactions that it views as abusive. In Notice 2017-10, the IRS identified certain syndicated conservation 16
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easement Samuel G. Graber transactions as Tax Attorney tax avoidance Frost Brown Todd LLC transactions 400 West Market Street 32nd Floor and provided Louisville, KY 40202 that such tel: (502) 568-0248 transactions fax: (502) 581-1087 (and sgraber@fbtlaw.com substantially similar Tara Guler, CPA, MST Senior Manager transactions) Baker Tilly Virchow Krause, LLP are listed Ten Terrace Court transactions. Madison, WI 53718 In a listed Tel: (608) 240-6714 syndicated Fax: (608) 249-8532 conservation tara.guler@bakertilly.com easement transaction, a promoter syndicates ownership interests in real property through a partnership, using promotional materials to suggest that prospective investors may be entitled to a share of a conservation easement contribution deduction that equals or exceeds two and a half times the investment amount. The promoter obtains an appraisal that greatly inflates the value of the conservation easement based on a fictional and unrealistic highest and best use of the property before it was encumbered with the easement. Often, the unrealistic valuation of the conservation Fall 2020 | The Cooperative Accountant
