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Syndicated Conservation Easement Disclosure Requirements

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This one is definitely not for the birds – or the wetlands or the rivers or the forests. The days of trying to save the environment while getting an hefty tax benefit may be coming to an end with the IRS crack down on syndicated conservation easements.

A conservation easement is a legal agreement between a private landowner and a land trust or governmental agency that permanently limits the use of land for conservation purposes. If the structured properly, landowners can continue to own and use their land and even pass it to their heirs. In recent years; however, investment advisors have begun syndicating these easements and promoting them for the large tax deductions. The value of the charitable contribution marketed to investors can sometimes be in excess of 10 times the value of their contribution to the easement. As you can imagine, the IRS is questioning the validity of these investments – claiming they are aggressive tax avoidance schemes.

Participation in syndicated conservation easement transactions, occurring as far back as January 2010, was required to be reported to both the IRS and the Office of Tax Shelter Analysis by October 2, 2017. For participants whose principal residence, place of business, or whose records were maintained in a covered disaster area affected by Hurricanes Harvey, Irma or Maria, this deadline has been extended to October 31, 2017. Participants include investors who contribute to these syndication partnerships and any advisor that assists in the promotion or implementation. Failure to comply with these reporting requirements can cause hefty monetary penalties and the recordkeeping requirements are daunting. The House appropriation bill passed in July prohibits additional IRS resources to be allocated to the review of the additional 2,700 filings that had been submitted as of July 1, so it is unclear how the IRS will handle the increased reporting.

For more information on how any of these changes might impact you or your business, please contact Deana Love, Private Client Services Leader, at dlove@dbllp.com.