The Internal Revenue Service and the Treasury Department issued a notice Monday offering a safe harbor for the deed language in charitable conservation easements.
The safe harbor in Notice 2023-30 involves extinguishment and boundary line adjustment clauses in conservation easements. Section 605(d)(2) of the SECURE 2.0 Act provides donors the opportunity to amend certain conservation easement deeds to substitute the safe harbor language for the corresponding language in the original deed. Taxpayers will have until July 24, 2023, to record their safe harbor deed amendments.
The SECURE 2.0 Act was included as part of the year-end omnibus appropriations bill and includes a variety of provisions related to retirement accounts. However, one provision aims to curb the abuse of conservation easements as a way to avoid taxes. In some cases, taxpayers were claiming charitable deductions on private land set aside for golf courses. Originally known as the Charitable Conservation Easement Program Integrity Act, it imposes a limitation on the tax deduction for qualified conservation contributions made by certain partnerships if the amount of the contribution exceeds 2.5% times the sum of each partner’s relevant basis in the partnership. The limitation also applies to other pass-through entities, such as S corporations.
The safe harbor notice addresses only corrections to extinguishment and/or boundary line adjustment clauses in accordance with the SECURE 2.0 Act, but doesn’t address any other deed amendments. Donors are not required to amend their deeds to include the safe harbor language in the notice.
The safe harbor boundary line adjustment clause is: “Pursuant to Notice 2023-30, Donor and Donee agree that boundary line adjustments to the real property subject to the restrictions may be made only pursuant to a judicial proceeding to resolve a bona fide dispute regarding a boundary line’s location.”
Section 605(d)(2) of the SECURE 2.0 Act applies only if the amendment is effective as of the date of the recording of the original easement deed. Notice 2023-30 provides that if a donor substitutes the safe harbor deed language for the corresponding language in the original eligible easement deed, and the amended deed is signed by the donor and donee and recorded on or before July 24, 2023, the amended eligible easement deed will be treated as effective for purposes of the SECURE 2.0 Act and Notice 2023-30 as of the date the eligible easement deed was originally recorded, regardless of whether the amended eligible easement deed is effective retroactively under relevant state law.