The Internal Revenue Service recently published Notice 2023-30 (the “Notice”), setting out “safe harbor” language for landowners that donated a conservation easement and have or are pursuing a federal tax deduction for the gift.
The Notice provides specific safe harbor language for two provisions that are commonly found in conservation easements related to: (1) the extinguishment of the conservation easement and allocation of proceeds resulting from the extinguishment; and (2) boundary line adjustments of the subject property. The Notice does not address any other conservation easement provisions.
Donors are permitted, but not required, to amend their conservation easements to include the safe harbor language. The amended conservation easement must be signed by both the donor and the donee and treated as effective as of the date of the original donation. The amendment may require signature by both the original donor and the current owner if the original donor/grantor is no longer the owner of the property.
There are limited exceptions to easements that are eligible for amendment, including syndicated conservation easements that the IRS considers abusive. However, any non-syndicated conservation easement for which a federal tax deduction was received or is being sought should generally be an eligible conservation easement that can be amended pursuant to the Notice.
Due to the fact that the Notice requires all safe harbor amendments be recorded in the county of donation by July 24, 2023, donors should consult with their legal and tax advisors as soon as possible to determine if amendment is an appropriate course of action under their specific circumstances. Failure to amend could result in the denial of the federal tax deduction (and resulting penalties and interest) obtained or sought in relation to the conservation easement donation.
If you donated a conservation easement and have or plan to pursue a federal tax deduction for the gift, consult your legal and tax advisors in advance of the July 24, 2023 deadline.