Tax Strategy: The status of syndicated conservation easements

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Internal Revenue Code Sec. 170(h), enacted in 1980, allows a taxpayer to receive a charitable contribution deduction for placing a restrictive easement on land owned by the taxpayer in perpetuity. The deduction is based on the fair market value of the contribution. 

In 2016, the IRS became aware of significant activity among partnerships promoting what the IRS viewed as abusive syndicated conservation easements. The partnerships would solicit investors with promises of charitable deductions far exceeding their investment in the partnership, then acquire land, obtain appraisals valuing the highest and best use of the land at values far exceeding the purchase price of the land, gift the land to a charitable organization, and then allocate the charitable contribution to the investors.

The IRS issued Notice 2017-10, treating syndicated conservation easements involving charitable deductions exceeding 2.5 times the investment in the partnership as a listed transaction, requiring listed transaction reporting requirements. The transaction reporting requirements helped the IRS identify hundreds of charitable deductions claimed by taxpayers with respect to syndicated conservation easements in 2015, 2016, and 2017. 

The service then began to pursue the promoters of the conservation easements to potential investors and the appraisers who had provided the appraisals to support the deductions. The IRS also denied charitable deductions to the investors. There are currently hundreds of cases pending in Tax Court relating to these syndicated conservation easements. 

The IRS has also pursued criminal indictments against some of the key players in organizing, promoting and appraising these easements with fraud allegations. A key trial is expected to commence in 2023.

The litigation

The IRS attacked the syndicated conservation easements with all of the arguments available to it under Code Sec. 170(h). It had some difficulties challenging the perpetuity of some of the easements, losing a few significant cases on that issue, although it also had some victories. 

They had more success on the valuation issue. Taxpayers started to have better luck challenging not the validity of the easement and charitable deduction itself but instead challenging the validity of the regulations under Code Sec. 170(h). The Administrative Procedures Act generally requires that federal guidance only be issued following a period of notice and opportunity for comments. The IRS generally follows this procedure for issuing regulations but does not follow a notice and comment period for notices such as Notice 2017-10.

The Sixth Circuit in Mann, involving a different listed transaction, concluded that the IRS is required to comply with the APA when creating a listed transaction. The Tax Court has since followed the Sixth Circuit in Green Valley Investors. The IRS has announced that it will not follow these decisions, at least outside of the Sixth Circuit, and will continue to pursue the many Tax Court cases.


To help the IRS in its pursuit of syndicated conservation easements, Congress in the Consolidated Appropriations Act of 2023, enacted at the end of 2022, included a set of retirement tax provisions in SECURE 2.0, which also included a statutory enactment of Notice 2017-10. It disallows a charitable deduction for a qualified conservation contribution if the deduction claimed exceeds two-and-one-half times the sum of each partner's relevant basis in the contributing partnership, unless the contribution meets a three-year holding period test, substantially all of the contributing partnership is owned by members of a family, or the contribution relates to the preservation of a certified historic structure. 

While helpful going forward, the legislation is prospective only, so it will not directly impact the cases currently before the Tax Court.

Proposed regulations

While the IRS will continue to fight the requirement to comply with the Administrative Procedures Act in designating a listed transaction, the agency is also pursuing proposed regulations that also follow Notice 2017-10. 

The proposed regs also include the possibility of penalties against a donee charity that knowingly participates in a syndicated conservation easement that violates the regulation. The proposed regulations are planned to not be effective until the regulations are finalized. Therefore, like the new legislation, they will not directly address the prior syndicated conservation easements.

Current status

The combination of the new legislation and the pending adoption of final regulations should put an end to future abusive syndicated conservation easements. The ability of the IRS to successfully pursue past cases will probably end up being determined by the Supreme Court. There appears to be a split among the circuit courts of appeal as to the applicability of the APA. The IRS has used the Anti-Injunction Act as authority to escape application of the APA; however, it is not clear how the Supreme Court would come down on the issue. 

The continuing litigation of all of these Tax Court cases will be a significant financial cost to not only the IRS but also those involved in any way in these syndicated conservation easements.

Mark A. Luscombe, JD, LL.M, CPA, is principal analyst for Wolters Kluwer Tax & Accounting

Principal Federal Tax Analyst, Wolters Kluwer Tax & Accounting

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