New regs proposed on conservation easement deductions

The Department of the Treasury and the IRS have issued proposed regulations of guidance under a new section of the law that disallows deductions for certain charitable conservation contributions by partnerships and other pass-through entities.

The SECURE 2.0 Act of 2022 added new subsections to the part of the tax law that provides rules for deductions for charitable contributions under IRC Sec. 170.

The proposed regulations "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," said IRS Commissioner Danny Werfel in a statement. 

Syndicated conservation easements have made the IRS annual Dirty Dozen list of tax schemes for years.

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Generally, these regulations affect partnerships and S corps that make conservation contributions and upper-tier partnerships, upper-tier S corps, partners and S corp shareholders that are allocated a portion of these contributions. 

The regs provide definitions, explanations, computational guidance, and examples of the new law, which disallows deductions if the contribution exceeds 2.5 times the sum of each partner's or shareholder's relevant basis in the partnership or S corporation.

The regulations also provide guidance on exceptions to the disallowance rule, particularly that for family partnerships and S corps, as well as the exception for contributions made outside a three-year holding period; they also update substantiation and reporting rules for certain charitable contributions.

The proposed regs are slated for publication in the Federal Register on Nov. 20.