New Guidance on Conservation Easements — and a Quick Deadline for Old Easements

IRS Notice 2023-30 implements a guidance requirement imposed by the Appropriations Act signed into law late last year.  The Notice provides safe harbor clauses to address unforeseen extinguishment and boundary adjustments to conservation easements that, to generate a charitable contribution deduction, must otherwise have been granted in perpetuity.  Donors have until July 24, 2023 to amend, sign and record any “eligible easement deed” to include the safe harbor clauses:

SECTION 4. SAFE HARBOR DEED LANGUAGE

• Extinguishment clause. The safe harbor deed language for extinguishment clauses is:

Pursuant to Notice 2023-30, Donor and Donee agree that, if a subsequent unexpected change in the conditions surrounding the property that is the subject of a donation of the perpetual conservation restriction renders impossible or impractical the continued use of the property for conservation purposes, the conservation purpose can nonetheless be treated as protected in perpetuity if (1) the restrictions are extinguished by judicial proceeding and (2) all of Donee’s portion of the proceeds (as determined below) from a subsequent sale or exchange of the property are used by the Donee in a manner consistent with the conservation purposes of the original contribution. 

Determination of Proceeds. Donor and Donee agree that the donation of the perpetual conservation restriction gives rise to a property right, immediately vested in Donee, with a fair market value that is at least equal to the proportionate value that the perpetual conservation restriction, at the time of the gift, bears to the fair market value of the property as a whole at that time. The proportionate value of Donee’s property rights remains constant such that if a subsequent sale, exchange, or involuntary conversion of the subject property occurs, Donee is entitled to a portion of the proceeds at least equal to that proportionate value of the perpetual conservation restriction, unless state law provides that the donor is entitled to the full proceeds from the conversion without regard to the terms of the prior perpetual conservation restriction. 

• Boundary line adjustments clause. The safe harbor boundary line adjustment clause is:

Pursuant to Notice 2023-30, Donor and Donee agree that boundary line adjustments to the real property subject to the restrictions may be made only pursuant to a judicial proceeding to resolve a bona fide dispute regarding a boundary line’s location.

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