Imposter Syndrome, Subchapter K, and Conservation Easement Deductions
The Service issued final regs concerning syndicated conservation easement deductions this week. The regs only serve to remind me how stupid Subchapter K really is. And about the imposter syndrome that ruled half my damn life.
After I finished LLM tax school, I knew I wanted to focus on tax exempt organizations. No other area of tax law is as necessarily involved with constitutional law then the provisions relating to exempt organizations. But I also felt as if “real” tax attorneys concern themselves with partnerships, corporations, and gratuitous transfers. Hard tax. So when I got a chance to work on some nonprofit hospital transactions with physician practice groups I seized the opportunity. Joint ventures require a pretty good knowledge of substantial economic effect, especially because exempt organizations make for easy accommodation parties. You can allocate a whole lotta otherwise taxable income to them and they usually don’t mind.
I regularly teach partnership tax, at least once a year now. What I discovered is that Subchapter K is nothing more than mental masturbations, the climax of which only makes you feel a bit smarter. And then only briefly. But you aren’t really. You have only wasted half your life. In fact, after so many years of jacking around in Subchapter K, I almost feel like I need a shower. I still teach it, but I know in the back of my mind that its a silly intellectual pursuit.
At the start of every partnership tax semester, I tell my student that there is only one positive requirement in subchapter K. Each partner must report his, her, or its share of income, gain, loss, deductions, and credits (partnership items) derived from an entity not taxed as a corporation. Everything else is stated in the negative. “Don’t do that, stop doing this, do it this way not that way, hey what are you doing!?” Subchapter K is just one big ridiculously verbose collection of anti-abuse statutes and regulations, undergirded by a general partnership anti-abuse regulation on top of all that specific anti-abuse. A tax scheme that needs that much anti-abuse is probably irredeemably abusive. In fact, if partners aren’t intentionally seeking tax avoidance they probably don’t even need to understand the details. No kidding, the partnership tax regs have a “dumb but lucky” rule. I call it the “blissful and correct rule” when I teach it. It means that if the partners or members don’t comply in minute detail with subchapter K, they are still ok if the allocations aren’t much different from what they would have been after paying lawyers and accountants piles of money to tell the taxpayers what Subchapter K requires. And if partners are in it for real business, they usually get it right regardless.
Anyway, the Service finalized regulations this week concerning IRC 170(h)(7)’s limitation of conservation easement deductions to 2.5 times “relevant basis.” That’s a new tax term applicable only to partnerships and derived from “modified basis.” And modified basis, another new term, is derived from outside basis. Outside basis is just a partnership way of labeling a partner’s adjusted basis in the partnership. But you also need to understand how inside basis is maintained, particularly in light of various special adjustments that may or must be made. I rest my case about the stupidity of subchapter K.
Still, I wanted to write a post about the finalized partnership conservation easement deduction regs. Just so my readers know they are out there and that I could figure them out if I really let my imposter syndrome run free. I am almost tempted to delve into them and write a post to shut my imposter syndrome down for a few minutes. All by explaining the ridiculous detail relevant to cheaters and liars only. I would get most of it right, but I am sure I would get a few things wrong.
But that would be an absurd waste of time. If you are into such solitary pleasures, have at it.
darryll k. jones