Syndicated Conservation Easement Transactions as Listed Transactions

<RULE> DEPARTMENT OF THE TREASURY <SUBAGY>Internal Revenue Service</SUBAGY> <CFR>26 CFR Part 1</CFR> <DEPDOC>[TD 10007]</DEPDOC> <RIN>RIN 1545-BQ39</RIN> <SUBJECT>Syndicated Conservation Easement Transactions as Listed Transactions</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Internal Revenue Service (IRS), Treasury. <HD SOURCE="HED">ACTION:</HD> Final regulations. <SUM> <HD SOURCE="HED">SUMMARY:</HD> This document contains final regulations that identify certain syndicated conservation easement transactions and substantially similar transactions as listed transactions, a type of reportable transaction. Material advisors and certain participants in these listed transactions are required to file disclosures with the IRS and are subject to penalties for failure to disclose. The regulations affect participants in these transactions as well as material advisors. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> <E T="03">Effective date:</E> These regulations are effective on October 8, 2024. <E T="03">Applicability date:</E> For applicability dates, <E T="03">see</E> § 1.6011-9(h). </EFFDATE> <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Concerning any provisions in the final regulations within the jurisdiction of the Associate Chief Counsel (Income Tax & Accounting), Joshua S. Klaber, (202) 317-4624, and Eugene Kirman, (202) 317-5149, and concerning any provisions in the final regulations within the jurisdiction of the Associate Chief Counsel (Passthroughs & Special Industries), Charles Wien, (202) 317-5279 (not toll-free numbers). </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">Authority</HD> This document amends the Income Tax Regulations (26 CFR part 1) by adding final regulations under section 6011 of the Internal Revenue Code (Code) to identify certain syndicated conservation easement transactions and substantially similar transactions as listed transactions, a type of reportable transaction (final regulations). Section 6001 of the Code provides an express delegation of authority to the Secretary of the Treasury or her delegate (Secretary), requiring every taxpayer to keep the records, render the statements, make the returns, and comply with the rules and regulations that the Secretary deems necessary to demonstrate tax liability and prescribes, either by notice served or by regulations. Section 6011 of the Code provides an express delegation of authority to the Secretary, requiring every taxpayer to “make a return or statement according to the forms and regulations prescribed by the Secretary” and “include therein the information required by such forms or regulations.” In addition, section 6707A(c)(1) of the Code, in defining the term “reportable transaction” relating to the imposition of penalties under section 6707A(a) on “[a]ny person who fails to include on any return or statement any information with respect to a reportable transaction which is required under section 6011 to be included with such return or statement,” provides an express delegation of authority to the Secretary, stating that, “[t]he term `reportable transaction' means any transaction with respect to which information is required to be included with a return or statement because, as determined under regulations prescribed under section 6011, such transaction is of a type which the Secretary determines as having a potential for tax avoidance or evasion.” Section 6707A(c)(2), in defining the term “listed transaction” provides an express delegation of authority to the Secretary, stating that, “[t]he term `listed transaction' means a reportable transaction which is the same as, or substantially similar to, a transaction specifically identified by the Secretary as a tax avoidance transaction for purposes of section 6011.” The final regulations are also issued under the express delegation of authority under section 7805(a) of the Code. <HD SOURCE="HD1">Background</HD> <HD SOURCE="HD2">I. The Proposed Regulations</HD> On December 8, 2022, the Department of the Treasury (Treasury Department) and the IRS published a notice of proposed rulemaking (REG-106134-22) in the <E T="04">Federal Register</E> (87 FR 75185) proposing regulations that would identify certain syndicated conservation easement transactions and substantially similar transactions as “listed transactions” for purposes of § 1.6011-4(b)(2) and sections 6111 and 6112 of the Code (proposed regulations). The provisions of the proposed regulations are explained in greater detail in the preamble to the proposed regulations. The Treasury Department and the IRS received 26 comments in response to the proposed regulations and notice of public hearing that are the subject of this final rulemaking. The comments are available for public inspection at <E T="03">https://www.regulations.gov</E> or upon request. A public hearing on the proposed regulations was held by teleconference on March 1, 2023, at 10 a.m. Eastern Time, at which five speakers provided testimony. After full consideration of the comments received and the testimony provided, these final regulations adopt the proposed regulations with certain revisions described in the Summary of Comments and Explanation of Revisions. <HD SOURCE="HD2">II. Section 605 of the SECURE 2.0 Act</HD> The SECURE 2.0 Act of 2022 (SECURE 2.0 Act), enacted as Division T of the Consolidated Appropriations Act, 2023, Public Law 117-328, 136 Stat. 4459 (December 29, 2022), was enacted just 15 days after publication of the proposed regulations. Section 605(a) of the SECURE 2.0 Act added section 170(h)(7)(A) to the Code, which provides that a contribution by a partnership (whether directly or as a distributive share of a contribution of another partnership) is not treated as a qualified conservation contribution for purposes of section 170 if the amount of such contribution exceeds 2.5 times the sum of each partner's relevant basis in such partnership, as defined in section 170(h)(7)(B). Section 170(h)(7)(F) states that the rules of section 170(h)(7) apply equally to S corporations and other pass-through entities. Section 605(a) of the SECURE 2.0 Act also added section 170(h)(7)(C) through (E) to the Code, which provide three exceptions to the general disallowance rule in section 170(h)(7)(A). Section 170(h)(7)(C) creates an exception for contributions by a pass-through entity that satisfy a three-year holding period; section 170(h)(7)(D) creates an exception for contributions made by family pass-through entities; and section 170(h)(7)(E) creates an exception for contributions made to preserve a building that is a certified historic structure (as defined in section 170(h)(4)(C)). Section 605(b) of the SECURE 2.0 Act added section 170(f)(19) to the Code, creating additional reporting requirements for any qualified conservation contribution (1) the conservation purpose of which is the preservation of any building which is a certified historic structure (as defined in section 170(h)(4)(C)), (2) which is made by a partnership (whether directly or as a distributive share of a contribution of another partnership), and (3) the amount of which exceeds 2.5 times the sum of each partner's relevant basis (as defined in section 170(h)(7)) in the partnership making the contribution. Section 170(f)(19)(C) states that, except as may be otherwise provided by the Secretary, the rules of section 170(f)(19) apply to S corporations and other pass-through entities in the same manner as such rules apply to partnerships. Section 170(f)(19)(A) provides that no deduction is allowed for such a contribution unless the entity making the contribution (1) includes on its return for the taxable year in which the contribution is made a statement that the entity made such a contribution and (2) provides such information about the contribution as the Secretary may require. Section 605(c) of the SECURE 2.0 Act provides that no inference is intended as to the appropriate treatment of contributions made in taxable years ending on or before the date of the SECURE 2.0 Act's enactment (December 29, 2022), or as to any contribution for which a deduction is not disallowed by reason of section 170(h)(7). On November 20, 2023, the Treasury Department and the IRS published a notice of proposed rulemaking (REG-112916-23) in the <E T="04">Federal Register</E> (88 FR 80910) proposing regulations concerning the statutory disallowance rule enacted by the SECURE 2.0 Act, including the calculation of relevant basis. On June 28, 2024, the Treasury Department and the IRS finalized these regulations in TD 9999 (89 FR 54284). <HD SOURCE="HD1">Summary of Comments and Explanation of Revisions</HD> This Summary of Comments and Explanation of Revisions summarizes all significant comments addressing the proposed regulations, and describes and responds to comments concerning: (1) the listed transaction system generally; (2) conservation easements generally; (3) the continued necessity of finalizing these regulations following passage of section 605 of the SECURE 2.0 Act; (4) the elements of the listed transaction identified in these final regulations; and (5) the role of donee organizations under these final regulations. Comments outside the scope of this rulemaking are not adopted. <HD SOURCE="HD2">I. Comments Addressing the General Rules of the Listed Transaction System</HD> Many comments addressed rules that apply generally to any listed transaction. While these comments are outside the scope of this rulemaking, the Treasury Department and the IRS have nonetheless considered these comments in finalizing these regulations. <HD SOURCE="HD3">A. Requirement To Report for Currently “Open” Periods Upon Identification of a Listed Transaction</HD> Several commenters argued that the proposed regulations' listed transaction designation is impermissibly retroactive bec ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 127k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━