Colorado Open West Land Trust received information regarding an Internal Revenue Service (IRS) Notice which may affect landowners who claimed a federal tax deduction for the donation of all or part of the value of a conservation easement. IRS Notice 2023-30 (the full notice is available at this link: https://www.irs.gov/pub/irs-drop/n-23-30.pdf) references a safe harbor option which is available for a landowner whose conservation easement included language that has been challenged by the IRS in various court cases and which challenges have been upheld by certain courts resulting in the disallowance of federal tax deductions for those challenged conservation easements. This safe harbor opportunity offers landowners the option to record an amendment (also signed by CWLT) to their conservation easements by July 24, 2023 to bring problematic language, if any, into compliance with the IRS approved safe harbor language.
The safe harbor notice relates to two sections of conservation easements that the IRS has challenged and litigated in tax court cases: (i) boundary line adjustments, and (ii) the allocation of proceeds of an extinguishment, termination or condemnation to the grantee. The IRS has successfully disallowed conservation easement deductions where the deed contains language allowing for adjustments to the exterior boundary of the conservation easement without judicial process. The IRS has also successfully disallowed conservation easement deductions where the language that allocates the proceeds between the landowner and the easement holder includes any of the following qualifiers in the calculation of proceeds:
- Subtracting the value of improvements built after the donation of the easement;
- Satisfaction of prior claims, such as repayment of a lender or insurance provider for a loan, mortgage, insurance proceeds, casualty losses, etc.;
- The calculation of proceeds “fixes” the dollar amount for the value of the easement at the time the deed is granted to an agreed upon amount, such as the fair market value of the conservation easement at the time of the donation (this is different than “fixing” the proportionate value percentage at the time of the donation)
- The calculation of proceeds references the value of the charitable deduction claimed by the donor, or any adjustment made to it by the IRS (rather than the appraised value).
Again, Colorado West Land Trust cannot provide legal or tax advice regarding any individual tax situation. Please consult your legal and tax advisors to determine whether this IRS Notice 2023-30 may apply and to seek advice as to whether you should amend your conservation easement.
If you do not have an adviser, Ariel Steele and Jody Barbour, two tax credit brokers, have offered to speak with landowners who are concerned about their situation and to assist with connecting landowners with advisors. However, neither of them could provide legal or tax advice.
Tax Credit Connection, Inc.
Jody A. Barbour
Conservation Tax Credit Transfer
P.O. Box 898, Morrison, CO 80465
If you would like to seek advice from an attorney, Colorado West Land Trust knows that the following attorneys are familiar with the IRS Notice and have indicated willingness to represent landowners:
Sara Streight, Fort Collins based attorney
Larry D. Harvey, P.C., Denver based attorney
Resources and reference cases:
IRS Notice 2023-30: https://www.irs.gov/pub/irs-drop/n-23-30.pdf