Final regs issued on conservation easements

The Internal Revenue Service has issued final regulations identifying certain syndicated conservation easement transactions as "listed transactions" that must be reported to the tax authorities.

Syndicated conservation easements have been included in the annual Dirty Dozen tax schemes for many years, arrangements that IRS Commissioner Danny Werfel said "generate high fees for promoters and willing participants who gamed the tax system with grossly inflated appraisals." 

In these transactions, investors typically acquire an interest in a partnership that owns land and then claim an inflated charitable contribution deduction based on a grossly overvalued appraisal. 

Andrew Harrer/Bloomberg

Going forward, participants and material advisors will need to report their participation in these transactions using Forms 8886 and 8918.

The IRS issued the regs after litigants attacked how its initial guidance was adopted and alleged failure to comply with the requirements of the Administrative Procedures Act, which requires public notice of proposed action and opportunity for comment.

The final regulations clarify that participants and material advisors must report these transactions, including any transactions that were completed in taxable years that are still open.

The IRS has reported "significant success" in the courts resulting in a number of syndicated partnerships having their grossly inflated easement valuations reduced for tax purposes.