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In a bold move to curb abusive syndicated conservation easement schemes, the IRS has issued proposed regulations under the SECURE 2.0 Act of 2022 (REG-112916-23). The rule aims to disallow deductions from partnerships or S corporations for specific charitable conservation contributions.

  1. Focus on Abusive Syndicated Conservation Easements: The IRS is intensifying efforts to combat tax evasion through complex partnership structures and overvalued conservation easement contributions. Proposed regulations target syndicated conservation easements viewed as retail tax shelters.
  2. SECURE 2.0 Act Implementation: The proposed regulations, issued on Friday, seek to implement provisions of the SECURE 2.0 Act, enacted as Division T of the Consolidated Appropriations Act, 2023. These regulations are designed to prevent the abuse of charitable conservation contributions.
  3. Effective Date: The regulations, applicable to contributions made after December 29, 2022, amend rules under Sections 170 and 706. Under Sec. 170(h)(7), a qualified conservation contribution is disallowed if it exceeds 2.5 times the sum of each partner’s or shareholder’s relevant basis in the partnership or S corporation.
  4. Scope of Regulations: Partnerships, S corporations, upper-tier entities, and individuals involved in conservation contributions fall under the proposed regulations. Definitions, explanations, computational guidance, and examples are provided.
  5. Exceptions and Updates: The regulations outline statutory exceptions, including those for family partnerships and S corporations, as well as contributions made outside a three-year holding period. Substantiation and reporting rules for certain charitable contributions are also updated.
  6. IRS Commissioner’s Statement: IRS Commissioner Danny Werfel emphasized the significance of these regulations in curbing abusive practices. He stated, “The regulations issued today will stem the tide of certain syndicated conservation easements that are nothing more than retail tax shelters while protecting the integrity of legitimate conservation easements and helping law-abiding taxpayers more easily meet their obligations.”
  7. Ongoing Review: The IRS, having previously identified syndicated conservation easement transactions as listed transactions, is currently reviewing comments received on proposed regulations published in December 2022 (REG-106134-22).
  8. Inclusion in “Dirty Dozen” List: Abusive conservation easement schemes feature on the IRS “Dirty Dozen” list for 2023. These schemes involve participants attempting to exploit the tax system through grossly inflated tax deductions.

As the IRS takes decisive action against abusive conservation easement practices, the proposed regulations signify a commitment to safeguarding the tax system’s integrity and ensuring fair practices in charitable contributions.

Source ( Journal of Accountancy News).