Conservation Easements Update: Proposed Listed Transactions Regs; Kane on Circuit Split

Last month the U.S. Tax Court held that the syndicated conservation easement listing notice was invalid for failure to follow Administrative Procedure Act requirements. Without agreeing with the Tax Court’s decision, the Treasury Department has now issued proposed regulations that would identify these transactions as listed transactions. Here is the Federal Register summary:

This document contains proposed 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 proposed regulations affect participants in these transactions as well as material advisors. In addition, while the proposed regulations exclude qualified organizations from being treated as participants or parties to a prohibited tax shelter transaction subject to excise tax, this notice of proposed rulemaking requests comments on whether the final regulations should remove the exclusion from the application of the excise tax for qualified organizations that facilitate syndicated conservation easement transactions. Finally, this document provides notice of a public hearing on the proposed regulations.

Comments are due by February 6, 2023. For additional coverage of the Tax Court’s decision, see Peter J. Reilly’s Forbes article.

I also previously noted the circuit split relating to a conservation easement regulation. Now Mitchell Kane (NYU) has published The Dispute Over Perpetual Conservation Easements Just Got Worse in Tax Notes, arguing that Supreme Court should not grant certiorari to resolve that split. Here is a paragraph from the introduction:

In Section I, I explain why certiorari is not warranted in Oakbrook. Further, the stakes transcend conservation easements and the proceeds regulation: A grant of certiorari in this case could lead down a path that would destabilize tax regulations generally and greatly hinder effective tax code enforcement. To argue against cert grant is not to say that the status quo is optimal. IRS challenges to easements under the proceeds regulation seem to have involved instances with suspiciously high valuations. There is nothing wrong with that strategy from a litigation standpoint; we should expect the IRS to focus its scarce resources on high-value cases, and the agency has won cases bringing challenges under the proceeds regulation. Even so, this litigation at least raises the prospect of casting a cloud over existing, or future, easement transactions that are not abusive and are within the set of transactions that Congress plausibly wanted to encourage. The status quo is thus not obviously the best outcome in terms of the law applicable to the tax treatment of conservation easements under section 170. For this reason, in Section II, I will consider alternatives to the status quo.

For previous coverage of the circuit split, see Kristin E. Hickman (Minnesota), The Federal Tax System’s Administrative Law Woes Grow, ABA Tax Times, May 26, 2022.

Lloyd Mayer