Aspen Valley 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 here) 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 avlt) 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.
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).
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)
Satisfaction of prior claims, such as repayment of a lender or insurance provider for a loan, mortgage, insurance proceeds, casualty losses, etc.
The Land Trust Alliance, which is the national umbrella organization representing land trusts, has issued guidance to land trusts that the safe harbor does NOT apply however; 1) if no federal deduction was claimed (this is different than a state tax credit), 2) if an easement donor is outside of the audit period for a federal deduction or carry forward, 3) if the existing recorded easement contains language that closely tracks the proceeds safe harbor clause without including any of the language courts have found to be problematic, or 4) if the existing recorded easement does not contain a boundary line adjustment clause.
As a nonprofit organization, Aspen Valley Land Trust cannot offer any legal or tax advice regarding any individual tax situation, including whether you fall outside of the time period in which the IRS could audit your deduction or carry forward, or whether you should choose to amend your conservation easement to substitute the safe harbor language in IRS Notice 2023-30. Please consult with 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.
This safe harbor allowance offers landowners the option to amend their conservation easements by July 24, 2023 to substitute any problematic language with the safe harbor language. If after reviewing the situation with your adviser(s), you wish to pursue an amendment with Aspen Valley Land Trust please contact Erin Quinn at email@example.com or 970.963.8440.
Aspen Valley Land Trust is dedicated to protecting land forever in the Roaring Fork and Colorado River valleys. For 55 years, AVLT has been a trusted community-supported conservation partner helping to ensure the natural and community health of our region.