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Treasury and IRS propose regulations identifying syndicated conservation easement transactions as abusive tax transactions

Written on Dec 15, 2022

The Treasury Department and IRS have issued proposed regulations identifying certain syndicated conservation easement (SCE) transactions as "listed transactions" – abusive tax transactions that must be reported to the IRS. 

In these transactions, investors typically acquire an interest in a partnership that owns land and then claim an inflated charitable contribution deduction based on a grossly overvalued appraisal when the partnership donates a conservation easement on the land. 

The IRS previously identified certain SCE transactions as listed transactions in Notice 2017-10. Recent court decisions in the Sixth Circuit and the U.S. Tax Court ruled that the IRS lacks the authority to identify listed transactions by notices, such as Notice 2017-10, and must instead identify such transactions by following the notice and public comment procedures that apply to regulations. 

Treasury and the IRS disagree with these decisions and continue to defend Notice 2017-10 and similar notices in litigation except in the Sixth Circuit. At the same time, however, Treasury and IRS issued the proposed regulations to eliminate any confusion regarding the need to report these transactions and to ensure that these decisions do not disrupt the IRS's ongoing efforts to combat abusive tax shelters throughout the nation. 

Treasury and the IRS intend to finalize these proposed regulations, after due consideration of public comments, in 2023 and intend to issue proposed regulations identifying additional listed transactions in the near future.