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February 2, 2017

Year-end Surprise – IRS Says “You’re Listed” to Conservation Easement Deduction (article)

The IRS has made pre-packaged conservation easement investments "listed transactions" (a/k/a "presumed tax shelter") in Notice 2017-10. The notice identifies certain syndicated conservation easements and substantially similar transactions as tax avoidance transactions for purposes of Reg. §1.6011-4(b)(2).

In the syndicated conservation easement transactions at issue, a promoter offers prospective investors in a partnership or other pass-through entity the opportunity to obtain charitable contribution deductions for conservation easements in amounts that significantly exceed the amount invested. Effective December 23, 2016, these transactions are "listed transactions." Persons or entities who have entered into these transactions after December 31, 2009, must disclose the transactions for each tax year in which the taxpayer participated in the transactions, provided that the period of limitations for assessment of tax has not ended before December 24, 2016. Participants include, but are not limited to, investors, the pass-through entity (any tier, if multiple tiers are involved in the transaction), or any other person whose tax return reflects tax consequences of the easement. A taxpayer that does not comply with the disclosure rules is subject to a penalty equal to 75 percent of the tax benefits obtained from reporting the transaction on the taxpayer's return (capped at $50,000 for entities and $10,000 for individuals), with a minimum penalty of $10,000 for entities and $5,000 for individuals. Disclosures are made on Form 8886, and must be filed with the IRS Office of Tax Shelter Analysis by May 1, 2017.

Material advisors, including appraisers, who make a tax statement after December 31, 2009, with respect to these transactions also have disclosure and list maintenance obligations, and failure to disclose or maintain the required lists also subject the material advisor to penalties.

For more information, contact your local CBIZ MHM professional.

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