Syndicated Conservation Easement Transactions as Listed Transactions, 81341-81358 [2024-22963]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 89, Number 195 (Tuesday, October 8, 2024)]
[Rules and Regulations]
[Pages 81341-81358]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-22963]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 10007]
RIN 1545-BQ39


Syndicated Conservation Easement Transactions as Listed 
Transactions

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final 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 regulations affect participants 
in these transactions as well as material advisors.

DATES: 
    Effective date: These regulations are effective on October 8, 2024.
    Applicability date: For applicability dates, see Sec.  1.6011-9(h).

FOR FURTHER INFORMATION CONTACT: Concerning any provisions in the final 
regulations within the jurisdiction of the Associate Chief Counsel 
(Income Tax & Accounting), Joshua S. Klaber, (202) 317-4624, and Eugene 
Kirman, (202) 317-5149, and concerning any provisions in the final 
regulations within the jurisdiction of the Associate Chief Counsel 
(Passthroughs & Special Industries), Charles Wien, (202) 317-5279 (not 
toll-free numbers).

SUPPLEMENTARY INFORMATION:

Authority

    This document amends the Income Tax Regulations (26 CFR part 1) by 
adding final regulations under section 6011 of the Internal Revenue 
Code (Code) to identify certain syndicated conservation easement 
transactions and substantially similar transactions as listed 
transactions, a type of reportable transaction (final regulations).
    Section 6001 of the Code provides an express delegation of 
authority to the Secretary of the Treasury or her delegate (Secretary), 
requiring every taxpayer to keep the records, render the statements, 
make the returns, and comply with the rules and regulations that the 
Secretary deems necessary to demonstrate tax liability and prescribes, 
either by notice served or by regulations.
    Section 6011 of the Code provides an express delegation of 
authority to the Secretary, requiring every taxpayer to ``make a return 
or statement according to the forms and regulations prescribed by the 
Secretary'' and ``include therein the information required by such 
forms or regulations.''
    In addition, section 6707A(c)(1) of the Code, in defining the term 
``reportable transaction'' relating to the imposition of penalties 
under section 6707A(a) on ``[a]ny person who fails to include on any 
return or statement any information with respect to a reportable 
transaction which is required under section 6011 to be included with 
such return or statement,'' provides an express delegation of authority 
to the Secretary, stating that, ``[t]he term `reportable transaction' 
means any transaction with respect to which information is required to 
be included with a return or statement because, as determined under 
regulations prescribed under section 6011, such transaction is of a 
type which the Secretary determines as having a potential for tax 
avoidance or evasion.'' Section 6707A(c)(2), in defining the term 
``listed transaction'' provides an express delegation of authority to 
the Secretary, stating that, ``[t]he term `listed transaction' means a 
reportable transaction which is the same as, or substantially similar 
to, a transaction specifically identified by the Secretary as a tax 
avoidance transaction for purposes of section 6011.''
    The final regulations are also issued under the express delegation 
of authority under section 7805(a) of the Code.

Background

I. The Proposed Regulations

    On December 8, 2022, the Department of the Treasury (Treasury 
Department) and the IRS published a notice of proposed rulemaking (REG-
106134-22) in the Federal Register (87 FR 75185) proposing regulations 
that would identify certain syndicated conservation easement 
transactions and substantially similar transactions as ``listed 
transactions'' for purposes of Sec.  1.6011-4(b)(2) and sections 6111 
and 6112 of the Code (proposed regulations). The provisions of the 
proposed regulations

[[Page 81342]]

are explained in greater detail in the preamble to the proposed 
regulations. The Treasury Department and the IRS received 26 comments 
in response to the proposed regulations and notice of public hearing 
that are the subject of this final rulemaking. The comments are 
available for public inspection at https://www.regulations.gov or upon 
request. A public hearing on the proposed regulations was held by 
teleconference on March 1, 2023, at 10 a.m. Eastern Time, at which five 
speakers provided testimony.
    After full consideration of the comments received and the testimony 
provided, these final regulations adopt the proposed regulations with 
certain revisions described in the Summary of Comments and Explanation 
of Revisions.

II. Section 605 of the SECURE 2.0 Act

    The SECURE 2.0 Act of 2022 (SECURE 2.0 Act), enacted as Division T 
of the Consolidated Appropriations Act, 2023, Public Law 117-328, 136 
Stat. 4459 (December 29, 2022), was enacted just 15 days after 
publication of the proposed regulations. Section 605(a) of the SECURE 
2.0 Act added section 170(h)(7)(A) to the Code, which provides that a 
contribution by a partnership (whether directly or as a distributive 
share of a contribution of another partnership) is not treated as a 
qualified conservation contribution for purposes of section 170 if the 
amount of such contribution exceeds 2.5 times the sum of each partner's 
relevant basis in such partnership, as defined in section 170(h)(7)(B). 
Section 170(h)(7)(F) states that the rules of section 170(h)(7) apply 
equally to S corporations and other pass-through entities.
    Section 605(a) of the SECURE 2.0 Act also added section 
170(h)(7)(C) through (E) to the Code, which provide three exceptions to 
the general disallowance rule in section 170(h)(7)(A). Section 
170(h)(7)(C) creates an exception for contributions by a pass-through 
entity that satisfy a three-year holding period; section 170(h)(7)(D) 
creates an exception for contributions made by family pass-through 
entities; and section 170(h)(7)(E) creates an exception for 
contributions made to preserve a building that is a certified historic 
structure (as defined in section 170(h)(4)(C)).
    Section 605(b) of the SECURE 2.0 Act added section 170(f)(19) to 
the Code, creating additional reporting requirements for any qualified 
conservation contribution (1) the conservation purpose of which is the 
preservation of any building which is a certified historic structure 
(as defined in section 170(h)(4)(C)), (2) which is made by a 
partnership (whether directly or as a distributive share of a 
contribution of another partnership), and (3) the amount of which 
exceeds 2.5 times the sum of each partner's relevant basis (as defined 
in section 170(h)(7)) in the partnership making the contribution. 
Section 170(f)(19)(C) states that, except as may be otherwise provided 
by the Secretary, the rules of section 170(f)(19) apply to S 
corporations and other pass-through entities in the same manner as such 
rules apply to partnerships.
    Section 170(f)(19)(A) provides that no deduction is allowed for 
such a contribution unless the entity making the contribution (1) 
includes on its return for the taxable year in which the contribution 
is made a statement that the entity made such a contribution and (2) 
provides such information about the contribution as the Secretary may 
require.
    Section 605(c) of the SECURE 2.0 Act provides that no inference is 
intended as to the appropriate treatment of contributions made in 
taxable years ending on or before the date of the SECURE 2.0 Act's 
enactment (December 29, 2022), or as to any contribution for which a 
deduction is not disallowed by reason of section 170(h)(7).
    On November 20, 2023, the Treasury Department and the IRS published 
a notice of proposed rulemaking (REG-112916-23) in the Federal Register 
(88 FR 80910) proposing regulations concerning the statutory 
disallowance rule enacted by the SECURE 2.0 Act, including the 
calculation of relevant basis. On June 28, 2024, the Treasury 
Department and the IRS finalized these regulations in TD 9999 (89 FR 
54284).

Summary of Comments and Explanation of Revisions

    This Summary of Comments and Explanation of Revisions summarizes 
all significant comments addressing the proposed regulations, and 
describes and responds to comments concerning: (1) the listed 
transaction system generally; (2) conservation easements generally; (3) 
the continued necessity of finalizing these regulations following 
passage of section 605 of the SECURE 2.0 Act; (4) the elements of the 
listed transaction identified in these final regulations; and (5) the 
role of donee organizations under these final regulations.
    Comments outside the scope of this rulemaking are not adopted.

I. Comments Addressing the General Rules of the Listed Transaction 
System

    Many comments addressed rules that apply generally to any listed 
transaction. While these comments are outside the scope of this 
rulemaking, the Treasury Department and the IRS have nonetheless 
considered these comments in finalizing these regulations.
A. Requirement To Report for Currently ``Open'' Periods Upon 
Identification of a Listed Transaction
    Several commenters argued that the proposed regulations' listed 
transaction designation is impermissibly retroactive because taxpayers 
who previously filed tax returns (or amended tax returns) reflecting 
their participation in syndicated conservation easement transactions 
but that did not disclose their participation pursuant to Notice 2017-
10 will be required to disclose those transactions once these final 
regulations are published in the Federal Register. The commenters 
opined that this so-called retroactive reach of the proposed listed 
transaction designation is unfair and likely a violation of law under 
various theories, including that it may be a taking under the Fifth 
Amendment or constitute involuntary servitude under the Thirteenth 
Amendment, and that it undermines the purpose of the Administrative 
Procedure Act's (APA) notice and comment process. Several commenters 
noted that the Tax Court has not determined whether a listed 
transaction designation can be applied retroactively; thus, their 
theory has not been resolved judicially.
    The reporting rules for listed transactions are outside the scope 
of these final regulations, which merely identify a listed transaction. 
The reporting rules for listed transactions are found in Sec.  1.6011-
4, which was issued pursuant to notice and comment and finalized most 
recently in TD 9350 (72 FR 43146), published in 2007 and which is not 
amended by these final regulations. Section 1.6011-4(e)(2)(i) requires 
reporting of transactions entered into prior to the publication of 
guidance identifying a transaction as a listed transaction if the 
statute of limitations for assessment of tax is still open when the 
transaction becomes a listed transaction. While the reporting mandated 
by Sec.  1.6011-4 may be with respect to prior periods, the disclosure 
obligation is itself not retroactive--it is a current reporting 
obligation. Thus, the comments regarding an impermissible retroactive 
burden required by Sec.  1.6011-4 are without merit.
B. Determining an ``Open Year''
    Several commenters requested additional guidance on what 
constitutes an ``open year'' for purposes of reporting the listed 
transaction. These commenters opined that the final

[[Page 81343]]

regulations should not be able to hold open (or re-open) a statute of 
limitations for a return that was filed before the relevant transaction 
became a listed transaction. One commenter stated that such a rule 
would result in taxpayers currently under audit and disputing penalties 
based on an expired statute of limitations finding one legal basis of 
their case evaporated, undoing months or years of analysis and 
evaluation.
    Guidance on open years for purposes of applying Sec.  1.6011-4 is 
outside the scope of these final regulations, which merely identify a 
listed transaction. However, if a taxpayer who is required to disclose 
a listed transaction for a taxable year for which the statute of 
limitations has not expired prior to the identification of the listed 
transaction fails to do so, then the taxpayer's statute of limitations 
will continue to stay open for that taxable year as provided in section 
6501(c)(10) of the Code. Section 6501(c)(10) provides that, if a 
taxpayer fails to include on any return or statement for any taxable 
year any information with respect to a listed transaction (as defined 
in section 6707A(c)(2) of the Code) which is required under section 
6011 to be included with such return or statement, the time for 
assessment of any tax imposed by the Code with respect to such 
transaction does not expire before the date that is one year after the 
earlier of (1) the date the taxpayer provides the required information 
or (2) the date that a material advisor meets the requirements of 
section 6112 with respect to a request by the Secretary under section 
6112(b) relating to such transaction with respect to such taxpayer. 
Section 301.6501(c)-1(g)(3)(iii) of the Procedure and Administration 
Regulations (26 CFR part 301), which was issued pursuant to notice and 
comment and finalized most recently in TD 9718 (80 FR 16973), published 
in 2015, and which is not amended by these final regulations, provides 
(1) that the taxable years to which the failure to disclose relates 
include each taxable year that the taxpayer participated (as defined 
under section 6011 and the regulations thereunder) in a transaction 
that was identified as a listed transaction and for which the taxpayer 
failed to disclose the listed transaction as required under section 
6011, and (2) if the taxable year in which the taxpayer participated in 
the listed transaction is different from the taxable year in which the 
taxpayer is required to disclose the listed transaction under section 
6011, the taxable years to which the failure to disclose relates 
include each taxable year for which the taxpayer participated in the 
transaction.
    Several commenters asked for guidance as to what constitutes an 
``open'' tax year for taxpayers that took the position they were not 
required to file a Form 8886, Reportable Transaction Disclosure 
Statement, because Notice 2017-10 was invalidated. This requested 
guidance is also outside the scope of these final regulations for the 
reasons discussed in the prior paragraph.
C. Abating Section 6707A Penalties
    One commenter expressed concern that there are no adequate 
procedures or policies for abating section 6707A penalties with respect 
to listed transactions. This comment is outside the scope of these 
final regulations as the regulations merely identify a listed 
transaction. The rules concerning section 6707A penalties are found in 
Sec.  301.6707A-1, which was issued pursuant to notice and comment and 
finalized most recently in TD 9853 (84 FR 11217), published in 2019 and 
which is not amended by these final regulations.
D. Material Advisors
    The proposed regulations provided no special rules for material 
advisors. However, the effect of identifying a listed transaction is, 
in part, to require certain disclosures from material advisors.
    One commenter asked that the final regulations provide guidance to 
appraisers on the application of any material advisor requirements, and 
suggested that, if an appraiser is engaged after an easement is put in 
place, the appraiser should not be considered a material advisor.
    The requested guidance is outside the scope of these final 
regulations; however, the Treasury Department and the IRS note that the 
definition of material advisor is found in Sec.  301.6111-3(b), which 
was issued pursuant to notice and comment and finalized in TD 9351 (72 
FR 43157), published in 2007 and which is not amended by these final 
regulations. A material advisor is a person who makes a ``tax 
statement,'' as defined in Sec.  301.6111-3(b)(2)(ii), and derives 
gross income in excess of the ``threshold amount,'' as defined in Sec.  
301.6111-3(b)(3) (generally, $10,000 for listed transactions). Section 
301.6111-3 contains no exception for providing advice ``after'' the 
transaction is entered into. Section 301.6111-3(b)(4)(i) provides that 
a person will be treated as becoming a material advisor when all of the 
following events have occurred (in no particular order): (1) the person 
provides material aid, assistance, or advice as described in Sec.  
301.6111-3(b)(2); (2) the person directly or indirectly derives gross 
income in excess of the threshold amount as described in Sec.  
301.6111-3(b)(3); and (3) the transaction is entered into by the 
taxpayer to whom or for whose benefit the person provided the tax 
statement, or in the case of a tax statement provided to another 
material advisor, when the transaction is entered into by a taxpayer to 
whom or for whose benefit that material advisor provided a tax 
statement. Thus, an appraiser that is engaged after an easement is put 
in place can be a material adviser based on statements or actions after 
an easement is put in place.
    A few commenters argued that the ``retroactivity component'' to 
material advisors (due to required disclosures) is impermissible or 
burdensome. This comment is without merit and outside the scope of 
these final regulations; however, the Treasury Department and the IRS 
note that Sec.  301.6111-3(b)(4)(iii) provides that, if a transaction 
that was not a reportable transaction is identified as a listed 
transaction in published guidance after the occurrence of the events 
described in Sec.  301.6111-3(b)(4)(i), the person will be treated as 
becoming a material advisor on the date the transaction is identified 
as a listed transaction. As the resulting obligations imposed are 
limited to actions the person must take thereafter, the requirement is 
not retroactive.

II. Comments Concerning Conservation Easements Generally

    Several commenters addressed aspects of conservation easements that 
are outside the scope of these final regulations but have nonetheless 
been considered in adopting these final regulations. This part II of 
this Summary of Comments and Explanation of Revisions describes and 
responds to comments relating to: (1) the consistency of these final 
regulations with the congressional intent to conserve land; (2) 
overvaluation abuse in abusive syndicated conservation easement 
transactions; (3) whether disclosure of the listed transactions is 
needed since taxpayers must file Form 8283, Noncash Charitable 
Contributions; and (4) requests for enforcement data on syndicated 
conservation easement transactions.
A. Supporting Conservation While Combatting Abuse
    One commenter noted that abusive syndicated conservation easement 
transactions are antithetical to the concept of charity that section 
170(h)

[[Page 81344]]

was designed to enable. The Treasury Department and the IRS agree.
    However, several commenters opined that identification of 
syndicated conservation easement transactions as listed transactions is 
inconsistent with congressional intent to promote conservation. These 
commenters argued that the proposed regulations disincentivize 
conservation by increasing the audit risk of taxpayers involved in 
syndicated conservation easement transactions and that the uncertainty 
relating to what is considered a ``substantially similar'' transaction 
has a chilling effect. These commenters further argued that the 
proposed regulations go beyond the scope of section 170(h)(7), violate 
the separation of powers, and are contrary to the priorities of the 
Administration.
    The Treasury Department and the IRS do not agree with the comments 
criticizing the identification of syndicated conservation easement 
transactions as listed transactions. Contrary to the commenters' 
assertions, Congress has made it clear that it is concerned with 
abusive syndicated conservation easement transactions. See, e.g., 
Syndicated Conservation-Easement Transactions, S. Prt. 116-44 (August 
2020). The minimal impact on taxpayers who claim legitimate charitable 
contribution deductions for qualified conservation contributions and 
who may decide to file a protective disclosure is far outweighed by the 
benefit of requiring disclosure for the identified transactions. In 
addition, combatting abusive tax shelters is a priority for the Federal 
government.
B. Valuation Abuse
    Several commenters noted that the central problem with abusive 
syndicated conservation easements is inaccurate, inflated, and flawed 
appraisals and the associated overvaluation of conservation easements. 
A few commenters asked that these final regulations be replaced with 
``meaningful guidance'' on valuation or appraisal methodology, 
including modifications to the rules for qualified appraisals under 
Sec.  1.170A-17 and guidance on how to determine the highest and best 
use of properties for purposes of easement valuation. One commenter 
suggested that the IRS litigate fraudulent appraisal practices as an 
alternative to ``questioning the long-standing conservation practices 
of donee organizations.'' One commenter suggested establishing an 
enhanced appraisal process similar to the process the IRS has 
established for the art community.
    Any guidance on valuation is outside the scope of these final 
regulations, which are limited to identifying a listed transaction. The 
purpose of these final regulations is to require taxpayers and material 
advisors to report transactions for which the claimed value of a 
syndicated conservation easement contribution strongly indicates 
overvaluation and thus tax avoidance. The Treasury Department and the 
IRS have challenged and will continue to challenge abusive appraisal 
practices and overvaluation.
C. Disclosures
    Some commenters questioned why the IRS needs to identify certain 
syndicated conservation easements as a listed transaction when 
contributions of conservation easements are already disclosed on the 
Form 8283, which contains, among other information, the easement's 
appraised value, when and how the property was acquired, the donor's 
cost or adjusted basis, the amount deducted, and the date of the 
contribution. The commenters noted that the Form 8283 must be prepared 
completely and accurately because a deduction will be disallowed if any 
information is missing.
    The Form 8283, which is filed as a part of a taxpayer's tax return, 
does not include all the information contained on Form 8886. It also 
does not alert the Office of Tax Shelter Analysis to the taxpayer's 
participation in an abusive transaction, nor does it trigger disclosure 
and other obligations of material advisors to the transaction. 
Accordingly, these comments are not adopted.
D. Requests for Enforcement Data
    Some commenters, citing to an issue in the remand of CIC Services, 
LLC v. IRS, 592 F. Supp. 3d 677 (E.D. Tenn. 2022), asserted that the 
proposed regulations are arbitrary and capricious because, in their 
opinion, the APA requires numerical data on syndicated conservation 
easement transactions as part of the rationale for identifying a listed 
transaction. The commenters requested the number of past syndicated 
conservation easement transactions, the number of syndicated 
conservation easement transactions challenged, the status and/or 
outcome of every current syndicated conservation easement challenge, 
the number of syndicated conservation easement transactions deemed 
abusive by courts, the dollar amounts involved in syndicated 
conservation easement transactions, the number of taxpayers affected by 
syndicated conservation easement transactions, the nature and amount of 
the contributions involved, the value and acreage of the property 
conserved by syndicated conservation easement transactions, and the 
effect of syndicated conservation easement transactions on nature and 
wildlife.
    CIC Services and other authorities do not require the public 
release of enforcement data, or the other analysis commenters 
requested, as a part of rulemaking. Section 6011 and the regulations 
thereunder require that the IRS (1) determine that a transaction is a 
tax avoidance transaction and (2) identify the transaction as a listed 
transaction by notice, regulation, or other form of published guidance. 
The Treasury Department and the IRS have consistently maintained, since 
the issuance of Notice 2017-10, that certain syndicated conservation 
easement transactions are tax avoidance transactions and have 
identified them as such by notice or regulation. An offer to 
potentially be allocated a charitable contribution deduction that is at 
least 2.5 times one's investment, likely resulting in a positive after-
tax financial benefit from what is supposed to be a charitable 
contribution, is strongly indicative of a tax avoidance transaction and 
has been identified by Congress as such. See, e.g., section 170(h)(7). 
Further, the data requested by commenters is unrelated to whether the 
identified transactions are tax avoidance transactions.

III. Comments Regarding the Necessity of These Final Regulations in 
Light of Section 605 of the SECURE 2.0 Act

    Several commenters questioned the need for the proposed regulations 
to be adopted as final regulations, given the enactment in December of 
2022 of section 605 of the SECURE 2.0 Act, which added section 
170(h)(7) to the Code to disallow a deduction for ``the vast majority'' 
of the abusive syndicated conservation easement transactions identified 
in the proposed regulations. Commenters asked that, in light of the 
legislation, the proposed regulations either be withdrawn or be revised 
to take a ``more surgical approach'' that is in accordance with the new 
statute (and addresses other concerns).
    Some of these commenters opined that the proposed regulations were 
overbroad and inconsistent with congressional intent, in part because 
the proposed regulations did not include the three exceptions to 
section 170(h)(7)(A) that Congress included in section 170(h)(7)(C) 
through (E). These commenters argued that syndicated conservation 
easement transactions that meet an exception to section 170(h)(7)(A) 
should also be excepted

[[Page 81345]]

from the definition of the listed transaction identified in the 
proposed regulations.
    Other commenters supported adopting final regulations to help the 
IRS identify promoters, material advisors, and donee organizations 
involved in abusive syndicated conservation easement transactions. The 
commenters noted that section 605 of the SECURE 2.0 Act is prospective 
only. These commenters, however, suggested a few modifications to the 
proposed rules, which are discussed later in this part III and in part 
IV of this Summary of Comments and Explanation of Revisions.
    The Treasury Department and the IRS have concluded that it is in 
the interest of sound tax administration to continue to identify 
abusive syndicated conservation easement transactions as listed 
transactions, notwithstanding passage of section 605 of the SECURE 2.0 
Act. However, in adopting the proposed regulations as final 
regulations, the Treasury Department and the IRS have made several 
modifications to the proposed rules, as described in this Summary of 
Comments and Explanation of Revisions. Thus, these final regulations 
are consistent with the commenters' recommendation that the final 
regulations take ``a more surgical approach'' to the definition of the 
syndicated conservation easement listed transaction following the 
enactment of section 170(h)(7).
    Specifically, these final regulations cover three major classes of 
abusive syndicated conservation easement transactions (and 
substantially similar transactions): (1) those that involve 
contributions occurring before December 30, 2022; (2) those for which a 
charitable contribution deduction is not automatically disallowed by 
section 170(h)(7); and (3) those that substitute the contribution of a 
fee simple interest in real property for the contribution of a 
conservation easement.
A. Transactions Occurring Before December 30, 2022
    Section 170(h)(7)(A) does not apply to contributions made on or 
before December 29, 2022. As a result, these final regulations are 
necessary to obtain reporting of transactions that are the same as, or 
substantially similar to, syndicated conservation easement transactions 
in cases in which the conservation easements were contributed before 
December 30, 2022, and the taxpayers did not disclose the transaction 
pursuant to Notice 2017-10. Thus, these final regulations impose 
reporting requirements on taxpayers who had not previously disclosed 
their participation in transactions that are the same as, or 
substantially similar to, syndicated conservation easement transactions 
to the extent that a taxpayer's participation in the transaction 
occurred in one or more taxable years as to which the statute of 
limitations had not run as of the date these final regulations identify 
the transaction as a listed transaction.
    Some commenters contended that, since many taxpayers have already 
reported their transactions under Notice 2017-10, the IRS already has 
the information reporting targeted by the proposed regulations. The 
Treasury Department and the IRS agree that, in such cases, duplicative 
reporting under these final regulations is unnecessary. Accordingly, 
these final regulations explicitly provide that taxpayers who fully 
disclosed their participation in syndicated conservation easement 
transactions pursuant to Notice 2017-10 do not need to disclose again 
under these final regulations for any taxable years covered by the 
prior disclosure.
B. Transactions Not Automatically Disallowed by Section 170(h)(7)
    The final regulations do not include an exception for transactions 
that are excluded from the automatic disallowance rule in section 
170(h)(7). Of note, the SECURE 2.0 Act, which was enacted after the 
proposed regulations were issued, does not provide that the exceptions 
to section 170(h)(7)(A) contained in section 170(h)(7)(C) through (E) 
are also exceptions for purposes of the listed transaction rules. To 
the contrary, section 605(c)(2) of the SECURE 2.0 Act explicitly 
states: ``No inference is intended as to the appropriate treatment of . 
. . any contribution for which a deduction is not disallowed by reason 
of section 170(h)(7) of the Internal Revenue Code of 1986, as added by 
this section.'' Thus, Congress has indicated that the fact that such 
transactions are not automatically disallowed does not mean that such 
transactions could not be abusive.
    There are at least two types of conservation easement transactions 
for which a charitable contribution deduction is not automatically 
disallowed by section 170(h)(7) that are appropriately considered 
listed transactions. First, transactions satisfying any of the three 
exceptions found in section 170(h)(7)(C) through (E) that also contain 
all the elements of a transaction identified as a listed transaction 
under these final regulations continue to be transactions that the 
Treasury Department and the IRS view as likely to be abusive. Thus, the 
final regulations do not include any exceptions for transactions 
described in section 170(h)(7)(C) through (E).
    Second, any syndicated conservation easement transaction for which 
a charitable contribution deduction is not automatically disallowed by 
section 170(h)(7) because the amount of the partnership's contribution 
does not exceed 2.5 times the sum of each partner's relevant basis in 
the partnership is nevertheless a listed transaction with respect to 
any partner who received promotional materials offering the possibility 
of being allocated a share of the contribution that equals or exceeds 
2.5 times that partner's investment.
C. Transactions That Involve Other Contributions of Real Property
    The preamble to the proposed regulations stated that transactions 
in which the contributed property is described in section 170(h)(2)(A) 
or (B), or is a fee interest in real property, are transactions 
substantially similar to the listed transaction identified in proposed 
Sec.  1.6011-9(b). Several commenters noted that this language appears 
to imply that any transaction that meets the elements of the listed 
transaction identified in the proposed regulations, but that consists 
of the contribution of real property, is substantially similar to the 
listed transaction identified in the proposed regulations.
    One commenter supported the inclusion of fee simple contributions 
in the preamble to the proposed regulations and asked that fee simple 
transactions be expressly identified in the regulatory text of the 
final regulations. Another commenter asked that the final regulations 
``clarify'' whether fee simple contributions are considered 
substantially similar to syndicated conservation easement transactions, 
stating that ``the preamble language is not law.'' However, several 
other commenters questioned why contributions of fee simple interests 
in property would be considered transactions that are substantially 
similar to the syndicated conservation easement transaction identified 
in the proposed regulations. One commenter contended that the tax 
consequences, specifically taxpayer contribution base limitations and 
carryover periods, are different for fee simple contributions and 
conservation easement contributions.
    The Treasury Department and IRS continue to believe that a 
transaction that meets the elements of the listed transaction 
identified in these final regulations, but consists of the contribution 
of a fee simple interest

[[Page 81346]]

rather than of a conservation easement, is substantially similar to the 
listed transaction identified in these final regulations. The 
commenters questioning the treatment of contributions of fee simple 
interests as substantially similar transactions failed to address the 
broad definition of substantially similar found in Sec.  1.6011-
4(c)(4), which was issued after notice and comment; that Congress 
specifically adopted the term ``substantially similar'' in its 
subsequent enactment of section 6707A(c)(2); and that Congress 
specifically referenced the definition in Sec.  1.6011-4(c)(4) when 
explaining that provision. See Footnote 232 of House Report 108-548(I), 
108th Cong., 2nd Sess. 2004, at 261 (June 16, 2004) (House Report) 
(emphasis added):

    The provision states that, except as provided in regulations, a 
listed transaction means a reportable transaction, which is the same 
as, or substantially similar to, a transaction specifically 
identified by the Secretary as a tax avoidance transaction for 
purposes of section 6011. For this purpose, it is expected that the 
definition of ``substantially similar'' will be the definition used 
in Treas. Reg. sec. 1.6011-4(c)(4). However, the Secretary may 
modify this definition (as well as the definitions of ``listed 
transaction'' and ``reportable transactions'') as appropriate.

    In particular, despite the differing taxpayer contribution base 
limitations and carryover periods between a fee simple donation and a 
conservation easement donation, the transactions can result in similar 
types of tax consequences and be either factually similar or based on 
the same or a similar tax strategy.
    In sum, the Treasury Department and the IRS agree that any 
contribution of real property (including contributions of fee simple 
interests and contributions described in section 170(h)(2)(A) or (B)) 
that meets the elements of the listed transaction identified in the 
proposed regulations is a transaction that is substantially similar to 
the listed transaction identified in the proposed regulations. 
Accordingly, Sec.  1.6011-9(c)(7) of these final regulations explicitly 
states that a transaction that meets all the elements described in 
Sec.  1.6011-9(b), except that the transaction involves the 
contribution of a fee simple interest or the contribution of a real 
property interest described in section 170(h)(2)(A) or (B) instead of a 
conservation easement, is substantially similar (within the meaning of 
Sec.  1.6011-4(c)(4)) to the transaction described in Sec.  1.6011-
9(b). The final regulations contain an example showing a transaction 
involving the contribution of a fee simple interest that is 
substantially similar to the transaction described in Sec.  1.6011-
9(b).
D. Other Substantially Similar Transactions
    Multiple commenters raised general concerns about the potential 
scope of transactions that are ``substantially similar'' to the listed 
transaction identified in the proposed regulations. Several of those 
commenters opined that the substantially similar rule is void for 
vagueness or overbroad, and some commenters requested that the term be 
made more specific. Several commenters asked whether the 2.5 times rule 
in proposed Sec.  1.6011-9(b)(1) is a bright-line rule; in other words, 
whether transactions for which the highest estimate of charitable 
contribution deduction in the promotional materials is less than 2.5 
times a taxpayer's investment could be substantially similar to the 
listed transaction identified in these regulations.
    As previously discussed, the term ``substantially similar'' is part 
of the statutory definition of a listed transaction in section 
6707A(c)(2); furthermore, the regulatory definition found in Sec.  
1.6011-4(c)(4) was adopted after notice and comment and has been viewed 
favorably by Congress. Under Sec.  1.6011-4(c)(4), whether a 
transaction is ``substantially similar'' to a syndicated conservation 
easement transaction depends on the tax consequences, the tax strategy, 
and other facts and circumstances related to the transaction. Section 
1.6011-4(c)(4) further provides that the term substantially similar 
must be broadly construed in favor of disclosure.
    The ``substantially similar'' rule provides an important backstop 
against advisors' and promoters' attempts to avoid the reporting 
requirements. Consistent with that objective, these final regulations 
generally do not circumscribe the types of transactions that may be 
substantially similar to the listed transaction identified in these 
final regulations. Nonetheless, as discussed in part IV.A.3. of this 
Summary of Comments and Explanation of Revisions, these final 
regulations do provide that the 2.5 times rule is a bright-line rule. 
Thus, transactions in which the promotional materials offer investors 
the possibility of being allocated a charitable contribution deduction 
of anything less than 2.5 times a taxpayer's investment generally are 
not substantially similar to the listed transaction identified in these 
final regulations. However, if the taxpayer is nonetheless allocated a 
charitable contribution deduction that equals or exceeds 2.5 times the 
taxpayer's investment, the rebuttable presumption in Sec.  1.6011-
9(d)(3) would apply.
    Several commenters asked whether transactions that involve 
contributions other than real property, such as those that involve 
contributions of artwork or other non-cash items, are listed 
transactions. The Treasury Department and the IRS have determined that 
such transactions are not ``substantially similar'' for purposes of 
these final regulations because this listed transaction relates to 
contributions of real property, not of personal property. The Treasury 
Department and the IRS will continue to evaluate whether the 
transactions raised by commenters are tax avoidance transactions and 
may propose to identify such transactions as listed transactions in 
future guidance.
    A few commenters asked whether transactions that do not involve a 
contribution by a pass-through entity (such as a transaction involving 
a contribution by an individual or a corporation) are ``substantially 
similar'' transactions. The Treasury Department and the IRS have 
determined that transactions that do not involve a contribution by a 
pass-through entity are not considered substantially similar 
transactions; however, these transactions likewise could be proposed to 
be identified as tax avoidance transactions in future guidance.
    One commenter asked whether transactions that involve deductions 
other than under section 170 (that is, transactions involving the ``use 
of different Code provisions''), are considered ``substantially 
similar'' to the syndicated conservation easement transaction 
identified in the proposed regulations. It is possible that a pass-
through entity could use a deduction other than allowed under section 
170 to obtain the same or a similar type of tax consequences, and that 
such transaction would either be factually similar or based on the same 
or similar tax strategy to the listed transaction identified in these 
final regulations. Therefore, the Treasury Department and IRS conclude 
it is possible that a transaction that abuses the application of a 
section of the Code other than section 170, for example, section 
642(c), could be a substantially similar transaction. Under Sec.  
1.6011-4(f)(1), taxpayers who are uncertain whether a particular 
transaction is substantially similar to a syndicated conservation 
easement transaction may request a private letter ruling from the IRS.
    Several commenters expressed concern that, given the uncertainty 
about whether a particular transaction would be substantially similar 
to a

[[Page 81347]]

listed transaction, the regulations could have a chilling effect on the 
willingness of qualified organizations to accept contributions of 
conservation easements if the section 4965 carveout were eliminated in 
the final regulations. As described in part V of this Summary of 
Comments and Explanation of Revisions, these final regulations maintain 
the section 4965 carveout for qualified organizations, which addresses 
those concerns.

IV. Comments Regarding Elements of the Listed Transaction Identified in 
the Proposed Regulations

    Several comments focused on the elements of the listed transaction 
identified in the proposed regulations. This part IV describes and 
responds to these comments, specifically comments regarding (1) the 2.5 
times rule; (2) application of the 2.5 times rule; (3) timing rules; 
and (4) definitions.
A. The 2.5 Times Rule
    Commenters addressed the rationale for the 2.5 times multiple, 
interaction with the 2.5 times rule in section 170(h)(7), and whether 
2.5 times is a bright line.
1. Rationale for the 2.5 Times Multiple
    Several commenters questioned the rationale for the 2.5 times 
multiple in the proposed regulations. Some commenters argued that, 
depending on the top marginal tax rate, a 2.5 times multiple would 
result in minimal, if any, tax benefit to the investor. One commenter 
opined that, because there is no explanation for how the multiple was 
determined, there is no way to determine whether this criterion is 
reasonable.
    The Treasury Department and the IRS have concluded, consistent with 
Notice 2017-10, that once a transaction offers the possibility of a 
charitable contribution deduction that equals or exceeds an amount that 
is 2.5 times the amount of the taxpayer's investment, the transaction 
is a tax avoidance transaction that justifies a reporting obligation. 
At this 2.5 times threshold, a taxpayer in the highest current marginal 
tax bracket claiming a charitable contribution deduction for a 
qualified conservation contribution will approximately break even 
before considering State tax benefits, and, for any amounts above 2.5 
times, will have an economic gain directly from making the charitable 
contribution deduction. This multiple is also aligned with the 2.5 
times threshold established by Congress in section 605 of the SECURE 
2.0 Act, which disallows certain deductions at the partnership level 
for contributions exceeding 2.5 times the sum of each partner's 
relevant basis. Thus, the Treasury Department and the IRS conclude that 
it is reasonable and in the sound interest of tax administration to 
adopt the 2.5 times threshold as proposed.
2. Interaction With the 2.5 Times Rule in Section 170(h)(7)
    Several commenters addressed the interaction of the 2.5 times rule 
with section 170(h)(7) and asked whether only transactions in which the 
charitable contribution deduction promised in the promotional materials 
is exactly 2.5 times the investment need to be disclosed (because 
transactions in which the deduction amount exceeds 2.5 times the 
investment are generally disallowed by section 170(h)(7)). Under these 
final regulations, both transactions in which the charitable 
contribution deduction promised in the promotional materials is exactly 
2.5 times the investment and transactions in which the charitable 
contribution deduction promised in the promotional materials exceeds 
2.5 times the investment must be disclosed.
    As discussed in part III of this Summary of Comments and 
Explanation of Revisions, certain transactions for which a deduction is 
not disallowed by section 170(h)(7) are nevertheless considered listed 
transactions.
3. Whether 2.5 Times Is a Bright Line
    As noted in part III.D. of this Summary of Comments and Explanation 
of Revisions, several commenters asked whether 2.5 times is a bright 
line; in other words, whether transactions for which the highest 
estimate of charitable contribution deduction in the promotional 
materials is less than 2.5 times a taxpayer's investment could be 
considered substantially similar transactions. One of these commenters 
encouraged the IRS to clarify that the 2.5 times rule is not intended 
to create or imply a safe harbor for excessive valuations below the 2.5 
times threshold and that the 2.5 times rule does not implicitly approve 
charitable contribution deduction amounts less than 2.5 times a 
taxpayer's investment. This commenter noted that, regardless of whether 
a contribution is a listed transaction pursuant to Sec.  1.6011-
4(b)(2), it remains subject to all the relevant requirements of law, 
including those regarding valuation and substantiation of that 
valuation by means of a qualified appraisal by a qualified appraiser 
pursuant to Sec.  1.170A-17 that is subject to review by the IRS for 
its accuracy. A few commenters asked the IRS to pick an actual number 
(for example, 2.0, 2.25, 2.45, or 2.49 times) at which a transaction 
will incur greater IRS scrutiny.
    The Treasury Department and the IRS agree that taxpayers need some 
certainty on which transactions need to be disclosed to the IRS. The 
Treasury Department and the IRS have determined that a transaction in 
which the promotional materials offer the taxpayer the possibility of 
being allocated a charitable contribution deduction of only an amount 
less than 2.5 times the taxpayer's investment and for which the 
taxpayer is actually allocated a charitable contribution deduction of 
an amount less than 2.5 times the taxpayer's investment (so that the 
rebuttable presumption in Sec.  1.6011-9(d)(3) does not apply) 
generally is not ``substantially similar'' to the listed transaction 
identified in these final regulations. This determination takes into 
account both the need for taxpayer certainty on reporting obligations 
and the possibility of being allocated a charitable contribution 
deduction the amount of which is less than 2.5 times the amount of the 
taxpayer's investment presents less risk of the type of net-positive 
financial benefit to investors that exists at and above the 2.5 times 
threshold. This bright-line rule does not imply that valuations giving 
rise to an amount less than 2.5 times a taxpayer's investment are 
properly valued. The Treasury Department and the IRS agree with the 
commenter that, regardless of whether a contribution is a reportable 
transaction pursuant to Sec.  1.6011-4, it remains subject to all the 
relevant requirements of law. For example, a claimed charitable 
contribution deduction amount that is 2.0 times the partner's 
investment may still be overvalued or unsubstantiated, and the 
valuation remains subject to review by the IRS for accuracy.
    In view of the foregoing, these final regulations add new Sec.  
1.6011-9(d)(1) to state that the 2.5 times threshold is a bright line. 
However, this new rule also provides that, if a pass-through entity 
engages in a series of transactions (for example, contribution of an 
easement followed by contribution of a fee simple interest) with a 
principal purpose of avoiding the application of this bright-line rule, 
the series of transactions may be disregarded, or the arrangement may 
be recharacterized in accordance with its substance. Whether a series 
of transactions has a principal purpose of avoiding the application of 
this bright-line rule is determined based on all the facts and 
circumstances.

[[Page 81348]]

B. Application of the 2.5 Times Rule
    The proposed regulations contained three rules to address potential 
avoidance of the 2.5 times rule. Taxpayers commented on each of these 
rules.
1. Multiple Suggested Deduction Amounts
    The proposed regulations contained a rule that, if the promotional 
materials suggest or imply a range of possible charitable contribution 
deduction amounts that may be allocated to the taxpayer, the highest 
suggested or implied deduction amount will determine whether the 2.5 
times rule is met. In addition, if one piece of promotional materials 
(for example, an appraisal or oral statement) suggests or implies a 
higher charitable contribution deduction amount than suggested or 
implied by other promotional materials, then the highest suggested 
charitable contribution deduction amount determines whether the 2.5 
times rule is met. As the preamble to the proposed regulations 
explained, this rule is intended to prevent promoters from 
circumventing the 2.5 times rule by having promotional materials 
contain language that is inconsistent as to the amount of the potential 
charitable contribution deduction.
    One commenter stated that the proposed rule ``does not apply to 
ambiguities in the taxpayer's materials, it allows the Treasury to 
create ambiguities in the taxpayer's materials.'' However, another 
commenter asked whether a transaction that meets the elements of the 
listed transaction identified in the proposed regulations, except that 
the partnership merely promises that the investment will ``grow by'' 
2.5 times without mentioning a charitable contribution deduction, is 
considered a ``substantially similar'' transaction. The intent of the 
rule is to prevent promoters from circumventing the 2.5 times rule by 
creating ambiguous promotional materials, and the transaction described 
in the preceding sentence would be a substantially similar transaction. 
Thus, these final regulations adopt the rule as proposed.
2. Rebuttable Presumption
    The proposed regulations included a rebuttable presumption deeming 
the 2.5 times rule to be met if (1) the pass-through entity donates a 
conservation easement within three years following a taxpayer's 
investment in the pass-through entity, (2) the pass-through entity 
allocates a charitable contribution deduction to the taxpayer the 
amount of which equals or exceeds two and one-half times the amount of 
the taxpayer's investment, and (3) the taxpayer claims a deduction the 
amount of which equals or exceeds two and one-half times the amount of 
the taxpayer's investment. The proposed regulations provided that this 
presumption may be rebutted if the taxpayer establishes to the 
satisfaction of the Commissioner that none of the promotional materials 
contained a suggestion or implication that investors might be allocated 
a charitable contribution deduction the amount of which equals or 
exceeds an amount that is two and one-half times the amount of their 
investment in the pass-through entity.
    Several commenters objected to the rebuttable presumption rule, 
stating that it is ``arbitrary and capricious;'' that taxpayers cannot 
prove a negative (particularly with respect to oral representations); 
that any attempt to prove in court that oral representations were not 
made is hearsay; that the regulations do not speak to how a taxpayer is 
able to rebut the presumption; that it seems to be attempting to switch 
the penalty burden from the IRS to taxpayers; and that the IRS has 
demonstrated to taxpayers that it will neither be fair nor listen to 
reasonable evidence in syndicated conservation easement tax disputes. 
Commenters asked for guidance on how taxpayers may be able to rebut the 
rebuttable presumption.
    The Treasury Department and the IRS conclude that the rebuttable 
presumption is reasonable because it is unlikely that a taxpayer would 
claim a deduction for 250 percent of their investment in a pass-through 
entity within three years of making that investment and not have 
received promotional materials offering the possibility to do so. This 
presumption is needed to address transactions with respect to which 
taxpayers and promoters are not forthcoming about the content or 
receipt of the promotional materials. While the Treasury Department and 
the IRS decline to provide a specific method to rebut the presumption 
in these final regulations because such rebuttal would necessarily be 
dependent on the taxpayer's specific facts and circumstances, the 
Treasury Department and the IRS expect that, in appropriate cases, 
taxpayers will be able to establish to the satisfaction of the 
Commissioner that none of the promotional materials contained a 
suggestion or implication that investors might be allocated a 
charitable contribution deduction the amount of which equals or exceeds 
an amount that is two and one-half times the amount of their investment 
in the pass-through entity. For example, a taxpayer may be able to 
rebut the presumption by establishing that the partnership was not open 
to other investors (and thus the only promotional materials were 
documents needed to execute the transaction) or that similar properties 
in the same area had increased significantly in value in the period 
between the time the taxpayer invested in the partnership and the date 
the conservation easement was contributed.
    Contrary to commenters' assertions, nothing in the proposed 
regulations suggested that the Commissioner will disregard evidence 
rebutting the presumption. Section 7803(a)(3)(D) and (J) of the Code 
require the Commissioner to ensure that employees of the IRS are 
familiar, and act in accordance, with taxpayer rights, including the 
right to challenge the position of the IRS, the right to be heard, and 
the right to a fair and just tax system. Furthermore, the phrase ``to 
the satisfaction of the Commissioner'' does not preclude future 
judicial review, and the Commissioner bears the burden of demonstrating 
that each of the other elements of the listed transaction has been 
fulfilled and may have the burden of production under section 7491(c) 
of the Code in a court proceeding regarding the imposition of a 
penalty, depending on the party against whom it is asserted. In the 
view of the Treasury Department and the IRS, evidence regarding oral 
promotional materials generally would not constitute inadmissible 
hearsay because the oral promotional materials would not be offered for 
the truth of the matters asserted therein, but rather as evidence of 
what was stated. See Fed. R. Evid. 801(c)(2).
    Some commenters asked whether the rebuttable presumption implies 
that taxpayers do not need to report if (1) at least three years have 
passed between the taxpayer's investment in the pass-through entity and 
the pass-through's contribution of a conservation easement or (2) if 
the deduction amount is less than 2.5 times the amount of an investor's 
investment. The rebuttable presumption does not carry either of these 
implications.
    The Treasury Department and the IRS have decided to retain the 
rebuttable presumption in the final regulations because the 
administrative need for a rebuttable presumption outweighs the concerns 
raised by the commenters. Taxpayers and promoters are the persons with 
access to and knowledge of the promotional materials involved in their 
transactions. Taxpayers should not be able to escape the requirements 
of these final regulations because their

[[Page 81349]]

syndicators were effective in masking their promises. Accordingly, the 
final regulations retain the rebuttable presumption rule.
3. Determining the Amount of a Taxpayer's Investment in the Pass-
Through Entity
    The proposed regulations contained an anti-stuffing rule providing 
that, for purposes of determining whether a transaction is a listed 
transaction, the amount of a taxpayer's investment in the pass-through 
entity is limited to the portion of the taxpayer's investment that is 
attributable to the portion of the real property on which a 
conservation easement is placed and that produces the charitable 
contribution deduction.
    A few commenters noted that the term ``investment'' in proposed 
Sec.  1.6011-9(b)(1) is not defined, while one commenter stated that 
the anti-stuffing rule found in proposed Sec.  1.6011-9(d)(3) provides 
the taxpayer's investment for purposes of the 2.5 times rule. Several 
commenters stated that the anti-stuffing rule in the proposed 
regulations is inconsistent with the relevant basis rule in section 
170(h)(7)(B), and others suggested that the anti-stuffing rule in the 
proposed regulations should be replaced with the relevant basis rule in 
section 170(h)(7)(B).
    The Treasury Department and the IRS note that the term 
``investment'' is not generally defined within the Code. However, the 
Treasury Department and the IRS agree with the commenter stating that 
the anti-stuffing rule found in proposed Sec.  1.6011-9(d)(3) provides 
the taxpayer's investment for purposes of the 2.5 times rule. Further, 
in response to comments that relevant basis should also be permitted to 
be used to determine investment, these final regulations provide that a 
taxpayer may determine the amount of their investment in the pass-
through entity using one of the methods provided in Sec.  1.6011-
9(d)(4), which identifies the anti-stuffing method and, for 
contributions occurring on or after December 30, 2022, adds the 
relevant basis method in section 170(h)(7)(B) as another method to 
determine the amount of the taxpayer's investment in the pass-through 
entity. No other methods may be used.
    In response to commenters asserting that relevant basis should 
replace the anti-stuffing rule, the relevant basis computations under 
section 170(h)(7) do not apply to all transactions for which disclosure 
is required under these final regulations (such as to contributions 
before the effective date of section 170(h)(7) in taxable years for 
which the statute of limitations is still open); thus, these final 
regulations retain the anti-stuffing method as one method to determine 
investment for purposes of the 2.5 times rule.
i. Anti-Stuffing Method
    As mentioned before in part IV.B.3 of this Summary of Comments and 
Explanation of Revisions, several commenters addressed the anti-
stuffing rule found in the proposed regulations, which these final 
regulations rename the ``anti-stuffing method'' to determine investment 
for purposes of the 2.5 times rule. For example, one commenter 
requested clarification on how to determine the portion of the 
investment that is ``attributable'' to the real property on which the 
conservation easement is placed. Another commenter stated that the 
proposed anti-stuffing rule may give rise to constitutional challenges 
because it requires the separation of investment assets, creating more 
cost for investment managers and for investors, which they contended is 
a limitation on interstate commerce, a power reserved only for the 
legislative branch. One commenter opined that the anti-stuffing rule 
will be impossible to apply in practice; the commenter noted that the 
example of the anti-stuffing rule in the proposed regulations involved 
marketable securities with an identifiable fair market value and 
questioned how to apply the anti-stuffing rule if the pass-through 
entity holds multiple pieces of property. Another commenter stated that 
the example in the proposed regulations illustrating the anti-stuffing 
rule was merely an example of the basis allocation rules under section 
755 of the Code and that allocation rules under section 755 do not 
require additional explanation.
    The Treasury Department and the IRS conclude that the anti-stuffing 
rule provides a reasonable method to determine the taxpayer's 
investment in the pass-through entity by looking only to amounts 
attributable to the property generating the charitable contribution 
deduction. In response to comments requesting additional guidance on 
the determination of the amount of a taxpayer's investment, these final 
regulations provide that, under the anti-stuffing method, if an 
investor uses non-cash assets to acquire its interest in the pass-
through entity, then the fair market value of such assets, rather than 
their basis, is the relevant measure. In particular, under Sec.  
1.6011-9(d)(4)(ii) of these final regulations, the amount of a 
taxpayer's investment in the pass-through entity is the portion of the 
cash and fair market value of the assets the taxpayer uses to acquire 
its interest in the pass-through entity that is attributable to the 
real property on which a conservation easement is placed (or the 
portion thereof, if an easement is placed on a portion of the real 
property) and that produces the charitable contribution deduction 
described in Sec.  1.6011-9(b)(3).
    The Treasury Department and the IRS disagree that the anti-stuffing 
rule is impossible to apply in practice. Syndicated conservation 
easement transactions often involve scenarios similar to the example 
provided in the proposed regulations, in which the pass-through entity 
owns only cash and marketable securities in addition to its real 
property. Moreover, these regulations apply to transactions in which 
the promotional materials offer the possibility of charitable 
contribution deductions, and thus the parties involved will have 
necessarily considered the possible allocation of charitable 
contribution deductions based on the taxpayer's cost of acquiring the 
interest in the pass-through entity. Accordingly, in the view of the 
Treasury Department and the IRS, it is not unduly burdensome to require 
the parties to determine the amount of the taxpayer's acquisition cost 
that is allocable to the property giving rise to the charitable 
contribution deduction that is being offered.
ii. Relevant Basis Method
    The Treasury Department and the IRS recognize that partnerships and 
S corporations that engage in syndicated conservation easement 
transactions occurring on or after December 30, 2022, will need to 
calculate relevant basis for purposes of section 170(f)(19), and, in 
addition, each investor will need to calculate the amount of the 
investor's investment for purposes of these listed transaction 
regulations. To mitigate the burden of potentially duplicative 
calculations, these final regulations add an alternative method to 
determine the amount of a taxpayer's investment. These final 
regulations provide that, for contributions occurring on or after 
December 30, 2022, taxpayers may use their relevant basis, as 
determined under section 170(h)(7)(B) and the regulations thereunder, 
as the amount of their investment for purposes of Sec.  1.6011-9(b)(1).
4. Modification of the Determination of Investment for Qualified 
Conservation Contributions Protecting Historic Structures
    One commenter stated that the proposed anti-stuffing rule did not 
adequately consider the difference between qualified conservation 
contributions protecting historic

[[Page 81350]]

structures and those protecting natural open space or settings. This 
commenter stated that, because historic preservation projects protect 
the historic character of a building, they often require additional 
investment for rehabilitation; however, the proposed rule did not 
consider cash raised for, and invested into, the preservation, 
rehabilitation and maintenance of certified historic structures in the 
calculation of the investment. The commenter further stated that the 
proposed regulations did not account for additional monies that need to 
be invested in a project after an easement is placed to ensure that the 
conservation purpose is protected in perpetuity. The commenter stated 
that cash, if invested in the real property, should be considered part 
of the taxpayer's investment in the real property when applying the 2.5 
times rule.
    The Treasury Department and the IRS conclude that the commenter's 
proposed changes to the anti-stuffing method are not warranted. In 
general, one key element in determining whether a transaction 
constitutes a syndicated conservation easement listed transaction is 
the ratio of the amount of the charitable contribution deduction 
allocation that an investor is offered to the amount the investor pays 
to obtain that charitable contribution deduction allocation. To that 
end, the anti-stuffing method measures the amount of the taxpayer's 
cost of acquiring the interest in the pass-through entity that is 
attributable to the real property on which a conservation easement is 
placed (or the portion thereof, if an easement is placed on a portion 
of the real property) and that gives rise to the charitable 
contribution deduction. Charitable contribution deductions are based on 
either the fair market value or adjusted basis of the property that is 
contributed as of the time of the contribution. See, e.g., section 
170(e). Therefore, in the view of the Treasury Department and the IRS, 
it is inappropriate, in determining the amount of a taxpayer's 
investment, to look to the amounts expended on the property after the 
time of the charitable contribution.
    In general, every taxpayer that contributes a conservation easement 
will be required to expend some amounts on the property after the 
contribution, such as for property taxes. However, amounts of cash that 
are held for expenditures after the date the conservation easement is 
contributed, whether for property taxes, repairs, or anything else 
related to the property, are not as directly related to the resultant 
charitable contribution deduction that a taxpayer claims as the 
expenditures related to the property that precede the conservation 
easement contribution. The Treasury Department and the IRS have 
concluded that it is appropriate for the anti-stuffing method to 
maintain its focus on the amounts invested in the property giving rise 
to the deduction as of the time of the charitable contribution. In 
addition, the Treasury Department and the IRS have concluded that a 
rule that treats certain cash holdings as attributable to the real 
property if they are ``earmarked'' for future expenditures related to 
the property would be difficult to administer. Such a rule would 
require factually intensive estimations and projections about the 
amount of future expenditures that would be necessary to fulfill the 
purposes of the conservation easement (as opposed to merely enhancing 
the value of the building). For these reasons, the Treasury Department 
and the IRS have concluded that the final regulations should not adopt 
this comment. Therefore, the final regulations add a clarification to 
Sec.  1.6011-9(d)(4)(ii), which states that assets retained to pay for 
costs related to the operation and maintenance of the real property on 
which the conservation easement is placed, including costs that may be 
incurred in future years, are not attributable to the contributed real 
property.
    The Treasury Department and the IRS will continue to consider 
whether any additional clarifications or modifications to the anti-
stuffing method or the alternative relevant basis method of determining 
the amount of the taxpayer's investment in the pass-through entity 
would be beneficial in the context of qualified conservation 
contributions protecting historic structures.
C. Timing Rules
    Comments addressed both the timing of the pass-through entity's 
acquisition of the real property and whether holding the real property 
for a period of time before the contribution of the conservation 
easement is made should result in the transaction being excluded from 
the listed transaction identified in these regulations.
1. Timing of the Pass-Through Entity's Acquisition of the Real Property
    Proposed Sec.  1.6011-9(b)(2) provided that one of the steps of a 
syndicated conservation easement is that the taxpayer acquires an 
interest directly, or indirectly through one or more tiers of pass-
through entities, in the pass-through entity that owns real property 
(that is, becomes an investor in the entity). A few commenters asked 
whether this step is met with respect to investors who acquire an 
interest in an entity that does not hold real estate at the time the 
interest in the pass-through entity is acquired. One of these 
commenters requested that the IRS clearly state if it intends proposed 
Sec.  1.6011-9(b)(2) to be met in the case of an investor who acquires 
an interest in a pass-through entity that subsequently acquires real 
estate or an interest in a pass-through entity holding real estate. The 
commenter also stated that, if the real property is purchased after the 
investor invests in the pass-through entity, the transaction would fall 
outside of the anti-stuffing rule and therefore would be less likely to 
trigger the 2.5 times rule (because the amount of the taxpayer's 
investment would never be reduced by the anti-stuffing rule).
    The Treasury Department and the IRS note that the proposed 
regulations clearly stated that the transaction falls within the 
definition of a syndicated conservation easement transaction 
``regardless of the order'' in which the steps occur; therefore, the 
proposed regulations already encompassed the scenario in which a 
taxpayer acquires an interest in the pass-through entity before the 
pass-through entity acquires the real property. However, for additional 
clarity, these final regulations make that point explicit in Sec.  
1.6011-9(b)(2).
    The Treasury Department and the IRS do not agree with the commenter 
that, if the real property is purchased after the investor invests in 
the pass-through entity, the transaction falls outside of the reach of 
the anti-stuffing method. The proposed and final regulations 
specifically provide that the order in which the four steps of a 
syndicated conservation easement transaction occur is not relevant. In 
response to this comment, an example in these final regulations 
illustrates the application of the anti-stuffing method if the pass-
through entity acquires the real property after a taxpayer invests in 
the pass-through entity.
2. Holding Periods
    The proposed regulations did not contain any exceptions from the 
disclosure requirements for property held on a long-term basis. Several 
commenters asked that the final regulations include an exception for 
such transactions. One commenter questioned why investors who have held 
interests in a pass-through entity for over one year would be required 
to report the syndicated conservation easement transaction because such

[[Page 81351]]

investors would not need to rely on a tacked holding period to avoid 
the limitations of section 170(e). One commenter contended that 
contributions of land held for less than three years will generally not 
be made. Several commenters observed that contributions with a long-
term holding period are excepted from the disallowance rule of section 
170(h)(7)(A) pursuant to section 170(h)(7)(C). One commenter opined 
that a hypothetical transaction in which the promotional materials 
state that the property will be worth more than 2.5 times the 
taxpayer's investment in ten years should not give rise to a listed 
transaction. This commenter asked that the final regulations specify 
the amount of time that must elapse between the purchase of the 
property interest and the contribution of the easement for a 
transaction to be listed. Another commenter asked about a taxpayer that 
inherited land that is then in his possession for over twenty years and 
decides to donate the land for the benefit and protection of the 
environment.
    The Treasury Department and the IRS conclude that it is not 
necessary to modify the proposed rules to provide an exception for 
property that has been held for a period of time. First, tax abuse in 
syndicated conservation easement transactions is not limited to 
mismatches between an investor's holding period in its interest in the 
pass-through entity and the pass-through entity's holding period in the 
real property on which the conservation easement is placed. For 
example, even for transactions in which investors may otherwise be 
eligible to claim a deduction of the fair market value of the 
conservation easement, the deduction is nonetheless abusive if the 
easement is improperly overvalued.
    Second, as discussed in part III.B. of this Summary of Comments and 
Explanation of Revisions, the exception to the disallowance rule in 
section 170(h)(7) for contributions outside of a three-year holding 
period does not necessitate a similar exception in these final 
regulations, and these final regulations do not provide an exception 
for syndicated conservation easements that are described in section 
170(h)(7)(C).
    Third, notwithstanding the commonly anticipated appreciation of 
real property values over time, it is not the case that property values 
always increase. The period a property is held is one element of a 
fact-intensive inquiry into whether the property has been overvalued. 
Attempting to craft an exception based on a holding period would result 
in a rule that is over-inclusive and/or under-inclusive, depending on 
the specific facts. The proposed hypotheticals for property held for 
ten or twenty years seems unlikely to meet all elements of the listed 
transaction identified in these regulations (for example, it might not 
be held in a pass-through entity or involve promotional materials). 
Therefore, the final regulations do not include an exception for long-
term holding periods.
D. Definitions
    Commenters addressed the definitions of (1) charitable contribution 
deduction, (2) conservation easement, (3) participant, (4) promotional 
materials, and (5) syndicated conservation easement transaction.
1. Charitable Contribution Deduction
    The proposed regulations defined ``charitable contribution 
deduction'' as ``a deduction under section 170 of the Internal Revenue 
Code (Code), which includes a deduction arising from a qualified 
conservation contribution as defined in section 170(h)(1).''
    One commenter stated that this definition is inconsistent with the 
listed transaction identified in the proposed regulations, which is 
limited to contributions of conservation easements. This commenter 
suggested that the definition should be limited to ``the deduction 
arising from a qualified conservation contribution as defined in 
section 170(h)(1).''
    The Treasury Department and the IRS decline to adopt this 
suggestion, because some substantially similar transactions will 
involve real property contributions other than qualified conservation 
contributions.
2. Conservation Easement
    The proposed regulations defined a ``conservation easement'' as ``a 
restriction, within the meaning of section 170(h)(2)(C), exclusively 
for conservation purposes, within the meaning of section 170(h)(1)(C) 
and section 170(h)(4), granted in perpetuity, on the use that may be 
made of the specified property.'' One commenter stated that, in all 
cases that the commenter defended, the IRS had taken the position that 
the conservation easement did not meet one or more of the requirements 
in this definition. The commenter opined that, if an investor fails to 
disclose a syndicated conservation easement transaction, the pass-
through's return is selected for audit, and the IRS determines that the 
donated conservation easement fails to meet one or more elements of the 
definition in the proposed regulations, then the investor would not 
have had any reporting obligation because the investor had not claimed 
a deduction for a ``conservation easement'' as that term was defined in 
the proposed regulations. The commenter added that if this was not the 
intent of the proposed regulation, then the final regulation should 
clearly so state.
    The Treasury Department and the IRS note that the third element of 
the listed transaction identified in these regulations is that ``the 
pass-through entity that owns the real property contributes an easement 
on such real property, which it treats as a conservation easement, to a 
qualified organization and allocates, directly or through one or more 
tiers of pass-through entities, a charitable contribution deduction to 
the taxpayer'' (emphasis added), and that the fourth element of the 
listed transaction is that ``the taxpayer claims a charitable 
contribution deduction with respect to the contribution of the real 
property interest on the taxpayer's Federal income tax return.'' In the 
commenter's hypothetical, the taxpayer's treatment of the contribution 
as a conservation easement and claim of a charitable contribution 
deduction with respect to the conservation easement makes the 
transaction a listed transaction. Whether the IRS asserts that the 
conservation easement is invalid and whether the charitable 
contribution deduction claimed on the taxpayer's Federal income tax 
return is ultimately allowed do not affect this outcome.
    To more clearly track the language in section 170(h), the final 
regulations modify the definition of conservation easement to provide 
that it is a restriction (granted in perpetuity) on the use that may be 
made of the real property, within the meaning of section 170(h)(2)(C), 
exclusively for conservation purposes, within the meaning of section 
170(h)(1)(C) and (h)(4).
3. Participant
    The proposed regulations stated that a taxpayer participating, 
within the meaning of Sec.  1.6011-4(c)(3)(i)(A), in a syndicated 
conservation easement transaction described in proposed Sec.  1.6011-
9(b) includes (1) an owner of a pass-through entity, (2) a pass-through 
entity (any tier, if multiple tiers are involved in the transaction), 
and (3) any other taxpayer whose tax return reflects tax consequences 
or a tax strategy arising from the syndicated conservation easement 
transaction described in the proposed regulations. The proposed 
regulations provided, consistent with Notice 2017-10, that a qualified 
organization to which a

[[Page 81352]]

syndicated conservation easement described in proposed Sec.  1.6011-
9(b) is donated is not treated as a participant under Sec.  1.6011-
4(c)(3)(i)(A) with respect to the listed transaction.
    One commenter stated that it is unclear whether a participant who 
reports the tax consequences of a transaction that is substantially 
similar to a syndicated conservation easement transaction is a member 
of the class of participants described under proposed Sec.  1.6011-
9(e)(2). The commenter opined that the plain language of the proposed 
regulation referred only to taxpayers who have the tax consequences of 
a syndicated conservation easement transaction. To address this 
comment, the final regulations clarify that the class of participants 
includes participants in transactions that are the same as, or 
substantially similar to, syndicated conservation easement 
transactions.
    One commenter requested additional guidance on the meaning of the 
term ``arising from'' in proposed Sec.  1.6011-9(e)(2)(iii), stating 
that it is ambiguous whether an IRS attorney that was hired to enforce 
syndicated conservation easement transactions would be required to 
report the transaction because his or her income ``arose from'' the 
conservation easement transaction. The Treasury Department and the IRS 
conclude that further clarification is not needed.
4. Promotional Materials
    The proposed regulations stated that ``promotional materials'' 
include materials described in Sec.  301.6112-1(b)(3)(iii)(B) and any 
other written or oral communication regarding the transaction provided 
to investors, such as marketing materials, appraisals (including 
preliminary appraisals, draft appraisals, and the appraisal that is 
attached to the taxpayer's return), websites, transactional documents 
such as the deed of conveyance, private placement memoranda, tax 
opinions, operating agreements, subscription agreements, statements of 
the anticipated value of the conservation easement, and statements of 
the anticipated amount of the charitable contribution deduction.
    One commenter supported this definition, but several commenters 
thought it was overbroad, stating that it would be effectively 
impossible for a taxpayer to prove that he or she did not receive 
promotional materials. Some commenters objected to particular types of 
communication being included within the scope of promotional materials. 
Specifically, commenters expressed concern regarding oral 
communications, websites, and documents required by law. For example, 
one commenter stated that, since promotional materials are described to 
include ``websites'' and ``oral communication,'' every taxpayer would 
theoretically have received ``promotional materials'' relating to 
conservation easement donations because every taxpayer has access to 
the internet. In addition, one commenter stated that, under the 
proposed regulations, promotional materials would include an oral 
communication made to any other investor. The commenter also stated 
that any one oral communication, regardless of accuracy, would ``render 
the deduction unavailable'' to all investors. The commenter recommended 
that the final regulations remove all references to oral 
communications.
    In response, the Treasury Department and the IRS note that receipt 
of promotional materials by one investor does not automatically trigger 
receipt of such materials by other investors (although it is 
circumstantial evidence that may be relevant to showing receipt of 
promotional materials by other investors). In addition, the broad 
definition of promotional materials does not mean that the 2.5 times 
rule will always be met; the quantity of promotional materials is not 
directly relevant to whether the promotional materials offer the 
investor the possibility of being allocated a charitable contribution 
deduction that equals or exceeds an amount that is two and one-half 
times the amount of the taxpayer's investment in the pass-through 
entity. Moreover, even if the 2.5 times rule is met, the effect is not 
to render the deduction unavailable to all investors but to meet one 
element of this listed transaction. The Treasury Department and the IRS 
conclude that a broad definition of promotional materials is warranted; 
otherwise, taxpayers may contend that they do not meet the elements of 
the listed transaction identified in these final regulations because 
promoters made offers via oral communications, websites, or other 
documents.
    Some commenters noted that Congress did not mention promotional 
materials in section 170(h)(7) and asked that the final regulations 
explain the requirement's significance in the listed transaction. The 
Treasury Department and the IRS conclude that the lack of reference to 
promotional materials in section 170(h)(7) is of no significance to 
this listed transaction, given that the purpose and scope of section 
170(h)(7), which is to disallow a deduction, are different from those 
of these regulations, which is for the IRS to identify tax avoidance 
transactions.
    One commenter noted that a taxpayer can claim a greatly inflated 
deduction regardless of whether the taxpayer receives promotional 
materials and stated that the promotional material requirement appears 
to be unnecessary and could be removed altogether. The Treasury 
Department and the IRS have determined that promotional materials are 
an important attribute of the listed transaction identified in these 
final regulations because the existence of promotional materials 
offering investors the possibility of a charitable contribution 
deduction that equals or exceeds an amount that is 2.5 times the amount 
of the taxpayer's investment, on its own, is an element that 
illustrates tax avoidance. Thus, the final regulations adopt the 
proposed definition of promotional materials without changes.
    One commenter stated that the broad definition of promotional 
materials does not promote compliance with the law if an attorney that 
created promotional materials, such as the deed of conveyance, is 
considered a material advisor to the transaction. This commenter asked 
for clarity on how the definition of promotional materials in the 
proposed regulations relates to the definition of a material advisor.
    As discussed in part I.D. of this Summary of Comments and 
Explanation of Revisions, these final regulations do not change the 
description of a material advisor provided in Sec.  301.6111-3(b). A 
material advisor is a person who makes a tax statement, as defined in 
Sec.  1.6111-3(b)(2)(ii), and derives gross income in excess of the 
threshold amount, as defined in Sec.  301.6111-3(b)(3) (generally, 
$10,000 for listed transactions). In general, a deed of conveyance 
would not be a ``tax statement'' under Sec.  301.6111-3(b)(2)(ii) 
because it is not a statement ``that relates to a tax aspect of a 
transaction that causes the transaction to be a reportable 
transaction.'' In addition, in general, the deed does not contain any 
statements related to a tax aspect of the transaction that causes the 
transaction to be reportable, such as stating that an investor may be 
eligible to claim a deduction amount of 2.5 times the investor's 
investment.\1\ As a result, the final regulations make no

[[Page 81353]]

modifications to the definition of promotional materials in response to 
the comment.
---------------------------------------------------------------------------

    \1\ As noted above, a transactional document such as a deed of 
conveyance is considered to be a promotional material. Although the 
deed by itself, typically, would not offer the investor the 
possibility of being allocated a charitable contribution deduction 
that equals or exceeds an amount that is two and one-half times the 
amount of the taxpayer's investment in the pass-through entity, 
whether all of the promotional materials, taken as a whole, make 
such an offer is a factual determination.
---------------------------------------------------------------------------

5. Syndicated Conservation Easement Transaction
    One commenter stated that ``syndication itself is not bad and is 
often encouraged by the government'' (such as in the context of 
historic tax credits, low-income housing tax credits, and new market 
tax credits). The commenter opined that the proposed regulations sow 
confusion because the focus should be on abuse, not on syndication.
    The Treasury Department and the IRS agree with the commenter that 
syndication in itself is not necessarily abusive. However, the Treasury 
Department and the IRS do not agree with the commenter that the 
definition of syndicated conservation easement transaction in Sec.  
1.6011-9(b) needs to explicitly use the word ``abusive.'' The 
identification of a listed transaction occurs only after the Treasury 
Department and the IRS have determined that the transaction is a tax 
avoidance transaction. If a syndicated conservation easement 
transaction does not meet the elements of the transaction defined in 
Sec.  1.6011-9(b), such as that the partnership's promotional materials 
do not offer investors the possibility of being allocated a charitable 
contribution deduction the amount of which equals or exceeds an amount 
that is 2.5 times the amount of the taxpayer's investment in the 
partnership (and the partnership does not in fact allocate a charitable 
contribution deduction the amount of which equals or exceeds an amount 
that is 2.5 times the amount of the taxpayer's investment in the 
partnership), then the transaction is not a listed transaction.

V. Comments Addressing the Role of Qualified Organizations in the 
Listed Transaction

    Commenters addressed both the section 4965 carveout found in the 
proposed regulations and the lack of a carveout to the definition of 
material advisor in the proposed regulations for qualified 
organizations.
A. Section 4965 Carveout
    The proposed regulations included, consistent with Notice 2017-10, 
the section 4965 carveout to exclude a qualified organization \2\ from 
treatment as a party to a syndicated conservation easement transaction 
under section 4965 but requested comments on whether the final 
regulations should eliminate or limit the section 4965 carveout.
---------------------------------------------------------------------------

    \2\ A donation of a qualified conservation contribution must be 
made to a ``qualified organization,'' generally defined in section 
170(h)(3), which includes donations to governmental units, certain 
public charities, and Type I supporting organizations thereto. Under 
section 4965(c), the term ``tax-exempt entity'' includes, among 
others, entities and governmental units described in sections 501(c) 
and 170(c) (other than the United States). Thus, absent the section 
4965 carveout, tax-exempt entities that would be affected are donees 
that are qualified organizations described in section 170(h)(3), 
other than the United States, that accept a conservation easement as 
part of the syndicated conservation easement transaction described 
in these regulations.
---------------------------------------------------------------------------

    Several commenters advocated for maintaining the section 4965 
carveout for various reasons, including that section 170(h)(7)(A) will 
disallow deductions for most transactions that these regulations seek 
to deter, that receipt of a donated conservation easement generally 
would not constitute ``net income'' or ``proceeds'' within the meaning 
of section 4965, and that limiting or eliminating the section 4965 
carveout could discourage qualified organizations from accepting 
contributions of conservation easements (particularly due to 
uncertainty as to what constitutes a ``substantially similar'' 
transaction). With respect to the Treasury Department and the IRS's 
request for comments on limiting the carveout to qualified 
organizations that conduct an adequate amount of due diligence (and on 
what would constitute adequate due diligence for this purpose), several 
commenters argued that qualified organizations are not equipped to 
exercise the due diligence that could be required to qualify for a more 
limited carveout. Several commenters also claimed that because only a 
``small number'' of qualified organizations continue to facilitate 
syndicated conservation easement transactions, it would be unfairly 
burdensome to all other qualified organizations if the section 4965 
carveout were limited or eliminated.
    Given the addition of section 170(h)(7) to the Code, which 
disallows charitable contribution deductions for some of the most 
overvalued syndicated conservation easements, as well as other 
considerations raised by the commenters, the Treasury Department and 
the IRS have concluded that it is appropriate to maintain the section 
4965 carveout in these final regulations. However, the Treasury 
Department and the IRS will consider proposing to eliminate or limit 
the section 4965 carveout in future regulations if qualified 
organizations continue to facilitate the syndicated conservation 
easement transactions (or substantially similar transactions) described 
in these regulations.
B. Donee Material Advisors
    As discussed in part I.D. of this Summary of Comments and 
Explanation of Revisions, the proposed regulations provided no special 
rules for material advisors and noted that this differed from the 
approach taken in Notice 2017-29 (modifying Notice 2017-10), which 
provided that a donee described in section 170(c) is not treated as a 
material advisor under section 6111. The proposed regulations requested 
comments on whether qualified organizations are receiving fees for 
providing material aid, assistance, or advice with respect to the 
syndicated conservation easement transactions described in the proposed 
regulations, the nature of the services being provided, and why a 
carveout from the definition of material advisor for qualified 
organizations is needed.
    Several commenters requested that the carveout for qualified 
organizations found in Notice 2017-29 be reinstated, claiming that the 
six-year look back period would be burdensome, that the IRS is already 
privy to information necessary to identify potentially abusive 
syndicated conservation easement transactions via reporting by other 
material advisors, and that eliminating the carveout for qualified 
organizations will discourage qualified organizations from accepting 
legitimate syndicated conservation easements due to confusion and fear 
of audits, potential penalties, and litigation. On the other hand, no 
commenter explained how a qualified organization, acting solely in its 
capacity as a qualified organization, could be considered a material 
advisor. To the contrary, several commenters asserted that donee 
organizations do not fit the definition of ``material advisor.''
    A person is a material advisor with respect to a transaction if the 
person: (1) provides material aid, assistance, or advice with respect 
to organizing, managing, promoting, selling, implementing, insuring, or 
carrying out any reportable transaction; and (2) directly or indirectly 
derives gross income in excess of the threshold amount defined in Sec.  
301.6011-3(b)(3) for the material aid, assistance, or advice. See Sec.  
301.6111-3(b)(1). ``Gross income'' includes all fees for a tax 
strategy, for services for advice (whether or not tax advice), and for 
the implementation of a reportable transaction, but a ``fee'' does not 
include amounts paid to a person, including an advisor, in that 
person's capacity as a party to the transaction. See Sec.  301.6111-
3(b)(3)(ii). A person provides material

[[Page 81354]]

aid, assistance, or advice if the person makes or provides a tax 
statement to or for the benefit of certain taxpayers who are required 
to make a disclosure under section 6011 (including for participation in 
a listed transaction) or other material advisors. See Sec.  301.6111-
3(b)(2)(i). ``Tax statement,'' for these purposes, is any statement 
(including another person's statement), oral or written, that relates 
to a tax aspect of a transaction that causes the transaction to be a 
reportable transaction. See Sec.  301.6111-3(b)(2)(ii)(A).
    In a typical conservation easement transaction, the qualified 
organization signs the Form 8283 (Section B) and provides a 
contemporaneous written acknowledgement of the contribution. See 
section 170(f)(8). The qualified organization may also receive separate 
cash contributions from the donor to monitor and enforce the easement 
in perpetuity. The qualified organization might also make 
representations to the donor that it is a qualified organization. 
Signing the Form 8283 and the contemporaneous written acknowledgement 
and making representations regarding the donee's status as a qualified 
organization are not considered to be making a tax statement under 
Sec.  301.6111-3(b)(2)(ii)(A). Therefore, a donee does not provide 
material, aid, assistance, or advice under Sec.  301.6111-3 merely by 
signing the Form 8283 (Section B) and the contemporaneous written 
acknowledgement.
    The Treasury Department and the IRS conclude that a qualified 
organization acting solely in its capacity as a qualified organization 
by, for example, accepting a conservation easement and separate 
payments or contributions to monitor and enforce that easement, 
provided such payments or contributions are in fact used for such 
purpose, would not be considered a material advisor. The Treasury 
Department and the IRS further conclude that if a qualified 
organization engages in activities that would result in the 
organization meeting the requirements to be considered a material 
advisor, then such organization should be subject to the material 
advisor rules, including the penalties for failure to disclose. Thus, 
the final regulations include no special carveout to material advisor 
status for qualified organizations.

Effect on Other Documents

    Notice 2017-10 is obsoleted for transactions occurring after 
October 8, 2024.

Special Analyses

I. Paperwork Reduction Act

    The collection of information contained in these final regulations 
is reflected in the collection of information for Forms 8886 and 8918 
that have been reviewed and approved by the Office of Management and 
Budget (OMB) in accordance with the Paperwork Reduction Act (44 U.S.C. 
3507(c)) under control numbers 1545-1800 and 1545-0865.
    To the extent there is a change in burden as a result of these 
final regulations, the change in burden will be reflected in the 
updated burden estimates for the Forms 8886 and 8918. The requirement 
to maintain records to substantiate information on Forms 8886 and 8918 
is already contained in the burden associated with the control number 
for the forms and remains unchanged.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless the collection of 
information displays a valid OMB control number.

II. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) (5 U.S.C. chapter 6) requires 
agencies to ``prepare and make available for public comment an initial 
regulatory flexibility analysis,'' which will ``describe the impact of 
the rule on small entities.'' 5 U.S.C. 603(a). Section 605(b) of the 
RFA allows an agency to certify a rule if the rulemaking is not 
expected to have a significant economic impact on a substantial number 
of small entities.
    The Secretary of the Treasury hereby certifies that these final 
regulations will not have a significant economic impact on a 
substantial number of small entities pursuant to the RFA. As previously 
explained, the basis for these final regulations is Notice 2017-10, 
2017-4 I.R.B. 544 (modified by Notice 2017-29, 2017-20 I.R.B. 1243, and 
Notice 2017-58, 2017-42 I.R.B. 326). The following chart sets forth the 
gross receipts of respondents to Notice 2017-10 that report Federal tax 
information using Form 1065, U.S. Return of Partnership Income, and 
Form 1120-S, U.S. Income Tax Return for an S corporation:

       Notice 2017-10 All Filings 2017 to 2021 Respondents by Size
------------------------------------------------------------------------
                                                  Respondents   Filings
                    Receipts                          (%)         (%)
------------------------------------------------------------------------
Under 5M.......................................          93.3       88.3
5M to 10M......................................           3.1        5.2
10M to 15M.....................................           1.2        2.9
15M to 20M.....................................           0.6        0.4
20M to 25M.....................................           0.6        0.7
Over 25M.......................................           1.2        2.5
------------------------------------------------------------------------

    This chart shows that the majority of respondents to Notice 2017-10 
reported gross receipts under $5 million. Even assuming that these 
respondents constitute a substantial number of small entities, the 
final regulations will not have a significant economic impact on these 
entities because the final regulations implement sections 6111 and 6112 
and Sec.  1.6011-4 by specifying the manner in which and time at which 
an identified transaction must be reported. Accordingly, because the 
final regulations are limited in scope to time and manner of 
information reporting and definitional information, the economic impact 
of the final regulations is expected to be minimal. Further, the 
Treasury Department and the IRS expect the reporting burden to be low; 
the information sought is necessary for regular annual return 
preparation and ordinary recordkeeping. The estimated burden for any 
taxpayer required to file Form 8886 is approximately 10 hours, 16 
minutes for recordkeeping, 4 hours, 50 minutes for learning about the 
law or the form, and 6 hours, 25 minutes for preparing, copying, 
assembling, and sending the form to the IRS. The IRS's Research, 
Applied Analytics, and Statistics division estimates that the 
appropriate wage rate for this set of taxpayers is $102.08 (2022 
dollars) per hour. Thus, it is estimated that a respondent will incur 
costs of approximately $2,127.00 per filing. Disclosures received to 
date by the Treasury Department and the IRS in response to the 
reporting requirements of Notice 2017-10 indicate that this small 
amount will not pose any significant economic impact for those 
taxpayers now required to disclose under the final regulations.
    Some commenters asserted that the hourly rate estimate of $98.87 
(2021) in the proposed regulations is much lower than what 
professionals charge to prepare Form 8886. Given the availability of 
more recent data, the hourly rate estimate is revised in the final 
regulations to $102.08 (2022). The new number still does not address 
the substantial differences from the commenters' estimates. The 
differences are likely attributable to the different methodologies 
used. The commenters likely used the hourly rate that an independent 
professional would charge

[[Page 81355]]

a retail customer to prepare a Form 8886. The Treasury Department and 
the IRS used the hourly cost that a business owner would pay to employ 
such a professional. This method was determined based on the comments 
received from stakeholders objecting to reporting of the retail hourly 
rate at earlier points.
    One commenter asked for the data source for the hourly rate 
estimate. The source data used by our data unit comes from the Bureau 
of Labor Statistics.
    Some commenters asserted that the estimate of the time to prepare 
Form 8886 is too low as provided because (1) the estimate ignores the 
time necessary to comply with the reporting requirement for the years 
to which the requirement applies retroactively and (2) the estimate 
does not properly account for some of the time spent, such as learning 
new topics. At this time, the Treasury Department and the IRS did not 
find a practical way to adjust the time estimate in response to these 
comments due to (1) the uncertainties involved and (2) with respect to 
the prior years, the effect of revealing our underreporting estimates 
on enforcement.
    For the reasons stated, a regulatory flexibility analysis under the 
RFA is not required. Pursuant to section 7805(f) of the Code, the 
proposed rule preceding this rulemaking was submitted to the Chief 
Counsel for the Office of Advocacy of the Small Business Administration 
for comment on its impact on small business, and no comments were 
received.

III. Unfunded Mandates Reform Act

    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) 
requires that agencies assess anticipated costs and benefits and take 
certain other actions before issuing a final rule that includes any 
Federal mandate that may result in expenditures in any one year by a 
State, local, or Tribal government, in the aggregate, or by the private 
sector, of $100 million (updated annually for inflation). One commenter 
argued that it is at least possible that the UMRA trigger of $100 
million could be triggered because of the potential burdens of updating 
State or local regulations concerning the acceptance of land donations, 
harmonizing information reporting with the requirements of the 
regulations, and cooperation with examination proceedings. The Treasury 
Department and the IRS have considered this comment and conclude that 
it is not persuasive, particularly in light of the continuing carve-out 
for donees in these final regulations. This final rule does not include 
any Federal mandate that may result in expenditures by State, local, or 
Tribal governments, or by the private sector in excess of that 
threshold.

IV. Executive Order 13132: Federalism

    Executive Order 13132 (Federalism) prohibits an agency from 
publishing any rule that has federalism implications if the rule either 
imposes substantial, direct compliance costs on State and local 
governments, and is not required by statute, or preempts State law, 
unless the agency meets the consultation and funding requirements of 
section 6 of the Executive order. One commenter suggested that, if the 
Treasury Department and the IRS decide to eliminate the carveout for 
donees described in section 170(c) from being treated as a party to the 
transaction under section 4965, then the final regulations will have 
federalism implications under Executive Order 13132. The final 
regulations maintain the section 4965 carveout. This final rule does 
not have federalism implications and does not impose substantial direct 
compliance costs on State and local governments or preempt State law 
within the meaning of the Executive order.

V. Regulatory Planning and Review

    Pursuant to the Memorandum of Agreement, Review of Treasury 
Regulations under Executive Order 12866 (June 9, 2023), tax regulatory 
actions issued by the IRS are not subject to the requirements of 
section 6(b) of Executive Order 12866, as amended. Therefore, a 
regulatory impact assessment is not required.

VI. Congressional Review Act

    Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.), 
the Office of Information and Regulatory Affairs designated this rule 
as not a major rule, as defined by 5 U.S.C. 804(2).

Statement of Availability of IRS Documents

    Guidance cited in this preamble is published in the Internal 
Revenue Bulletin and is available from the Superintendent of Documents, 
U.S. Government Publishing Office, Washington, DC 20402, or by visiting 
the IRS website at https://www.irs.gov.

Drafting Information

    The principal authors of these final regulations are Joshua S. 
Klaber and Eugene Kirman, Office of Associate Chief Counsel (Income Tax 
& Accounting). Other personnel from the Treasury Department and the IRS 
participated in their development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Amendments to the Regulations

    Accordingly, 26 CFR part 1 is amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 is amended by adding an 
entry for Sec.  1.6011-9 in numerical order to read in part as follows:

    Authority: 26 U.S.C. 7805 * * *
* * * * *
    Section 1.6011-9 also issued under 26 U.S.C. 6001 and 6011.
* * * * *

0
Par. 2. Section 1.6011-9 is added to read as follows:


Sec.  1.6011-9  Syndicated conservation easement listed transactions.

    (a) Identification as listed transaction. Transactions that are the 
same as, or substantially similar to, a transaction described in 
paragraph (b) of this section are identified as listed transactions for 
purposes of Sec.  1.6011-4(b)(2).
    (b) Syndicated conservation easement transaction. The term 
syndicated conservation easement transaction means a transaction in 
which the following steps occur (regardless of the order in which they 
occur)--
    (1) A taxpayer receives promotional materials that offer investors 
in a pass-through entity the possibility of being allocated a 
charitable contribution deduction the amount of which equals or exceeds 
an amount that is two and one-half times the amount of the taxpayer's 
investment, as determined in paragraph (d)(4) of this section, in the 
pass-through entity, as determined under paragraph (d) of this section 
(2.5 times rule);
    (2) The taxpayer acquires an interest, directly or indirectly 
through one or more tiers of pass-through entities, in the pass-through 
entity that owns or acquires real property (that is, becomes an 
investor in the entity);
    (3) The pass-through entity that owns the real property contributes 
an easement on such real property, which it treats as a conservation 
easement, to a qualified organization and allocates, directly or 
through one or more tiers of pass-through entities, a charitable 
contribution deduction to the taxpayer; and
    (4) The taxpayer claims a charitable contribution deduction with 
respect to

[[Page 81356]]

the contribution of the real property interest on the taxpayer's 
Federal income tax return.
    (c) Definitions. The following definitions apply for purposes of 
this section:
    (1) Charitable contribution deduction. The term charitable 
contribution deduction means a deduction under section 170 of the 
Internal Revenue Code (Code), which includes a deduction arising from a 
qualified conservation contribution as defined in section 170(h)(1) of 
the Code.
    (2) Conservation easement. The term conservation easement means a 
restriction (granted in perpetuity) on the use which may be made of the 
real property, within the meaning of section 170(h)(2)(C) of the Code, 
exclusively for conservation purposes, within the meaning of section 
170(h)(1)(C) and (h)(4) of the Code.
    (3) Pass-through entity. The term pass-through entity means a 
partnership, S corporation, or trust (other than a grantor trust within 
the meaning of subchapter J of chapter 1 of the Code).
    (4) Promotional materials. The term promotional materials includes 
materials described in Sec.  301.6112-1(b)(3)(iii)(B) of this chapter 
and any other written or oral communication regarding the transaction 
provided to investors, such as marketing materials, appraisals 
(including preliminary appraisals, draft appraisals, and the appraisal 
that is attached to the taxpayer's return), websites, transactional 
documents such as deeds of conveyance, private placement memoranda, tax 
opinions, operating agreements, subscription agreements, statements of 
the anticipated value of the conservation easement, and statements of 
the anticipated amount of the charitable contribution deduction.
    (5) Qualified organization. The term qualified organization means 
an organization described in section 170(h)(3) of the Code.
    (6) Real property. The term real property includes all land, 
structures, and buildings, including a certified historic structure 
defined in section 170(h)(4)(C) of the Code.
    (7) Substantially similar. The term substantially similar is 
defined in Sec.  1.6011-4(c)(4). For example, transactions that meet 
the elements of paragraph (b) of this section, except that the pass-
through entity contributes a fee simple interest in real property or a 
real property interest described in section 170(h)(2)(A) or (B) of the 
Code rather than a conservation easement, are substantially similar to 
the listed transaction identified in this section.
    (d) Application of the 2.5 times rule--(1) Bright-line rule. 
Transactions for which the promotional materials offer the taxpayer the 
possibility of being allocated a charitable contribution deduction of 
only an amount less than 2.5 times the taxpayer's investment and for 
which the taxpayer is actually allocated a charitable contribution 
deduction of an amount less than 2.5 times the taxpayer's investment 
(so that the rebuttable presumption in paragraph (d)(3) of this section 
does not apply) are generally not considered substantially similar to 
the listed transaction identified in this section. However, if a pass-
through entity engages in a series of transactions with a principal 
purpose of avoiding the application of the bright-line rule in this 
paragraph (d)(1), the series of transactions may be disregarded or the 
arrangement may be recharacterized in accordance with its substance. 
Whether a series of transactions has a principal purpose of avoiding 
the application of this bright-line rule is determined based on all the 
facts and circumstances.
    (2) Multiple suggested contribution amounts. If the promotional 
materials suggest or imply a range of possible charitable contribution 
deduction amounts that may be allocated to the taxpayer, the highest 
suggested or implied contribution amount determines whether the 2.5 
times rule in this paragraph (d) is met. In addition, if one piece of 
promotional materials (for example, an appraisal or oral statement) 
states a higher charitable contribution deduction amount than stated by 
other promotional materials, then the highest stated charitable 
contribution deduction amount determines whether the 2.5 times rule is 
met.
    (3) Rebuttable presumption. The 2.5 times rule in this paragraph 
(d) is deemed to be met if the pass-through entity donates a real 
property interest within three years following the taxpayer's 
investment in the pass-through entity, the pass-through entity 
allocates a charitable contribution deduction to the taxpayer the 
amount of which equals or exceeds two and one-half times the amount of 
the taxpayer's investment, and the taxpayer claims a charitable 
contribution deduction the amount of which equals or exceeds two and 
one-half times the amount of the taxpayer's investment. This 
presumption may be rebutted if the taxpayer establishes to the 
satisfaction of the Commissioner that none of the promotional materials 
contained a suggestion or implication that investors might be allocated 
a charitable contribution deduction that equals or exceeds an amount 
that is two and one-half times the amount of their investment in the 
pass-through entity.
    (4) Determining the amount of the taxpayer's investment in the 
pass-through entity--(i) In general. A taxpayer may determine the 
amount of the taxpayer's investment in the pass-through entity for 
purposes of paragraph (b) of this section using either the anti-
stuffing method in paragraph (d)(4)(ii) of this section or, for 
contributions made after December 29, 2022, the relevant basis method 
in paragraph (d)(4)(iii) of this section. No other methods may be used.
    (ii) Anti-stuffing method. Under the anti-stuffing method, the 
amount of a taxpayer's investment in the pass-through entity is the 
portion of the cash or fair market value of the assets the taxpayer 
uses to acquire its interest in the pass-through entity that is 
attributable to the real property on which a conservation easement is 
placed (or the portion thereof, if an easement is placed on a portion 
of the real property) that gives rise to the charitable contribution 
described in paragraph (b)(3) of this section. For example, if a 
portion of the taxpayer's cost of acquiring the taxpayer's interest in 
the pass-through entity is attributable to property held directly or 
indirectly by the pass-through entity other than the real property on 
which a conservation easement is placed as described in paragraph 
(b)(3) of this section (such other property may include other real 
property, cash, cash equivalents, digital assets, marketable 
securities, or other tangible or intangible assets), that portion of 
the taxpayer's acquisition cost is not considered part of the 
taxpayer's investment for purposes of this section because it is not 
attributable to the portion of the real property on which a 
conservation easement is placed as described in paragraph (b)(3) of 
this section. For purposes of this paragraph (d)(4)(ii), assets 
retained to pay for costs related to the operation and maintenance of 
the real property on which the conservation easement is placed, 
including costs that may be incurred in future years, are not 
attributable to the real property on which a conservation easement is 
placed as described in paragraph (b)(3) of this section. In the case of 
a substantially similar transaction described in paragraph (c)(7) of 
this section, the rules in this paragraph (d)(4)(ii) apply except that 
the relevant real property that gives rise to the charitable 
contribution deduction described in paragraph (b)(3) of this section is 
the real property donated.
    (iii) Relevant basis method. For contributions made after December 
29,

[[Page 81357]]

2022, taxpayers may use their relevant basis, as determined in 
accordance with section 170(h)(7)(B) of the Code and Sec.  1.170A-
14(k), as the amount of their investment for purposes of paragraph (b) 
of this section.
    (5) Examples. For the examples in this paragraph (d)(5), assume 
that the partnerships are respected for Federal tax purposes, and that 
the partnership allocations comply with the rules of subchapter K of 
chapter 1 of the Code.
    (i) Example 1--(A) Facts. Individual A purchased an interest in P, 
a partnership that owns real property with a fair market value of 
$500,000 and marketable securities with a fair market value of 
$500,000. A is one of four equal investors in P, each of whom purchased 
its interest in P for $250,000 of cash. With respect to an investor's 
$250,000 payment for its interest in P, the promotional materials 
stated that P expected to allocate a $500,000 charitable contribution 
deduction to the investor (that is, a charitable contribution deduction 
that is two times the amount an investor paid for its interest in P). 
After all four investors have purchased their interests in P, P donates 
a conservation easement on all of its real property to a qualified 
organization as defined in section 170(h)(3) of the Code and reports a 
$2,000,000 charitable contribution on its Form 1065, U.S. Return of 
Partnership Income, based on P obtaining an appraisal indicating that 
the value of the conservation easement is $2,000,000. The Schedule K-1 
(Form 1065) that P furnishes to A indicates that P allocated a 
charitable contribution deduction to A for the taxable year. A claims a 
charitable contribution deduction with respect to the charitable 
contribution on A's Federal income tax return.
    (B) Analysis. A's cost of acquiring its interest in P is $250,000. 
The real property on which a conservation easement was placed and that 
gave rise to the charitable contribution deduction described in 
paragraph (b)(3) of this section was P's property valued at $500,000. 
P's only other asset was marketable securities worth $500,000. 
Accordingly, half of A's share of the value of the assets held by P was 
attributable to the real property on which P placed a conservation 
easement and that gave rise to the charitable contribution deduction 
described in paragraph (b)(3) of this section. Therefore, under 
paragraph (d)(4)(i) of this section, for purposes of paragraph (b) of 
this section, the amount of A's investment in P is $125,000 (that is, 
half of A's $250,000 acquisition cost, which is the portion of A's 
acquisition cost that is attributable to the real property on which P 
placed a conservation easement and that gave rise to the charitable 
contribution deduction described in paragraph (b)(3) of this section). 
Because A's investment for purposes of the 2.5 times rule is $125,000 
and A's expected charitable contribution deduction, based on the 
promotional materials, is $500,000 (that is, an expected deduction that 
is four times A's investment), the 2.5 times rule of paragraph (b)(1) 
of this section is met. The transaction also meets the other elements 
of a syndicated conservation easement within the meaning of paragraph 
(b) of this section and therefore is a listed transaction for purposes 
of Sec.  1.6011-4(b)(2).
    (ii) Example 2--(A) Facts. Individual B acquires a ten percent 
interest in InvestCo, a partnership, by making a $250,000 cash 
contribution. Immediately after B's acquisition, InvestCo's only asset 
is $2,500,000 of cash. The promotional materials state that InvestCo 
expects to allocate a $500,000 charitable contribution deduction to B 
with respect to B's partnership interest. InvestCo pays $600,000 to 
purchase marketable securities. InvestCo also purchases an interest in 
another partnership, PropCo, for $1,900,000 from one of PropCo's 
partners. At the same time as the purchase, InvestCo also contributes 
$100,000 of its marketable securities to PropCo. Immediately after 
InvestCo's purchase and contribution, PropCo's only assets are real 
property worth $2,400,000 and the marketable securities worth $100,000. 
PropCo donates its entire interest in the real property (a fee simple 
interest) to a qualified organization as defined in section 170(h)(3) 
of the Code and reports a $6,250,000 charitable contribution on its 
Form 1065, U.S. Return of Partnership Income, based on PropCo obtaining 
an appraisal indicating that the value of the real property is 
$6,250,000. PropCo allocates a portion of the charitable contribution 
deduction to InvestCo. The Schedule K-1 (Form 1065) that InvestCo 
furnishes to B indicates that InvestCo allocated a charitable 
contribution deduction to B for the taxable year. B claims a charitable 
contribution deduction with respect to the contribution on B's Federal 
income tax return.
    (B) Analysis. Immediately after InvestCo's acquisition of its 
interest in PropCo, InvestCo's only assets were its interest in PropCo 
and $500,000 in marketable securities. Accordingly, eighty percent of 
InvestCo's funds ($2,000,000/$2,500,000) were used to acquire its 
interest in PropCo. B's investment in InvestCo is $250,000; therefore, 
eighty percent of that amount, $200,000, is attributable to InvestCo's 
interest in PropCo. Immediately after InvestCo's acquisition of its 
interest in PropCo, PropCo had real property worth $2,400,000 and 
marketable securities worth $100,000. As such, ninety-six percent 
($2,400,000/$2,500,000) of PropCo's assets were the real property that 
was subsequently donated. Therefore, under paragraph (d)(4)(i) of this 
section, for purposes of paragraph (b) of this section, the amount of 
B's investment in InvestCo that is attributable to the donated real 
property that gave rise to the charitable contribution deduction 
described in paragraph (b)(3) of this section is $200,000 multiplied by 
ninety-six percent, or $192,000. Because B's investment for purposes of 
the 2.5 times rule is $192,000 and B's expected charitable contribution 
deduction, based on the promotional materials, is $500,000 (that is, an 
expected deduction that is at least 2.5 times B's investment), the 2.5 
times rule of paragraph (b)(1) of this section is met. The transaction 
also meets the other elements of a syndicated conservation easement 
within the meaning of paragraph (b) of this section, except that PropCo 
contributed a fee simple interest in real property rather than a 
conservation easement. Under paragraph (c)(7) of this section, the 
transaction is substantially similar to the listed transaction 
described in paragraph (b) of this section and, therefore, under 
paragraph (a) of this section, the transaction in this example is a 
listed transaction for purposes of Sec.  1.6011-4(b)(2).
    (e) Participation in a syndicated conservation easement 
transaction--(1) In general. Whether a taxpayer has participated in a 
syndicated conservation easement transaction described in paragraph (b) 
of this section is determined under Sec.  1.6011-4(c)(3)(i)(A).
    (2) Class of participants. For purposes of Sec.  1.6011-
4(c)(3)(i)(A), participants in a transaction that is the same as, or 
substantially similar to, a syndicated conservation easement 
transaction described in paragraph (b) of this section include--
    (i) An owner of a pass-through entity;
    (ii) A pass-through entity; and
    (iii) Any other taxpayer whose Federal income tax return reflects 
tax consequences or a tax strategy arising from a transaction that is 
the same as, or substantially similar to, the transaction described in 
paragraph (b) of this section.
    (3) Exclusion. A qualified organization to which the conservation 
easement is donated is not treated as a participant under Sec.  1.6011-
4(c)(3)(i)(A)

[[Page 81358]]

in a syndicated conservation easement transaction described in 
paragraph (b) of this section.
    (f) Application of section 4965. A qualified organization to which 
the real property interest is donated is not treated under section 4965 
of the Code as a party to the transaction described in paragraph (b) of 
this section.
    (g) Disclosures under Notice 2017-10. A taxpayer who disclosed 
their participation in a transaction pursuant to Notice 2017-10 and in 
accordance with Sec.  1.6011-4 before October 8, 2024, is treated as 
having made the disclosure required under this section and Sec.  
1.6011-4, for the years covered by that disclosure, as of the date of 
the disclosure under Notice 2017-10.
    (h) Applicability date--(1) In general. This section's 
identification of transactions that are the same as, or substantially 
similar to, the transactions described in paragraph (b) of this section 
as listed transactions for purposes of Sec.  1.6011-4(b)(2) and 
sections 6111 and 6112 of the Code is effective October 8, 2024.
    (2) Applicability date for material advisors. Notwithstanding Sec.  
301.6111-3(b)(4)(i) and (iii) of this chapter, material advisors are 
required to disclose only if they have made a tax statement on or after 
October 8, 2018.

Douglas W. O'Donnell,
Deputy Commissioner.
    Approved: September 16, 2024
Aviva R. Aron-Dine,
Deputy Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2024-22963 Filed 10-7-24; 8:45 am]
BILLING CODE 4830-01-P