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IRS finalizes regulations on conservation easements

IRS finalizes regulations on conservation easements

Conservation Regulations

The Internal Revenue Service (IRS) has finalized new regulations that limit partnership conservation easements. The move aims to curb the abuse of these tax deductions. The finalized rules address concerns over inflated valuations and improper use by partnerships to gain undue tax benefits.

Under the new regulations, partnerships will face stricter appraisal standards and reporting requirements when claiming tax deductions for conservation easements. The changes follow a series of cases where partnerships were found to be abusing the provision by inflating the value of easements to secure larger tax breaks. IRS Commissioner Michael Desmond emphasized the importance of these measures.

He stated, “These rules are critical to ensuring that conservation easement deductions protect valuable land without being used as a tax shelter.

The regulations come after a prolonged period of public comment and review. Various stakeholders, including environmental groups and tax professionals, provided feedback on the proposed changes during this time. The finalized rules balance preventing abuse and maintaining the incentives for genuine conservation efforts.

These changes will take effect on January 1, 2025.

Conservation easement deduction limits

This gives partnerships time to adjust their practices to comply with the new standards.

This development continues the IRS’s broader efforts to tighten regulations on tax-shelter schemes and ensure tax compliance across different sectors. The IRS is also looking to settle with certain taxpayers involved in syndicated conservation easements (SCEs). Next month, the agency plans to send limited-time settlement offers to taxpayers whose SCE transactions are currently under audit in its Large Business & International, Small Business, and Self-Employed divisions.

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The settlement letters will detail the terms and timelines for response. The offers will require substantial concession of the income tax benefits claimed through the easements, along with the application of penalties. Taxpayers who choose not to accept the settlement offer will continue to face enforcement actions.

These actions may include the complete disallowance of the claimed charitable contributions and the imposition of further penalties. The IRS has a history of disallowing tax benefits claimed by taxpayers in abusive SCEs, which have been highlighted as tax scams for multiple years. Taxpayers who do not receive a settlement offer letter are not eligible for this resolution, nor are those with cases pending in the Tax Court.

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