80910 Federal Register / Vol. 88, No. 222 / Monday, November 20, 2023 / Proposed Rules 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 1 

[REG–112916–23] 

RIN 1545–BQ90 

Statutory Disallowance of Deductions 

for Certain Qualified Conservation 

Contributions Made by Partnerships 

and S Corporations 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Notice of proposed rulemaking 

and notice of public hearing. 

SUMMARY: This document contains 

proposed regulations concerning the 

statutory disallowance rule enacted by 

the SECURE 2.0 Act of 2022 to disallow 

a Federal income tax deduction for a 

qualified conservation contribution 

made by a partnership or an S 

corporation after December 29, 2022, if 

the amount of the contribution exceeds 

2.5 times the sum of each partner’s or 

S corporation shareholder’s relevant 

basis. The proposed regulations would 

provide guidance regarding this 

statutory disallowance rule, including 

definitions, appropriate methods to 

calculate the relevant basis of a partner 

or an S corporation shareholder, the 

three statutory exceptions to the 

statutory disallowance rule, and related 

reporting requirements. In addition, the 

proposed regulations would provide 

reporting requirements for partners and 

S corporation shareholders that receive 

a distributive share or pro rata share of 

any noncash charitable contribution 

made by a partnership or S corporation, 

regardless of whether the contribution is 

a qualified conservation contribution 

(and regardless of whether the 

contribution is of real property or other 

noncash property). These proposed 

regulations would affect partnerships 

and S corporations that claim qualified 

conservation contributions, and partners 

and S corporation shareholders that 

receive a distributive share or pro rata 

share, as applicable, of a noncash 

charitable contribution. This document 

also provides a notice of public hearing 

on these proposed regulations. 

DATES: Written or electronic comments 

must be received by December 20, 2023. 

The public hearing on these proposed 

regulations is scheduled to be held on 

January 3, 2024, at 10 a.m. ET. Requests 

to speak and outlines of topics to be 

discussed at the public hearing must be 

received by December 20, 2023. If no 

outlines are received by December 20, 

2023, the public hearing will be 

cancelled. Requests to attend the public 

hearing must be received by 5 p.m. on 

December 29, 2023. The public hearing 

will be made accessible to people with 

disabilities. Requests for special 

assistance during the hearing must be 

received by 5 p.m. on December 28, 

2023. 

ADDRESSES: Commenters are strongly 

encouraged to submit public comments 

electronically. Submit electronic 

submissions via the Federal 

eRulemaking Portal at https://

www.regulations.gov (indicate IRS and 

REG–112916–23) by following the 

online instructions for submitting 

comments. Once submitted to the 

Federal eRulemaking Portal, comments 

cannot be edited or withdrawn. The 

Department of Treasury (Treasury 

Department) and the IRS will publish 

for public availability any comments 

submitted, whether electronically or on 

paper, to the IRS’s public docket. 

Requests for a public hearing must be 

submitted as prescribed in the 

‘‘Comments and Public Hearing’’ 

section. 

Send paper submissions to: 

CC:PA:01:PR (REG–112916–23), Room 

5203, Internal Revenue Service, P.O. 

Box 7604, Ben Franklin Station, 

Washington, DC 20044. 

FOR FURTHER INFORMATION CONTACT: 

Concerning the proposed regulations 

under §§ 1.170A–14, 1.706–3, and 

1.706–4, contact Benjamin Weaver at 

(202) 317–6850 (not a toll-free number); 

concerning the proposed regulations 

under § 1.170A–16 and issues regarding 

section 170 other than section 170(h)(7), 

contact Elizabeth Boone at (202) 317– 

5100 and Hannah Kim at (202) 317– 

7003 (not toll-free numbers); and 

concerning submissions of comments 

and requests for a public hearing, 

contact Vivian Hayes at (202) 317–6901 

(not a toll-free number) or by email to 

publichearings@irs.gov (preferred). 

SUPPLEMENTARY INFORMATION: 

Background 

I. Overview 

This document contains proposed 

regulations that would amend the 

Income Tax Regulations (26 CFR part 1) 

under sections 170 and 706 of the 

Internal Revenue Code (Code) to 

implement the provisions of section 

605(a) and (b) of 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, 5393 

(December 29, 2022), which apply to 

contributions of property made after 

December 29, 2022. 

II. Charitable Contribution Deductions 

Section 170(a) provides, subject to 

certain limitations and requirements, a 

deduction for any charitable 

contribution, as defined in section 

170(c), of cash or other property the 

payment of which is made within the 

taxable year. Section 170(f) disallows 

charitable contribution deductions in 

certain cases and provides special rules. 

Section 170(f)(3)(A) provides that, in the 

case of a contribution (not made by a 

transfer in trust) of an interest in 

property that consists of less than the 

taxpayer’s entire interest in such 

property, a deduction will be allowed 

only to the extent that the value of the 

interest contributed would be allowable 

as a deduction under section 170 if such 

interest had been transferred in trust. 

Section 170(f)(3)(B)(iii) provides that 

section 170(f)(3)(A) does not apply to a 

qualified conservation contribution 

(discussed in part III of this Background 

section). 

Section 170(f)(11) requires a qualified 

appraisal and other documentation for a 

charitable contribution deduction to be 

allowed with respect to certain 

contributions of property. Section 

170(f)(11) also includes special rules for 

contributions of property other than 

cash (noncash charitable contributions) 

of more than $5,000 and for noncash 

charitable contributions of more than 

$500,000. In addition, section 

170(f)(11)(H) provides that the Secretary 

of the Treasury or her delegate 

(Secretary) may prescribe such 

regulations as may be necessary or 

appropriate to carry out the purposes of 

section 170(f)(11). Section 6001 

provides that every person liable for any 

tax imposed by title 26, United States 

Code (title 26) must keep such records, 

render such statements, make such 

returns, and comply with such rules and 

regulations as the Secretary may from 

time to time prescribe. In addition, 

section 6011 provides, in part, that, 

whenever required by regulations 

prescribed by the Secretary, any person 

made liable for any tax imposed by title 

26 must 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. Under the 

authority of sections 170(f)(11)(H), 6001, 

and 6011, existing regulations under 

§ 1.170A–16 provide substantiation and 

reporting requirements that must be 

satisfied for a deduction to be allowed 

under section 170 with respect to 

noncash charitable contributions. 


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Federal Register / Vol. 88, No. 222 / Monday, November 20, 2023 / Proposed Rules 80911 

III. Qualified Conservation 

Contributions 

Section 170(h)(1) provides that, in 

general, for purposes of section 

170(f)(3)(B)(iii), the term ‘‘qualified 

conservation contribution’’ means a 

contribution (1) of a qualified real 

property interest, (2) to a qualified 

organization, (3) exclusively for 

conservation purposes. Section 

170(h)(2) defines the term ‘‘qualified 

real property interest,’’ section 170(h)(3) 

defines the term ‘‘qualified 

organization,’’ section 170(h)(4) defines 

the term ‘‘conservation purpose,’’ and 

section 170(h)(5) defines the term 

‘‘exclusively for conservation 

purposes.’’ In general, a qualified 

conservation contribution may include a 

contribution of a conservation easement. 

The existing regulations under 

§ 1.170A–14 provide rules for qualified 

conservation contributions described in 

section 170(h). Consistent with section 

170(f)(3), § 1.170A–14(a) provides that a 

deduction under section 170 generally 

is not allowed for a charitable 

contribution of any interest in property 

that consists of less than the donor’s 

entire interest in the property other than 

certain transfers in trust. However, by 

reason of section 170(f)(3)(B)(iii), a 

deduction may be allowed for the value 

of a qualified conservation contribution 

if the requirements of § 1.170A–14 are 

met. To be eligible for a deduction 

under § 1.170A–14, the conservation 

purpose of the contribution must be 

protected in perpetuity. See § 1.170A– 

14(a) and (g). 

IV. Syndicated Conservation Easement 

Transactions 

On December 23, 2016, the Treasury 

Department and the IRS released Notice 

2017–10, 2017–4 I.R.B. 544, which 

identified transactions that are the same 

as or substantially similar to certain 

syndicated conservation easement 

transactions as ‘‘listed transactions’’ 

under § 1.6011–4 subject to certain 

disclosure and list maintenance 

requirements. Notice 2017–10 explains 

that the Treasury Department and the 

IRS are aware that some promoters are 

syndicating conservation easement 

transactions that purport to give 

investors the opportunity to obtain 

charitable contribution deductions in 

amounts that significantly exceed the 

amounts invested. In addition, Notice 

2017–10 provides that a transaction is a 

listed transaction if (1) an investor 

receives promotional materials that offer 

a prospective investor in a pass-through 

entity the possibility of a charitable 

contribution deduction that equals or 

exceeds an amount that is 2.5 times the 

amount of the investor’s investment, (2) 

the investor purchases an interest 

directly or indirectly (through one or 

more tiers of pass-through entities) in 

the pass-through entity that holds real 

property, (3) the pass-through entity 

contributes a conservation easement and 

allocates, directly or through one or 

more tiers of pass-through entities, a 

charitable contribution to the investor, 

and (4) the investor reports on the 

investor’s Federal income tax return a 

charitable contribution deduction with 

respect to the conservation easement. 

Congress continued to be concerned 

about abusive syndicated conservation 

easement transactions even after Notice 

2017–10 was issued, and the 

transactions were the subject of an 

investigation by the U.S. Senate 

Committee on Finance, which issued a 

report on August 25, 2020. S. Committee 

on Finance, Comm. Print 116–44, 

Syndicated Conservation-Easement 

Transactions, 116th Cong., 2nd Sess. 

(2020) (Committee Report). The 

Committee Report found that the 

syndicated conservation easement 

transactions examined were nothing 

more than retail tax shelters allowing 

taxpayers to buy tax deductions at the 

end of any given tax year. Id. at 3. The 

Committee Report further stated that 

these tax deductions could be 

purchased with no economic risk. Id. As 

such, the Finance Committee concluded 

that further action was necessary to 

preserve the integrity of the 

conservation easement tax deduction 

despite ongoing efforts to combat this 

abuse such as the issuance of Notice 

2017–10 and IRS enforcement action. Id. 

at 4. 

In a separate report accompanying an 

earlier proposal for amending section 

170(h), in legislation proposed as the 

‘‘Enhancing American Retirement Now 

Act,’’ the Committee on Finance 

recognized charitable deductions for the 

donation of conservation easements as 

an important tool and incentive to 

protect the environment and historic 

structures. S. Rep. No. 117–142 on S. 

4808, at 218, 117th Cong., 2nd Sess. 

(2022). Citing its findings from the 2020 

Committee Report, the Committee 

noted, however, that abusive tax shelter 

transactions put the conservation 

easement tax deduction at risk. The 

Committee ultimately found it 

appropriate to take legislative action to 

protect the integrity of the conservation 

easement tax deduction for easement 

donations with a legitimate 

conservation purpose. Id. 

On December 8, 2022, the Treasury 

Department and the IRS published in 

the Federal Register (87 FR 75185) a 

notice of proposed rulemaking (REG– 

106134–22) identifying syndicated 

conservation easement transactions and 

substantially similar transactions as 

listed transactions (listing NPRM). The 

definition of a syndicated conservation 

easement transaction in proposed 

§ 1.6011–9 of the listing NPRM is 

similar to the definition in Notice 2017– 

10. The purpose of the listing NPRM 

was to eliminate any confusion and 

ensure consistent enforcement of 

Federal tax laws throughout the nation 

in light of certain judicial decisions 

holding that, under the Administrative 

Procedure Act, 5 U.S.C. chapter 5, 

subchapter II, listed transactions may be 

identified only after following notice 

and comment procedures. See, e.g., 

Mann Construction, Inc. v. United 

States, 27 F.4th 1138 (6th Cir. 2022), 

and Green Valley Investors, LLC, et al. 

v. Commissioner, 159 T.C. No. 5 (2022). 

The Treasury Department and the IRS 

are in the process of considering the 

comments received and finalizing the 

listing NPRM. 

V. Section 605 of the SECURE 2.0 Act 

Section 170(h)(7) was added to the 

Code by section 605(a)(1) of the 

SECURE 2.0 Act. Section 170(h)(7)(A) 

states 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 (Disallowance Rule). 

Thus, a contribution of a qualified real 

property interest to a qualified 

organization exclusively for 

conservation purposes is not a qualified 

conservation contribution if the 

Disallowance Rule applies. Section 

170(h)(7)(F) provides that the rules of 

section 170(h)(7) ‘‘apply to S 

corporations and other pass-through 

entities in the same manner as such 

rules apply to partnerships’’ except as 

the Secretary may otherwise provide. 

Section 170(h)(7)(B) defines the terms 

‘‘relevant basis’’ and ‘‘modified basis,’’ 

section 170(h)(7)(C), (D), and (E) provide 

three exceptions to the Disallowance 

Rule, and section 170(h)(7)(G) provides 

a specific grant of regulatory authority 

to the Secretary to issue regulations or 

other guidance as the Secretary 

determines are necessary or appropriate 

to carry out the purposes of the 

Disallowance Rule, including reporting 

requirements and rules to prevent the 

avoidance of the Disallowance Rule. 

Section 605(a)(2) of the SECURE 2.0 

Act modifies certain penalty provisions 

in sections 6662, 6664, and 6751 of the 

Code to provide special rules for 


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80912 Federal Register / Vol. 88, No. 222 / Monday, November 20, 2023 / Proposed Rules 

charitable contribution deductions 

disallowed by section 170(h)(7). Section 

605(a)(3) of the SECURE 2.0 Act 

provides that any charitable 

contribution for which a deduction was 

disallowed under section 170(h)(7) is 

treated, for purposes of the period of 

limitations on assessment and collection 

of tax in section 6501 of the Code and 

the period of limitations on making 

adjustments in section 6235 of the Code, 

as a transaction specifically identified 

by the Secretary as a tax-avoidance 

transaction. 

Section 605(b) of the SECURE 2.0 Act 

added section 170(f)(19) to the Code, 

which provides that, in the case of a 

partnership or S corporation claiming a 

qualified conservation contribution for 

the preservation of a building that is a 

certified historic structure (as defined in 

section 170(h)(4)(C)) in an amount that 

exceeds 2.5 times the sum of each 

partner’s or S corporation shareholder’s 

relevant basis (as defined in section 

170(h)(7)), no deduction under section 

170 is allowed unless, as provided in 

section 170(f)(19)(A)(i) and (ii), the 

partnership or S corporation includes 

on its return for the taxable year a 

statement that such contribution was 

made and any other information as the 

Secretary may require. A contribution to 

preserve a certified historic structure is 

one of the three exceptions to the 

Disallowance Rule. 

Section 605(c) of the SECURE 2.0 Act 

provides that the amendments made by 

section 605 of the SECURE 2.0 Act 

apply to contributions made after 

December 29, 2022, and that no 

inference is intended as to the 

appropriate treatment of contributions 

made in taxable years ending on or 

before that date, or as to any 

contribution for which a deduction is 

not disallowed by reason of section 

170(h)(7). 

VI. Overview of the Disallowance Rule 

The Disallowance Rule 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. If such a contribution is not 

treated as a qualified conservation 

contribution, then the general rule 

under section 170(f)(3)(A) disallowing a 

charitable contribution deduction under 

section 170 for a contribution of a 

partial interest in property applies. 

Thus, if the Disallowance Rule applies, 

any amount of deduction under section 

170 for a qualified conservation 

contribution is disallowed. 

Section 170(h)(7)(B)(i) provides that, 

for purposes of section 170(h)(7), the 

term ‘‘relevant basis’’ means, with 

respect to any partner, the portion of 

such partner’s modified basis in the 

partnership that is allocable (under 

rules similar to the rules of section 755 

of the Code for allocating certain special 

basis adjustments to partnership 

property) to the portion of the real 

property with respect to which the 

contribution described in section 

170(h)(7)(A) is made. Section 

170(h)(7)(B)(ii) provides that, for 

purposes of section 170(h)(7), the term 

‘‘modified basis’’ means, with respect to 

any partner, such partner’s adjusted 

basis in the partnership as determined 

(1) immediately before the contribution 

described in section 170(h)(7)(A), (2) 

without regard to the treatment of 

partnership liabilities in section 752, 

and (3) by the partnership after taking 

into account these first two adjustments 

and such other adjustments as the 

Secretary may provide. 

Section 170(h)(7) contains three 

exceptions to the Disallowance Rule. 

First, section 170(h)(7)(C) provides that 

the Disallowance Rule does not apply to 

any contribution made at least three 

years after the latest of (1) the last date 

on which the partnership that made 

such contribution acquired any portion 

of the real property with respect to 

which such contribution is made, (2) the 

last date on which any partner in the 

partnership that made such contribution 

acquired any interest in such 

partnership, and (3) if the interest in the 

partnership that made such contribution 

is held through one or more 

partnerships, the last date on which any 

such partnership acquired any interest 

in any other such partnership, and the 

last date on which any partner in any 

such partnership acquired any interest 

in such partnership. 

Second, section 170(h)(7)(D)(i) 

provides that the Disallowance Rule 

does not apply to any contribution made 

by any partnership if substantially all of 

the partnership interests in such 

partnership are held, directly or 

indirectly, by an individual and 

members of the family of such 

individual. Section 170(h)(7)(D)(ii) 

provides that, for purposes of section 

170(h)(7)(D), the term ‘‘members of the 

family’’ means, with respect to any 

individual (I) the spouse of such 

individual, and (II) any individual who 

bears a relationship to such individual 

that is described in section 152(d)(2)(A) 

through (G) of the Code for purposes of 

determining whether an individual is a 

qualifying relative. 

Third, section 170(h)(7)(E) provides 

that the Disallowance Rule does not 

apply to any qualified conservation 

contribution the conservation purpose 

of which is the preservation of any 

building that is a certified historic 

structure (as defined in section 

170(h)(4)(C)). 

Section 170(h)(7)(F) provides that, 

except as may be otherwise provided by 

the Secretary, the rules of section 

170(h)(7) apply to S corporations and 

other pass-through entities in the same 

manner as such rules apply to 

partnerships. 

Section 170(h)(7)(G) authorizes the 

Secretary to prescribe such regulations 

or other guidance as may be necessary 

or appropriate to carry out the purposes 

of section 170(h)(7), including 

regulations or other guidance (1) to 

require reporting, including reporting 

related to tiered partnerships and the 

modified basis of partners, and (2) to 

prevent the avoidance of the purposes of 

section 170(h)(7). 

Explanation of Provisions 

I. Overview 

These proposed regulations would 

address several requirements added by 

section 605 of the SECURE 2.0 Act and 

make several related clarifying changes 

to the existing regulations applicable to 

qualified charitable contributions. First, 

these proposed regulations would make 

changes to existing § 1.170A–14, 

including modifying paragraph (a) to 

reference the Disallowance Rule and 

adding new paragraphs (j) through (n) to 

§ 1.170A–14 to provide guidance on the 

application of the Disallowance Rule to 

partnerships and S corporations, the 

computation of relevant basis and 

modified basis, including in tiered 

structures, and the three statutory 

exceptions to the Disallowance Rule. 

These proposed regulations would 

provide specific rules for partnerships 

and S corporations, but do not 

specifically address other types of passthrough entities. The Treasury 

Department and the IRS continue to 

study whether specific rules are needed 

for other types of pass-through entities 

and request comments on the 

application of section 170(f)(19) and 

(h)(7) to pass-through entities other than 

partnerships and S corporations. The 

Treasury Department and the IRS intend 

to issue future guidance on other issues 

relating to section 605 of SECURE 2.0 

Act, including additional guidance 

relating to the three statutory exceptions 

to the Disallowance Rule. 

Second, these proposed regulations 

would make changes to the reporting 

requirements in § 1.170A–16 to address 


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Federal Register / Vol. 88, No. 222 / Monday, November 20, 2023 / Proposed Rules 80913 

substantiation of charitable contribution 

deductions as well as to implement 

section 170(f)(19)(A)(i). The Treasury 

Department and the IRS intend to issue 

future guidance addressing section 

170(f)(19)(A)(ii). 

Finally, these proposed regulations 

propose new language in §§ 1.706–3 and 

1.706–4 to facilitate the operation of the 

Disallowance Rule in the case of a 

qualified conservation contribution 

made by a partnership. 

II. Clarifying Change to § 1.170A–14(a) 

The second sentence of existing 

§ 1.170A–14(a) provides that a 

deduction may be allowed under 

section 170(f)(3)(B)(iii) for the value of 

a qualified conservation contribution if 

the requirements of § 1.170A–14 are 

met. Because the Disallowance Rule 

provided in section 170(h)(7) is 

proposed to be contained in § 1.170A– 

14(j) through (n), proposed § 1.170A– 

14(a) would amend this sentence to 

provide that a deduction may be 

allowed under section 170(f)(3)(B)(iii) 

for the value of a qualified conservation 

contribution if the requirements of 

§ 1.170A–14 are met and the 

contribution is not a disallowed 

qualified conservation contribution 

within the meaning of proposed 

§ 1.170A–14(j). 

III. Disallowance Rule and Its 

Exceptions 

Proposed § 1.170A–14(j) would 

provide guidance on the general 

applicability of the Disallowance Rule 

to partnerships and S corporations. 

Proposed § 1.170A–14(j)(3) would 

provide definitions. Consistent with 

section 170(h)(7)(B), proposed 

§ 1.170A–14(k) would provide that the 

term ‘‘relevant basis’’ means, with 

respect to any ultimate member (as 

defined in proposed § 1.170A– 

14(j)(3)(x)), the portion of such ultimate 

member’s modified basis (as determined 

under proposed § 1.170A–14(l)) that is 

allocable (under the rules of proposed 

§ 1.170A–14(m)) to the portion of the 

real property with respect to which the 

qualified conservation contribution is 

made. Proposed § 1.170A–14(l) would 

provide guidance on the determination 

of modified basis. Proposed § 1.170A– 

14(m) would provide guidance on the 

allocation of modified basis to the 

portion of the real property with respect 

to which the qualified conservation 

contribution was made. Proposed 

§ 1.170A–14(m)(6) would impose 

recordkeeping requirements for 

substantiating the computation of each 

ultimate member’s adjusted basis, 

modified basis, and relevant basis by the 

due date, including extensions, of the 

partnership’s or S corporation’s Federal 

income tax return. Proposed § 1.170A– 

14(n) would provide guidance on the 

three statutory exceptions to the 

Disallowance Rule. 

A. General Disallowance Rule for 

Partnerships and S Corporations 

Consistent with section 170(h)(7)(A), 

proposed § 1.170A–14(j)(1) would 

provide that proposed § 1.170A–14(j) 

applies the rules of section 170(h)(7), 

which disallow a deduction under the 

Code and § 1.170A–14 for certain 

qualified conservation contributions, as 

defined in section 170(h)(1) and 

§ 1.170A–14, made by, or allocated to, 

partnerships or S corporations if the 

amount of the qualified conservation 

contribution exceeds 2.5 times the sum 

of the relevant bases, as determined by 

proposed § 1.170A–14(j) through (m). 

Proposed § 1.170A–14(j)(3)(vii) would 

define a contribution for which a 

deduction is disallowed by § 1.170A– 

14(j) as a ‘‘disallowed qualified 

conservation contribution.’’ Proposed 

§ 1.170A–14(j)(2)(i) would provide that, 

except as provided in proposed 

§ 1.170A–14(n), a qualified conservation 

contribution by a contributing 

partnership or a contributing S 

corporation is a disallowed qualified 

conservation contribution if the amount 

of the qualified conservation 

contribution exceeds 2.5 times the sum 

of each of the contributing partnership’s 

or contributing S corporation’s ultimate 

member’s relevant basis as determined 

under proposed § 1.170A–14(j) through 

(m). 

Proposed § 1.170A–14(j)(2)(ii) would 

provide that, except as provided in 

proposed § 1.170A–14(n), an allocated 

portion of a contribution received by an 

upper-tier partnership or upper-tier S 

corporation is a disallowed qualified 

conservation contribution if either the 

contribution is a disallowed qualified 

conservation contribution with respect 

to the partnership that allocated the 

allocated portion to the upper-tier 

partnership or upper-tier S corporation, 

or such allocated portion exceeds 2.5 

times the sum of each of that upper-tier 

partnership’s or upper-tier S 

corporation’s ultimate member’s 

relevant basis as determined under 

proposed § 1.170A–14(j) through (m). 

Thus, if a contribution is a disallowed 

qualified conservation contribution with 

respect to a partnership, then the 

contribution is a disallowed qualified 

conservation contribution with respect 

to any upper-tier partnership or uppertier S corporation owning a direct or 

indirect interest in that partnership. On 

the other hand, if a contribution is not 

a disallowed qualified conservation 

contribution with respect to a 

partnership, then the rules of proposed 

§ 1.170A–14(j) through (m) must be 

applied to the next tier of upper-tier 

partnerships and upper-tier S 

corporations (which own a direct 

interest in the partnership) to determine 

if the Disallowance Rule applies to 

those upper-tier partnerships and 

upper-tier S corporations. In other 

words, the test of § 1.170A–14(j) through 

(m) must be applied at each tier unless 

and until the test is failed at one tier, in 

which case that portion of the 

contribution will be a disallowed 

qualified conservation contribution to 

that tier and any subsequent tiers. 

B. Definitions 

Proposed § 1.170A–14(j)(3) would 

contain definitions, including 

definitions of terms, including 

‘‘contributing partnership,’’ 

‘‘contributing S corporation,’’ ‘‘ultimate 

member,’’ ‘‘allocated portion,’’ ‘‘uppertier partnership,’’ and ‘‘upper-tier S 

corporation.’’ 

1. Allocated Portion 

Proposed § 1.170A–14(j)(3)(i) would 

provide that, in the case of an upper-tier 

partnership or upper-tier S corporation 

that receives, directly or indirectly, a 

distributive share of a qualified 

conservation contribution, the phrase 

‘‘allocated portion’’ means the amount 

of such distributive share. 

2. Amount of Qualified Conservation 

Contribution 

Proposed § 1.170A–14(j)(3)(ii) would 

provide that the amount of a 

contributing partnership’s or 

contributing S corporation’s qualified 

conservation contribution is the amount 

claimed as a qualified conservation 

contribution on the return of the 

contributing partnership or contributing 

S corporation for the taxable year in 

which the contribution is made. It 

would also provide that, if the 

contributing partnership or contributing 

S corporation files an amended return or 

administrative adjustment request under 

section 6227 of the Code claiming a 

different amount with respect to the 

qualified conservation contribution, the 

rules of § 1.170A–14 must be re-applied 

with respect to such different amount to 

determine the application of section 

170(h)(7) and § 1.170A–14. 

3. Contributing Partnership 

The Disallowance Rule applies to a 

partnership or S corporation that makes 

a qualified conservation contribution, as 

well as a partnership or S corporation 

that is allocated a distributive share of 

a qualified conservation contribution of 


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80914 Federal Register / Vol. 88, No. 222 / Monday, November 20, 2023 / Proposed Rules 

another partnership. For clarity, 

proposed § 1.170A–14(j)(3)(iii) would 

provide that the term ‘‘contributing 

partnership’’ means a partnership that 

makes a qualified conservation 

contribution. 

4. Contributing S Corporation 

Proposed § 1.170A–14(j)(3)(iv) would 

provide that the term ‘‘contributing S 

corporation’’ means an S corporation 

that makes a qualified conservation 

contribution. 

5. Direct Interest 

Proposed § 1.170A–14(j)(3)(v) would 

provide that the term ‘‘direct interest’’ 

refers to an ownership interest in a 

contributing partnership, upper-tier 

partnership, contributing S corporation, 

or upper-tier S corporation that is held 

directly, or through an entity 

disregarded as separate from its owner 

for Federal income tax purposes, a 

qualified subchapter S subsidiary as 

defined in section 1361(b)(3) of the 

Code, or through a grantor trust (under 

subpart E of part 1 of subchapter J of 

chapter 1 of the Code). In the case of a 

partner that is a C corporation, nongrantor trust, or an estate, or an S 

corporation shareholder that is a nongrantor trust or an estate, the direct 

interest in the partnership or S 

corporation, as applicable, would be 

considered to be held by the C 

corporation, non-grantor trust, or estate; 

the C corporation’s shareholders, trust 

beneficiaries, and estate beneficiaries 

would not be considered to hold any 

interest in the partnership or S 

corporation, as applicable, for purposes 

of proposed § 1.170A–14(j) through (n). 

6. Directly 

Proposed § 1.170A–14(j)(3)(vi) would 

provide that an ownership interest is 

held ‘‘directly’’ if it is not held through 

one or more upper-tier partnerships or 

upper-tier S corporations. Similarly, a 

distributive share or pro rata share of a 

qualified conservation contribution 

would be received ‘‘directly’’ if it does 

not pass through one or more upper-tier 

partnerships or upper-tier S 

corporations. 

7. Disallowed Qualified Conservation 

Contribution 

Proposed § 1.170A–14(j)(3)(vii) would 

provide that the term ‘‘disallowed 

qualified conservation contribution’’ 

means a qualified conservation 

contribution or allocated portion for 

which no deduction is allowed pursuant 

to section 170(h)(7) and proposed 

§ 1.170A–14(j). 

8. Indirect Interest 

Proposed § 1.170A–14(j)(3)(viii) 

would provide that the term ‘‘indirect 

interest’’ refers to an ownership interest 

in a contributing partnership, 

contributing S corporation, upper-tier 

partnership, or upper-tier S corporation 

held through an upper-tier S 

corporation or one or more upper-tier 

partnerships. 

9. Indirectly 

Proposed § 1.170A–14(j)(3)(ix) would 

provide that an ownership interest is 

held ‘‘indirectly’’ if it is held through 

one or more upper-tier partnerships or 

upper-tier S corporations. Similarly, a 

distributive share or pro rata share of a 

qualified conservation contribution 

would be received ‘‘indirectly’’ if it 

passes through one or more upper-tier 

partnerships or upper-tier S 

corporations. 

10. Ultimate Member 

Proposed § 1.170A–14(j)(3)(x) would 

provide that the term ‘‘ultimate 

member’’ means, with respect to any 

partnership or S corporation, any 

partner (that is not itself a partnership 

or S corporation) or S corporation 

shareholder that receives a distributive 

share or pro rata share, directly or 

indirectly, of a qualified conservation 

contribution. Thus, ultimate members 

would either be partners holding a 

direct interest in a partnership, which 

may be the contributing partnership or 

an upper-tier partnership, or 

shareholders holding a direct interest in 

an S corporation, which may be the 

contributing S corporation or an uppertier S corporation. Proposed § 1.170A– 

14(j)(3)(x) would provide that upper-tier 

S corporations and upper-tier 

partnerships themselves are not 

considered ultimate members. 

Several considerations played a role 

in the decision of the Treasury 

Department and the IRS to propose this 

rule that looks to the relevant basis of 

the ultimate members for determining 

whether a qualified conservation 

contribution will be disallowed. 

Although section 170(h)(7)(A) provides 

that the Disallowance Rule applies in 

tiered structures, the statutory language 

does not explicitly explain whether the 

determination of relevant basis is made 

with respect to partners (who may 

themselves be pass-through entities) and 

S corporation shareholders holding a 

direct interest in the contributing 

partnership or contributing S 

corporation, or whether the 

determination of relevant basis is made 

with respect to the ultimate members. 

The Disallowance Rule is meant to 

compare the amount of a claimed 

qualified conservation contribution with 

the equity investment made by those 

persons expected to claim a deduction 

with respect to such contribution. 

Because it is the ultimate members, 

such as individuals, estates, and C 

corporations (that is, non-pass-through 

entities), who ultimately claim a 

deduction for a qualified conservation 

contribution, the proposed regulations 

would require that the determination of 

relevant basis be made with respect to 

those ultimate partners and S 

corporation shareholders. For example, 

assume a contributing partnership has 

two partners: (1) an upper-tier S 

corporation, which has two individual 

shareholders, and (2) an upper-tier 

partnership, which has three partners— 

a C corporation, an estate, and an 

individual. Under these proposed 

regulations, relevant basis would be 

computed with respect to the three 

individuals, C corporation, and estate, 

and not with respect to the upper-tier S 

corporation or upper-tier partnership. 

The proposed regulations would refer to 

these persons as the ‘‘ultimate 

members.’’ In the case of a tiered 

arrangement, the use of the term 

‘‘partner’’ to refer to such ultimate 

members might be confusing or 

inaccurate because such persons may 

not be partners of the contributing 

partnership, and in fact, may not be 

partners at all, if they are shareholders 

of an upper-tier S corporation that is 

itself a partner in the contributing 

partnership. As such, the proposed 

regulations use the term ‘‘member.’’ 

The Treasury Department and the IRS 

considered alternatives to the ultimate 

member rule. One possible approach 

would be to determine the application 

of the Disallowance Rule with respect to 

the contributing partnership by looking 

only to the relevant bases of the 

contributing partnership’s direct 

partners. In the example in which a 

contributing partnership has two 

partners, an upper-tier S corporation 

and an upper-tier partnership, the direct 

partners would be the upper-tier S 

corporation and the upper-tier 

partnership. The modified basis (and 

thus, relevant basis) of the upper-tier S 

corporation or upper-tier partnership 

could include basis attributable to 

shareholders or partners of the uppertier entity that will not be expected to 

claim the deduction. For example, this 

might be the case because the 

contributing partnership allocates all of 

the qualified conservation contribution 

to the upper-tier S corporation. Because 

the Disallowance Rule is meant to 

compare the amount of a claimed 


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Federal Register / Vol. 88, No. 222 / Monday, November 20, 2023 / Proposed Rules 80915 

qualified conservation contribution with 

the equity investment made by those 

persons expected to claim a deduction 

with respect to such contribution, it is 

more consistent with the purposes of 

the Disallowance Rule to compute 

relevant basis only using the basis of 

those persons who are expected to claim 

a deduction with respect to the 

contribution. 

Additionally, in the example earlier, 

if the contributing partnership’s 

qualified conservation contribution was 

not disallowed by the Disallowance 

Rule, the upper-tier S corporation and 

the upper-tier partnership would each 

be required to determine the application 

of the Disallowance Rule by looking to 

their direct owners. Because section 

170(h)(7)(B)(i) requires that relevant 

basis be traced to the portion of the real 

property with respect to which the 

contribution is made, the upper-tier S 

corporation’s and upper-tier 

partnership’s determinations would 

necessarily involve computations by 

both the upper-tier entity and the 

contributing partnership. Thus, in many 

cases, computing relevant basis only 

with respect to direct partners would 

not simplify the computations required 

to apply the Disallowance Rule, because 

it would still be necessary to carry the 

computations through each tier. 

These proposed regulations would 

provide numerous examples to 

determine who is an ultimate member. 

Comments are requested on the 

definition of ultimate member, and 

whether additional examples for 

specific situations would be helpful. 

11. Upper-Tier Partnership 

Proposed § 1.170A–14(j)(3)(xi) would 

provide that the term ‘‘upper-tier 

partnership’’ means a partnership that 

receives an allocated portion. 

Where appropriate, the proposed 

regulations would provide separate 

rules for contributing partnerships, 

contributing S corporations, upper-tier 

partnerships, and upper-tier S 

corporations. The Treasury Department 

and the IRS are aware that sometimes 

different naming conventions are used 

to refer to tiered partnership 

arrangements. For example, some may 

refer to the contributing partnership as 

the ‘‘property partnership’’ or ‘‘top-tier 

partnership,’’ and in fact the IRS has 

used that naming convention in some 

correspondence. That naming 

convention is not inherently wrong, as 

different practitioners refer to the 

‘‘bottom’’ and ‘‘top’’ of a tiered structure 

differently. However, the regulations 

under subchapter K of chapter 1 of the 

Code generally would refer to the 

contributing partnership as the lowertier partnership, and to a partnership 

that owns an interest in the contributing 

partnership (either directly or 

indirectly) as an upper-tier partnership. 

Accordingly, in a tiered partnership 

ownership structure, these proposed 

regulations reflect a naming convention 

under which the contributing 

partnership would be the ‘‘lower-tier 

partnership,’’ and a partnership 

receiving a distributive share of a 

qualified conservation contribution 

from the contributing partnership would 

be an ‘‘upper-tier partnership.’’ 

12. Upper-Tier S Corporation 

Proposed § 1.170A–14(j)(3)(xii) would 

provide that the term ‘‘upper-tier S 

corporation’’ means an S corporation 

that receives an allocated portion. 

C. Effect of the Disallowance Rule 

As noted previously, section 

170(h)(7)(A) applies the Disallowance 

Rule to both contributing partnerships 

and upper-tier partnerships. Section 

170(h)(7) does not explicitly address 

what effect the application of the 

Disallowance Rule to one partnership or 

S corporation in a tiered structure has 

on the other partnerships or S 

corporations in the tiered structure. 

These proposed regulations would 

provide that if the Disallowance Rule 

applies to a partnership or S 

corporation, then the qualified 

conservation contribution is a 

disallowed qualified conservation 

contribution to that entity as well as to 

any person receiving a distributive share 

or pro rata share, directly or indirectly, 

of that entity’s disallowed qualified 

conservation contribution; however, the 

disallowance would not affect the 

qualified conservation contribution with 

respect to any lower-tier entities. In 

other words, if the application of the 

Disallowance Rule with respect to an 

upper-tier partnership or upper-tier S 

corporation results in a disallowed 

qualified conservation contribution, that 

would affect Federal income tax 

consequences up the chain of tiers, but 

not down the chain of tiers, so, for 

example, the contributing partnership 

would not be affected. 

The Treasury Department and the IRS 

considered other approaches, such as 

always re-testing the application of the 

Disallowance Rule to an upper-tier 

partnership’s or upper-tier S 

corporation’s allocated portion, even 

when the contribution is a disallowed 

qualified conservation contribution with 

respect to the lower-tier partnership. 

Under this approach, if the allocated 

portion does not exceed 2.5 times the 

sum of each of the upper-tier 

partnership’s or upper-tier S 

corporation’s ultimate member’s 

relevant basis, the allocated portion 

would be a qualified conservation 

contribution and not disallowed to the 

upper-tier partnership’s non-passthrough partners or the upper-tier S 

corporation’s shareholders, even though 

the contribution was a disallowed 

qualified conservation contribution to 

the non-pass-through partners of the 

lower-tier partnership. Allowing retesting of contributions that have 

already failed the Disallowance Rule 

would be inconsistent with the 

purposes of the Disallowance Rule 

because it would inappropriately 

encourage the creation of tiered 

structures to allow some ultimate 

members to avoid the Disallowance 

Rule. These proposed regulations are 

intended to prevent avoidance of the 

purposes of section 170(h)(7) and ensure 

disallowance of deductions attributable 

to disallowed qualified conservation 

contributions. The Treasury Department 

and the IRS request comments on the 

application of the Disallowance Rule in 

tiered structures. 

Under the authority of section 

170(h)(7)(G)(ii) to issue regulations or 

other guidance to prevent the avoidance 

of the purposes of section 170(h)(7), 

proposed § 1.170A–14(j)(4)(i) would 

provide that, if a contributing 

partnership’s or contributing S 

corporation’s qualified conservation 

contribution is a disallowed qualified 

conservation contribution, then: (1) any 

upper-tier partnership’s or upper-tier S 

corporation’s allocated portion of such 

contribution is a disallowed qualified 

conservation contribution, regardless of 

whether such allocated portion exceeds 

2.5 times the sum of each of the uppertier partnership’s or upper-tier S 

corporation’s ultimate member’s 

relevant basis; and (2) no person 

(whether holding a direct or indirect 

interest in such contributing partnership 

or contributing S corporation) may 

claim a deduction under any provision 

of the Code with respect to any amount 

of such disallowed qualified 

conservation contribution, regardless of 

whether that person’s distributive share 

or pro rata share of the disallowed 

qualified conservation contribution 

exceeds 2.5 times its relevant basis. The 

reference to ‘‘any provision of the Code’’ 

is necessary to prevent taxpayer 

attempts to avoid the Disallowance Rule 

by claiming a deduction with respect to 

any amount of a qualified conservation 

contribution under a provision of the 

Code other than section 170 in cases in 

which no deduction is allowable under 

section 170 by reason of section 

170(h)(7). For example, this proposed 


ddrumheller on DSK120RN23PROD with PROPOSALS3
80916 Federal Register / Vol. 88, No. 222 / Monday, November 20, 2023 / Proposed Rules 

rule would disallow a deduction under 

section 642(c) of the Code for a trust that 

is a partner in a partnership with 

respect to a distributive share of a 

disallowed qualified conservation 

contribution from the partnership. 

Proposed § 1.170A–14(j)(4)(ii) would 

provide that if a contributing 

partnership’s or contributing S 

corporation’s qualified conservation 

contribution is not a disallowed 

qualified conservation contribution, 

then: (1) the distributive share or pro 

rata share of any ultimate member 

holding a direct interest in the 

contributing partnership or contributing 

S corporation is not a disallowed 

qualified conservation contribution; and 

(2) any upper-tier partnership or uppertier S corporation that receives an 

allocated portion of such qualified 

conservation contribution must 

separately apply the rules of section 

170(h)(7) and proposed § 1.170A–14(j) 

through (m) to determine whether that 

upper-tier partnership’s or upper-tier S 

corporation’s allocated portion is a 

disallowed qualified conservation 

contribution. 

Proposed § 1.170A–14(j)(4)(iii) would 

provide that, if an upper-tier 

partnership’s or upper-tier S 

corporation’s allocated portion is a 

disallowed qualified conservation 

contribution, then: (1) any subsequent 

upper-tier partnership’s or upper-tier S 

corporation’s allocated portion of such 

allocated portion would be a disallowed 

qualified conservation contribution, 

regardless of whether the subsequent 

upper-tier partnership’s or upper-tier S 

corporation’s allocated portion exceeds 

2.5 times the sum of each of the 

subsequent upper-tier partnership’s or 

upper-tier S corporation’s ultimate 

member’s relevant basis; and (2) no 

person (whether holding a direct or 

indirect interest in that upper-tier 

partnership or upper-tier S corporation) 

would be able to claim a deduction 

under any provision of the Code with 

respect to any amount of that upper-tier 

partnership’s or upper-tier S 

corporation’s allocated portion, 

regardless of whether that person’s 

distributive share or pro rata share of 

the allocated portion exceeds 2.5 times 

its relevant basis. Similar to proposed 

§ 1.170A–14(j)(4)(i), proposed § 1.170A– 

14(j)(4)(iii) would be issued under the 

authority of section 170(h)(7)(G)(ii) to 

issue regulations or other guidance to 

prevent the avoidance of the purposes of 

section 170(h)(7). However, this 

proposed rule would not affect the 

application of proposed § 1.170A–14(j) 

through (m) to another partner of the 

contributing partnership; for example, if 

the qualified conservation contribution 

is not a disallowed qualified 

conservation contribution with respect 

to the contributing partnership, then the 

distributive share of such contribution 

of an ultimate member holding a direct 

interest in the contributing partnership 

is not a disallowed qualified 

conservation contribution, 

notwithstanding that the qualified 

conservation contribution is a 

disallowed qualified conservation 

contribution with respect to one or more 

upper-tier partnerships or upper-tier S 

corporations. 

Proposed § 1.170A–14(j)(4)(iv) would 

provide that, if an upper-tier 

partnership’s or upper-tier S 

corporation’s allocated portion is not a 

disallowed qualified conservation 

contribution, then: (1) the distributive 

share or pro rata share of such allocated 

portion of any ultimate member holding 

a direct interest in the upper-tier 

partnership or upper-tier S corporation 

is not a disallowed qualified 

conservation contribution; and (2) any 

subsequent upper-tier partnership or 

upper-tier S corporation that receives an 

allocated portion of such allocated 

portion must separately apply the rules 

of section 170(h)(7) and proposed 

§ 1.170A–14(j) through (m) to determine 

whether that subsequent upper-tier 

partnership’s or upper-tier S 

corporation’s allocated portion is treated 

as a disallowed qualified conservation 

contribution. 

The proposed regulations contain 

examples illustrating the rules with 

respect to tiers of entities. The Treasury 

Department and the IRS request 

comments on whether additional 

examples would be helpful. 

D. No Inference 

The Treasury Department and the IRS 

are aware that, even though section 

605(c)(2) of the SECURE 2.0 Act plainly 

states that no inference is intended as to 

any contribution for which a deduction 

is not disallowed by reason of section 

170(h)(7), some practitioners have taken 

the position that section 170(h)(7) 

operates as a ‘‘safe harbor.’’ According 

to these practitioners, a qualified 

conservation contribution that is not 

disallowed by the Disallowance Rule is 

somehow immune to a challenge on 

other grounds, including failure to 

comply with other rules under section 

170 and overvaluation of the 

contribution. Such a position is baseless 

and contradicted by the statutory 

language. 

To clarify this issue, proposed 

§ 1.170A–14(j)(5) would provide that 

there is no presumption that a qualified 

conservation contribution that is not a 

disallowed qualified conservation 

contribution is compliant with section 

170, any other section of the Code, the 

regulations, or any other guidance 

thereunder. It would also provide that 

compliance with section 170(h)(7) and 

proposed § 1.170A–14(j) through (n) is 

not a safe harbor for purposes of any 

other provision of law, including the 

other requirements of section 170 and 

the value of the contribution. Such 

transactions are subject to adjustment or 

disallowance for any other reason, 

including failure to satisfy the 

requirements of section 170 and the 

overvaluation of the contribution; for 

example, failure to properly execute 

Form 8283, Noncash Charitable 

Contributions, violation of the 

partnership anti-abuse rule of § 1.701–2, 

lack of economic substance, or other 

rules or judicial doctrines. In addition, 

compliance with proposed § 1.170A– 

14(j) through (n) would not preclude the 

application of any penalty, including 

penalties for valuation misstatement, 

negligence, and fraud. Proposed 

§ 1.170A–14(j)(5) would also provide 

that taxpayers who engage in such 

transactions may be required to disclose 

under § 1.6011–4 the transactions as 

listed transactions. 

E. Determination of Relevant Basis 

Consistent with section 

170(h)(7)(B)(i), proposed § 1.170A–14(k) 

would provide that, for purposes of 

§ 1.170A–14, the term ‘‘relevant basis’’ 

means, with respect to any ultimate 

member, the portion of such ultimate 

member’s modified basis (as defined in 

proposed § 1.170A–14(l)) that is 

allocable (under the rules of proposed 

§ 1.170A–14(m)) to the portion of the 

real property with respect to which the 

qualified conservation contribution is 

made. 

1. Modified Basis 

Proposed § 1.170A–14(l)(1) would 

provide that, in the case of an ultimate 

member holding a direct interest in a 

partnership, the ultimate member’s 

modified basis is determined by such 

partnership immediately before the 

qualified conservation contribution is 

made in the manner described in 

§ 1.170A–14(l)(2). In the case of an 

ultimate member holding a direct 

interest in an S corporation, the ultimate 

member’s modified basis would be 

determined by such S corporation in the 

manner described in § 1.170A–14(l)(3). 

a. Modified Basis of Ultimate Members 

That Are Partners 

Consistent with section 

170(h)(7)(B)(ii), the proposed 

regulations would provide rules that are 

designed to determine a partner’s 


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modified basis immediately prior to the 

qualified conservation contribution. 

Without additional guidance under 

section 706, there may be situations in 

which the contribution is allocated to 

partners that did not hold an interest at 

the time of the qualified conservation 

contribution. Such partners would not 

have any bases in their partnership 

interests immediately before the 

contribution, and thus, without 

additional rules, their modified bases 

and relevant bases would be zero. As 

discussed later in this preamble, these 

proposed regulations would contain 

rules under section 706 that would treat 

a qualified conservation contribution as 

an extraordinary item under § 1.706– 

4(e) that must be allocated only to 

partners holding an interest in the 

partnership at the time of the 

contribution. Proposed rules under 

§ 1.706–3 would ensure that only 

partners holding an interest in an uppertier partnership at the time of the 

contribution would receive a 

distributive share of an allocated 

portion. Thus, all ultimate members 

who are partners would be partners at 

the time of day the contribution is 

made. In other words, for a partner to 

be an ultimate member, the partner 

must have been a partner at the time of 

day the contribution is made and must 

have been allocated a distributive share 

of that contribution. These proposed 

rules are intended to facilitate the 

computation of modified basis 

immediately before the contribution, 

consistent with section 

170(h)(7)(B)(ii)(I). 

The proposed regulations would 

provide a process for determining a 

partner’s modified basis. Proposed 

§ 1.170A–14(l)(2)(i) would provide that, 

for purposes of § 1.170A–14, the term 

‘‘modified basis’’ means, with respect to 

any ultimate member that is a direct 

partner in either a contributing 

partnership or an upper-tier 

partnership, such ultimate member’s 

adjusted basis in its interest in the 

partnership in which the ultimate 

member holds a direct interest as of the 

beginning of the first day of the 

partnership’s taxable year in which the 

qualified conservation contribution is 

made with adjustments as determined 

under proposed § 1.170A–14(l)(2)(ii) 

through (v). However, if the ultimate 

member was not a partner as of the 

beginning of the first day of the 

partnership’s taxable year, then the term 

‘‘modified basis’’ would mean such 

ultimate member’s adjusted basis in its 

interest in the partnership immediately 

after the transaction that resulted in the 

ultimate member becoming a partner 

with adjustments as determined under 

proposed § 1.170A–14(l)(2)(ii) through 

(v). The Treasury Department and the 

IRS considered alternatives to this rule, 

including simply requiring that 

‘‘adjusted basis’’ be computed 

immediately prior to the contribution. 

However, adjusted basis is typically 

computed as of the beginning of a 

taxable year, and it may be unclear to 

taxpayers how to compute adjusted 

basis as of another time during the year. 

Current regulations generally do not 

require partners to compute their 

adjusted bases in their partnership 

interests as of the time events, such as 

the making of a qualified conservation 

contribution, occur. Accordingly, these 

proposed regulations would start with a 

calculation of adjusted basis that 

partners are familiar with computing, 

and then make adjustments to arrive at 

an amount that reflects the partner’s 

modified basis immediately before the 

contribution. 

Proposed § 1.170A–14(l)(2)(ii) through 

(v) would provide four adjustments that 

must be made to a partner’s adjusted 

basis to arrive at modified basis. These 

adjustments would be required to be 

made in the order in which they are 

listed. First, proposed § 1.170A– 

14(l)(2)(ii) would provide that the 

computation of modified basis must 

start with the ultimate member’s 

adjusted basis under proposed 

§ 1.170A–14(l)(2)(i) and then reflect an 

increase for any contributions made by 

the ultimate member to the partnership 

during the portion of the year 

commencing with the beginning of the 

taxable year of the partnership and 

ending immediately prior to the time of 

day at which the qualified conservation 

contribution is made as provided in 

section 722 of the Code. 

Second, proposed § 1.170A– 

14(l)(2)(iii) would provide that the 

amount determined under proposed 

§ 1.170A–14(l)(2)(ii) must be adjusted, 

as provided in section 705 of the Code, 

by the ultimate member’s hypothetical 

distributive share of partnership items 

attributable to the portion of the year 

commencing with the beginning of the 

taxable year of the partnership and 

ending immediately prior to the time of 

day at which the qualified conservation 

contribution is made. For example, if a 

calendar-year partnership makes a 

qualified conservation contribution at 

9:17 a.m. on November 19 of Year 1, 

then the hypothetical distributive share 

would be required to be made based on 

the partnership items attributable to the 

period between the beginning of the day 

on January 1 Year 1 and 9:16 a.m. on 

November 19 Year 1. In making this 

determination, the partnership would be 

required to apply the rules of § 1.706– 

4 and apply a hypothetical interim 

closing method to allocate the 

partnership’s items attributable to the 

portion of the year commencing with 

the beginning of the taxable year of the 

partnership and ending immediately 

prior to the time of day at which the 

qualified conservation contribution is 

made. Proposed § 1.170A–14(l)(2)(iii) 

would provide that the partnership 

cannot apply any convention in § 1.706– 

4(c) to the hypothetical determination of 

the partners’ distributive shares, but 

rather must perform the calculation as 

though the determination occurred 

immediately prior to the time of day at 

which the qualified conservation 

contribution is made. Proposed 

§ 1.170A–14(l)(2)(iii) would clarify that 

this hypothetical determination of the 

partners’ distributive shares is only for 

purposes of calculating modified basis. 

Proposed § 1.170A–14(l)(2)(iii) would 

also make clear that proposed § 1.170A– 

14(l) does not require the partnership to 

use the interim closing method with 

respect to the determination of its 

partners’ actual distributive shares for 

the taxable year in which the qualified 

conservation contribution is made or 

otherwise. See section 706(d) and the 

regulations thereunder for the 

permissible methods that may be used 

in the determination of the partners’ 

distributive shares for a partnership 

taxable year in which there is a 

variation in a partner’s interest in the 

partnership. As described later this 

preamble, proposed §§ 1.706–3(a) and 

1.706–4(e)(2)(ix) would provide special 

rules for the allocation of qualified 

conservation contributions. 

The Treasury Department and the IRS 

considered using the partners’ actual 

distributive shares, determined as of the 

time of the contribution. In the case of 

a partnership using the proration 

method, however, such an approach 

would result in the partners’ modified 

bases reflecting a portion of partnership 

items earned or incurred by the 

partnership after the time of the 

contribution, and thus would be 

inconsistent with the requirement in 

section 170(h)(7)(B)(ii)(I) that partners’ 

modified bases be determined 

immediately before the contribution. 

The Treasury Department and the IRS 

request comments on the approach 

taken in the proposed regulations to 

determine the partners’ distributive 

shares of partnership items attributable 

to the portion of the year commencing 

with the beginning of the taxable year of 

the partnership and ending immediately 

prior to the time of day at which the 


ddrumheller on DSK120RN23PROD with PROPOSALS3
80918 Federal Register / Vol. 88, No. 222 / Monday, November 20, 2023 / Proposed Rules 

1As described previously, section 

170(h)(7)(B)(ii)(II) provides that the determination 

of modified basis is to be made without regard to 

section 752. However, the Code does not contain a 

rule substantially similar to section 752 for S 

corporations. Unlike a partner’s basis in the 

partner’s interest in the partnership, an S 

corporation shareholder’s basis in stock of the S 

corporation does not include any share of the S 

corporation’s liabilities. Under section 

1367(b)(2)(A) of the Code and § 1.1367–2(b), if an 

S corporation shareholder’s pro rata share of the S 

corporation’s losses, deductions, noncapital, 

nondeductible expenses, and certain oil and gas 

depletion deductions exceed the shareholder’s 

stock basis, then these items may reduce the 

shareholder’s basis in indebtedness owed to them 

by the S corporation (but not below zero). Under 

section 1367(b)(2)(B) and § 1.1367–2(c), if the basis 

in indebtedness has been so reduced, then any 

future net increase must be applied to restore such 

reduction in indebtedness basis before any of it may 

be used to increase the shareholder’s basis in its 

stock of the S corporation. 

qualified conservation contribution is 

made. 

Third, proposed § 1.170A–14(l)(2)(iv) 

would provide that the amount 

determined under proposed § 1.170A– 

14(l)(2)(iii) must be reduced (but not 

below zero) by any distributions made 

by the partnership to the ultimate 

member during the portion of the year 

commencing with the beginning of the 

taxable year of the partnership and 

ending immediately prior to the time of 

day at which the qualified conservation 

contribution is made as provided in 

section 733 of the Code. 

Fourth, consistent with section 

170(h)(7)(B)(ii)(II), proposed § 1.170A– 

14(l)(2)(v) would provide that the 

amount determined under proposed 

§ 1.170A–14(l)(2)(iv) must be reduced 

by the full amount of the ultimate 

member’s share of § 1.752–1 liabilities 

of any partnership (including a lowertier partnership). The remaining amount 

would be such ultimate member’s 

modified basis. Thus, under the 

proposed regulations, an ultimate 

member’s modified basis may be less 

than zero. Under the formulas for the 

determination of relevant basis 

discussed later in this preamble, a 

negative modified basis will result in a 

negative relevant basis. Because the 

application of the Disallowance Rule is 

based on the sum of each ultimate 

member’s relevant basis, if one ultimate 

member’s relevant basis is negative, it 

will be added to all other ultimate 

members’ relevant bases, and the sum 

may be a positive or negative number. 

b. Modified Basis of Ultimate Members 

That Are Shareholders in an S 

Corporation 

Unlike the rules for partnerships 

discussed previously, S corporations do 

not have extraordinary items that must 

be allocated only to shareholders as of 

the time of day the item occurs. Instead, 

section 1377 of the Code and existing 

§ 1.1377–1 generally require pro rata 

allocations. Section 1.1377–1(a) 

provides that each shareholder’s pro 

rata share of any S corporation item 

described in section 1366(a) of the Code 

for any taxable year is the sum of the 

amounts determined with respect to the 

shareholder by assigning an equal 

portion of the item to each day of the 

S corporation’s taxable year, and then 

dividing that portion pro rata among the 

shares outstanding on that day. If a 

shareholder disposes of its entire 

interest in an S corporation, § 1.1377– 

1(b) allows the S corporation to make a 

terminating election, under which the S 

corporation will determine the 

terminating shareholder’s share as 

though the S corporation’s taxable year 

closed on the day of the termination. 

However, there is no extraordinary item 

rule for S corporations similar to 

§ 1.706–4(e). As such, it may be the case 

that an S corporation allocates a portion 

of a qualified conservation contribution 

to someone that was not a shareholder 

at the time of the contribution, but that 

shareholder would still be treated as an 

ultimate member because the 

shareholder received a pro rata share of 

the qualified conservation contribution. 

As described previously, the rules for 

determining a partner’s modified basis 

start with the partner’s adjusted basis at 

the start of the partnership’s taxable 

year and work forward to determine 

modified basis immediately before the 

contribution. However, the Treasury 

Department and the IRS are concerned 

that such an approach is not appropriate 

for S corporation shareholders, as it 

could be unnecessarily burdensome 

and, in some cases, impossible to 

determine each shareholder’s modified 

basis immediately prior to the qualified 

conservation contribution (because 

some ultimate members may not be 

shareholders at the time of the 

contribution). To provide an 

administrable standard consistent with 

the purposes of section 170(h)(7), these 

proposed regulations would require the 

computation of an S corporation 

shareholder’s modified basis under an 

approach that is similar in purpose to 

the approach for partners but different 

in application. 

Proposed § 1.170A–14(l)(3)(i) would 

provide that, for purposes of § 1.170A– 

14, the term ‘‘modified basis’’ means, 

with respect to any ultimate member 

that is a shareholder of either a 

contributing S corporation or an uppertier S corporation, such ultimate 

member’s adjusted basis in its shares in 

the S corporation as of the end of the S 

corporation’s taxable year in which the 

qualified conservation contribution is 

made with adjustments as determined 

under proposed § 1.170A–14(l)(3)(ii) 

and (iii). However, if the ultimate 

member was not a shareholder at the 

end of the S corporation’s taxable year 

in which the qualified conservation 

contribution is made, then the term 

‘‘modified basis’’ would mean such 

ultimate member’s adjusted basis in its 

shares in the S corporation immediately 

prior to the transaction that terminated 

its interest in the S corporation with 

adjustments as determined under 

proposed § 1.170A–14(l)(3)(ii) and (iii). 

The Treasury Department and the IRS 

considered several alternatives to this 

rule. One method would be to require a 

determination of a portion of modified 

basis for every day during the S 

corporation’s taxable year, because S 

corporations generally allocate the 

contribution on a pro rata basis among 

the shareholders on each day of the 

taxable year. These proposed 

regulations do not take that approach 

because the Treasury Department and 

the IRS are concerned that such an 

approach, although technically accurate 

and consistent with the purposes of 

section 170(h)(7), would be too 

burdensome for taxpayers and difficult 

for the IRS to administer. The Treasury 

Department and the IRS also considered 

using the shareholders’ adjusted bases 

as of the beginning of the S 

corporation’s taxable year (rather than 

as of the end of the year). However, 

because qualified conservation 

contributions are typically made in the 

second half of the year, especially in 

syndicated transactions, the Treasury 

Department and the IRS determined that 

such an approach would be less 

accurate than using the shareholders’ 

adjusted bases as of the end of the year 

(or a shareholder’s adjusted basis 

immediately prior to the transaction that 

terminated their interest in the S 

corporation). 

Proposed § 1.170A–14(l)(3)(i) would 

also clarify that modified basis does not 

include the ultimate member’s adjusted 

basis of any indebtedness of the S 

corporation to the ultimate member.1

Proposed § 1.170A–14(l)(3)(ii) and 

(iii) would provide two adjustments that 

must be made to arrive at modified 

basis. These adjustments would be 

required to be made in the order in 

which they are listed. First, proposed 

§ 1.170A–14(l)(3)(ii) would provide that 

the computation of modified basis must 

start with the ultimate member’s 

adjusted basis under proposed 

§ 1.170A–14(l)(3)(i) and then must 

reflect an increase for the extent to 

which the adjusted basis reflects a 

reduction as a result of the qualified 


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conservation contribution. Thus, the 

ultimate member’s modified basis with 

respect to a qualified conservation 

contribution would not reflect any 

reduction for the ultimate member’s pro 

rata share of the S corporation’s basis in 

the conservation easement or other 

property contributed in the qualified 

conservation contribution. This 

adjustment in proposed § 1.170A– 

14(l)(3)(ii) would be made because it 

would not be appropriate or consistent 

with section 170(h)(7)(B)(ii)(I) for 

modified basis, and thus relevant basis, 

to reflect a reduction for the very 

contribution that is being analyzed 

under the Disallowance Rule as such an 

approach might result in deductions 

being inappropriately disallowed by the 

Disallowance Rule. 

Second, proposed § 1.170A– 

14(l)(3)(iii) would provide that the 

amount determined under proposed 

§ 1.170A–14(l)(3)(ii) must be multiplied 

by the number of days during the S 

corporation’s taxable year in which the 

ultimate member was a shareholder and 

divided by the total number of days 

during the S corporation’s taxable year. 

The resulting amount would be such 

ultimate member’s modified basis. 

Inappropriate double counting of 

relevant basis might occur unless the 

proposed regulations provide this rule. 

For example, assume individual A owns 

a portion of the outstanding shares of an 

S corporation. In early July, A sells all 

its shares to B. In December, the S 

corporation makes a qualified 

conservation contribution. Absent a 

terminating election under § 1.1377– 

1(b), the S corporation would allocate 

some of the qualified conservation 

contribution to each of A and B. Unless 

A’s and B’s modified bases (and thus, 

their relevant bases) are adjusted to 

reflect that each was a shareholder for 

approximately half of the year, the S 

corporation’s computation of the sum of 

each of its ultimate member’s relevant 

basis would be inappropriately 

overstated. The Treasury Department 

and the IRS request comments on 

whether there are certain situations in 

which the divisor should be less than 

the full number of days in the S 

corporation’s taxable year. In particular, 

the Treasury Department and the IRS 

request comments on whether, and how, 

elections under §§ 1.1368–1(g)(2) and 

1.1377–1(b) should result in the divisor 

being less than the full number of days 

in the S corporation’s taxable year. It 

would be particularly helpful for 

commenters to address situations in 

which elections under §§ 1.1368–1(g)(2) 

and 1.1377–1(b) affect some, but not all, 

of the shareholders. 

Section 170(h)(7)(B)(ii)(III) provides 

authority for the Secretary to provide for 

other adjustments in the computation of 

modified basis. The Treasury 

Department and the IRS request 

comments on whether any additional 

adjustments to arrive at modified basis 

would be appropriate. 

The proposed regulations also contain 

examples illustrating the determination 

of modified basis. Comments are 

requested on whether it would be 

helpful to add examples with other 

factual scenarios. 

2. Allocation of Modified Basis and 

Determination of Relevant Basis 

Proposed § 1.170A–14(m) would 

provide rules for determining the 

portion of an ultimate member’s 

modified basis that is allocable to the 

portion of the real property with respect 

to which the contribution is made, 

which is the final step in the 

determination of relevant basis. Section 

170(h)(7)(B)(i) provides that the 

allocation is made under rules similar to 

the rules of section 755. Section 755 

provides rules for allocating special 

basis adjustments to partnership 

property resulting from partnership 

distributions or transfers of partnership 

interests, such as adjustments under 

section 734(b) of the Code and 

adjustments under section 743(b) of the 

Code. 

Section 755(a) generally provides that 

any increase or decrease in the adjusted 

basis of partnership property under 

section 734(b) (relating to the optional 

adjustment to the basis of undistributed 

partnership property) or section 743(b) 

(relating to the optional adjustment to 

the basis of partnership property in the 

case of a transfer of an interest in a 

partnership) is allocated (1) in a manner 

that reduces the difference between the 

fair market value and the adjusted basis 

of partnership properties, or (2) in any 

other manner permitted by regulations. 

The regulations under section 755 

provide rules for performing these 

allocations. Those rules can be complex 

and involve several different methods 

for allocating basis adjustments among 

the partnership’s properties, including: 

(1) Allocating in a manner that 

reduces the difference between the fair 

market value and the adjusted basis of 

partnership properties. See § 1.755– 

1(b)(2)(i) and (b)(3). 

(2) Allocating in proportion to the 

transferee’s share of the amount that 

would be realized by the partnership 

upon the hypothetical sale of each 

property. See § 1.755–1(b)(5)(iii)(A). 

(3) Allocating in proportion to the fair 

market values of the partnership’s 

properties. See § 1.755–1(c)(2)(i). 

(4) Allocating in proportion to the 

partnership’s adjusted bases in its 

properties. See § 1.755–1(c)(2)(ii). 

(5) Allocating in proportion to the 

partner’s share of the adjusted bases in 

the partnership’s properties. See 

§ 1.755–1(b)(5)(iii)(B). 

In considering which of these 

allocation rules would be most 

appropriate to determine relevant basis, 

the Treasury Department and the IRS 

considered the special basis adjustment 

and loss limitation rules for charitable 

contributions. Those rules look to a 

partner’s or shareholder’s share of the 

partnership’s or S corporation’s basis in 

the contributed property. 

Generally, section 705(a)(2) provides 

that the adjusted basis of a partner’s 

interest in a partnership is decreased 

(but not below zero) by distributions by 

the partnership and by the sum of the 

partner’s distributive share for the 

taxable year and prior taxable years of 

(1) losses of the partnership, and (2) 

expenditures of the partnership not 

deductible in computing its taxable 

income and not properly chargeable to 

capital account. Generally, when a 

partnership makes a charitable 

contribution, the partners are not 

required to reduce their adjusted bases 

in their partnership interests by the fair 

market value of the contribution. 

Instead, Revenue Ruling 96–11, 1996–1 

C.B. 140, provides that after a 

partnership makes a charitable 

contribution of property, the basis of 

each partner’s interest in the 

partnership is decreased (but not below 

zero) by the partner’s share of the 

partnership’s basis in the property 

contributed. Revenue Ruling 96–11 

explains that reducing the partners’ 

bases in their partnership interests by 

their respective shares of the permanent 

decrease in the partnership’s basis in its 

properties preserves the intended 

benefit of providing a deduction (in 

circumstances not under section 170(e)) 

for the fair market value of appreciated 

property without recognition of the 

appreciation. In contrast, reducing the 

partners’ bases in their partnership 

interests by the fair market value of the 

contributed property would 

subsequently cause the partners to 

recognize gain (or a reduced loss), for 

example, upon a disposition of their 

partnership interests, attributable to the 

unrecognized appreciation in the 

contributed property at the time of the 

contribution. 

The partnership loss limitation rules 

in section 704(d) of the Code have a 

similar rule for charitable contributions. 

Generally, section 704(d)(1) provides 

that a partner’s distributive share of 

partnership loss is allowed only to the 


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80920 Federal Register / Vol. 88, No. 222 / Monday, November 20, 2023 / Proposed Rules 

2Whether a qualified conservation contribution is 

a disallowed qualified conservation contribution 

has no effect on the application of sections 705 and 

1367 to the contribution. These basis reductions 

remain required regardless of whether a qualified 

conservation contribution is a disallowed qualified 

conservation contribution. 

extent such partner’s adjusted basis in 

its partnership interest at the end of the 

partnership year in which such loss 

occurred. Section 704(d)(3)(A) provides, 

in part, that in determining the amount 

of any loss under section 704(d)(1), the 

partner’s distributive share of charitable 

contributions as defined in section 

170(c) must be taken into account. 

However, section 704(d)(3)(B) provides 

that, in the case of a charitable 

contribution of property whose fair 

market value exceeds its adjusted basis, 

section 704(d)(3)(A) does not apply to 

the extent of the partner’s distributive 

share of such excess. 

The rules for S corporations also look 

to the shareholder’s share of the S 

corporation’s basis in the contributed 

property. Section 1367(a)(2)(B) of the 

Code provides that the basis of each 

shareholder’s stock is reduced by the 

items of loss and deduction described in 

section 1366(a)(1)(A). However, the 

second sentence of section 1367(a)(2) 

provides that the decrease in basis 

under section 1367(a)(2)(B) by reason of 

a charitable contribution (as defined in 

section 170(c)) of property is the amount 

equal to the shareholder’s pro rata share 

of the adjusted basis of such property.2

Generally, section 1366(d)(1) provides 

that the aggregate amount of losses and 

deductions taken into account by a 

shareholder under section 1366(a) for 

any taxable year cannot exceed the sum 

of (1) the adjusted basis of the 

shareholder’s stock in the S corporation, 

and (2) the shareholder’s adjusted basis 

of any indebtedness of the S corporation 

to the shareholder. However, section 

1366(d)(4) provides that, in the case of 

any charitable contribution of property 

to which the second sentence of section 

1367(a)(2) applies, section 1366(d)(1) 

does not apply to the extent of the 

excess (if any) of (1) the shareholder’s 

pro rata share of such contribution, over 

(2) the shareholder’s pro rata share of 

the adjusted basis of such property. See 

also Rev. Rul. 2008–16, 2008–1 C.B. 

585. 

Therefore, generally partnerships and 

S corporations making charitable 

contributions are already required to 

track each partner’s and shareholder’s 

share of the entity’s basis in the 

contributed property. And as noted 

previously, in certain circumstances the 

rules under section 755 also look to the 

partner’s share of the partnership’s basis 

in its properties. Accordingly, as 

described in this section of the 

preamble, these proposed regulations 

would require the allocation of an 

ultimate member’s modified basis to the 

portion of the real property with respect 

to which the qualified conservation 

contribution is made to be based on the 

ultimate member’s share of the entity’s 

bases in its properties. This provides an 

administrable standard consistent with 

the purposes of section 170(h)(7). 

The Treasury Department and the IRS 

considered alternatives to this rule. In 

particular, the Treasury Department and 

the IRS considered simply crossreferencing the rules under section 755. 

Under that alternative approach, the 

amount of each partner’s modified basis 

would be treated for purposes of the 

computation of relevant basis as a 

special basis adjustment under section 

734(b) or section 743(b); relevant basis 

would be the portion of modified basis 

that would be allocated under the rules 

of section 755 to the portion of the real 

property with respect to which the 

contribution was made. Such an 

approach would be less consistent with 

the purposes of the Disallowance Rule. 

As noted previously, basis allocations 

under section 755 are sometimes made 

in a way to reduce or eliminate built-in 

gain or loss in partnership property. The 

relevant basis rule of section 170(h)(7) is 

designed to determine the portion of a 

partner’s modified basis that is allocable 

to the portion of the real property with 

respect to which the contribution is 

made, which is a broader and, generally, 

different concept than determining the 

partner’s share of built-in gain or loss in 

that property. The approach in the 

proposed regulations is similar to the 

rules of section 755 and consistent with 

the rule of section 170(h)(7)(B)(i). The 

Treasury Department and the IRS 

request comments on whether another 

acceptable allocation approach would 

be easier or more administrable. 

Proposed § 1.170A–14(m)(1) would 

provide that the allocation of an 

ultimate member’s modified basis to the 

portion of the real property with respect 

to which the qualified conservation 

contribution is made must be made in 

accordance with proposed § 1.170A– 

14(m). Rules for allocating an ultimate 

member’s modified basis in a 

contributing partnership would be 

provided in proposed § 1.170A– 

14(m)(2). Rules for allocating an 

ultimate member’s modified basis in a 

contributing S corporation would be 

provided in proposed § 1.170A– 

14(m)(3). Rules for allocating an 

ultimate member’s modified basis in an 

upper-tier partnership would be 

provided in proposed § 1.170A– 

14(m)(4). Rules for allocating an 

ultimate member’s modified basis in an 

upper-tier S corporation would be 

provided in proposed § 1.170A– 

14(m)(5). Records would be required to 

be kept in accordance with proposed 

§ 1.170A–14(m)(6). 

a. Determination of Relevant Basis for 

an Ultimate Member Holding a Direct 

Interest in a Contributing Partnership 

Proposed § 1.170A–14(m)(2)(i) 

through (iii) would provide a narrative 

rule applicable in the case of an 

ultimate member holding a direct 

interest in a contributing partnership 

and would provide that a contributing 

partnership must determine each such 

ultimate member’s relevant basis as 

provided therein. Relevant basis would 

equal each ultimate member’s modified 

basis as determined under proposed 

§ 1.170A–14(l)(2) multiplied by a 

fraction (1) the numerator of which is 

the ultimate member’s share of the 

contributing partnership’s adjusted 

basis in the portion of the real property 

with respect to which the qualified 

conservation contribution is made as 

determined under proposed § 1.170A– 

14(m)(2)(ii); and (2) the denominator of 

which is the ultimate member’s portion 

of the adjusted basis in all the 

contributing partnership’s properties as 

determined under proposed § 1.170A– 

14(m)(2)(iii). 

The Treasury Department and the IRS 

note that this numerator determines the 

ultimate member’s share of the 

contributing partnership’s adjusted 

basis in the portion of the real property 

with respect to which the qualified 

conservation contribution is made, 

which is what is required by the statute, 

but may be different than the ultimate 

member’s share of the contributing 

partnership’s adjusted basis in the 

contributed property. As noted 

previously, section 704(d) and Revenue 

Ruling 96–11 require a partner’s basis in 

its interest in the partnership to be 

decreased (but not below zero) by the 

partner’s share of the partnership’s basis 

in the contributed property. For 

example, assume a partnership owns 

100 acres of real property, and grants a 

conservation easement that is a 

qualified conservation contribution on 

60 of those acres. Assume the 

partnership’s adjusted basis in the 100 

acres is $100,000, its adjusted basis in 

the 60 acres is $60,000, and its adjusted 

basis in the conservation easement itself 

is $45,000. Section 705(a)(2)(B) and 

Revenue Ruling 96–11 would require 

each partner’s basis in its interest in the 

partnership to be decreased (but not 

below zero) by the partner’s share of the 

partnership’s $45,000 basis in the 

easement. On the other hand, the 


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computation of each ultimate member’s 

relevant basis would look to the 

ultimate member’s share of the 

partnership’s $60,000 basis in the 60 

acres (the portion of the real property 

with respect to which the qualified 

conservation contribution was made). 

As described in the following 

paragraphs, these proposed regulations 

would provide computational rules for 

determining an ultimate member’s share 

of the contributing partnership’s 

adjusted basis in the portion of the real 

property with respect to which the 

qualified conservation contribution is 

made. The Treasury Department and the 

IRS request comments on whether these 

computations generally align with the 

methods used by partnerships to 

determine each partner’s share of the 

partnership’s basis in the contributed 

property for purposes of sections 704(d) 

and 705(a)(2)(B) and Revenue Ruling 

96–11. In terms of the example in this 

paragraph, the Treasury Department and 

the IRS request comments on whether 

the rules in the proposed regulations for 

determining each ultimate member’s 

share of the partnership’s $60,000 basis 

in the 60 acres align with the way in 

which the partnership would determine 

each partner’s share of the partnership’s 

$45,000 basis in the conservation 

easement for purposes of applying 

sections 704(d) and 705(a)(2)(B) and 

Revenue Ruling 96–11. 

Proposed § 1.170A–14(m)(2)(ii) would 

provide that, for purposes of proposed 

§ 1.170A–14(m), an ultimate member’s 

share of the contributing partnership’s 

adjusted basis in the portion of the real 

property with respect to which the 

qualified conservation contribution is 

made equals the contributing 

partnership’s adjusted basis in the 

portion of the real property with respect 

to which the qualified conservation 

contribution is made multiplied by a 

fraction (1) the numerator of which is 

the ultimate member’s distributive share 

of the qualified conservation 

contribution; and (2) the denominator of 

which is the total amount of the 

contributing partnership’s qualified 

conservation contribution. 

The Treasury Department and the IRS 

considered several alternatives to this 

rule, including determining the ultimate 

member’s share of the contributing 

partnership’s adjusted basis in the 

property based on the ultimate 

member’s share of gain, loss, and cash 

distributions attributable to the 

property. However, there may be 

situations in which the allocation of a 

qualified conservation contribution does 

not match the partners’ shares of gain, 

loss, or cash distributions with respect 

to the property. Accordingly, the 

Treasury Department and the IRS 

determined that such an approach 

would be less accurate. In addition, the 

proposed rule would be less 

burdensome for taxpayers and more 

easily administrable for the IRS because 

it would be based on the partnership’s 

actual allocation of the contribution, 

rather than on a hypothetical sale of the 

property. 

Proposed § 1.170A–14(m)(2)(iii) 

would provide that, for purposes of 

proposed § 1.170A–14(m), an ultimate 

member’s portion of the adjusted basis 

in all the contributing partnership’s 

properties is equal to the sum of: (1) the 

ultimate member’s share of the 

contributing partnership’s adjusted 

basis in the portion of the real property 

with respect to which the qualified 

conservation contribution is made as 

determined under proposed § 1.170A– 

14(m)(2)(ii), plus (2) the ultimate 

member’s portion of the adjusted basis 

in all the contributing partnership’s 

properties other than the portion of the 

real property with respect to which the 

qualified conservation contribution is 

made. Proposed § 1.170A–14(m)(2)(iii) 

would provide that, to determine the 

ultimate member’s share of the adjusted 

basis in all the contributing 

partnership’s properties, the 

contributing partnership must apportion 

among its partners in accordance with 

their interests in the partnership under 

section 704(b) its adjusted basis in each 

of its properties (except the portion of 

the real property with respect to which 

the qualified conservation contribution 

is made), using the adjusted bases 

immediately before the qualified 

conservation contribution, without 

duplication or omission of any property, 

and by treating the adjusted basis in 

each property as not less than zero. 

The Treasury Department and the IRS 

considered alternatives to this rule, 

including determining the ultimate 

member’s portion of the partnership’s 

adjusted basis in all its properties in 

accordance with § 1.743–1(d), which 

provides for the determination of a 

transferee partner’s share of the 

partnership’s adjusted basis of its 

property for purposes of computing 

special basis adjustments under section 

743(b). The Treasury Department and 

the IRS also considered determining the 

ultimate member’s portion of the 

partnership’s adjusted basis in all its 

properties in proportion to the ultimate 

member’s share of the built-in gain in 

each of the partnership’s properties. The 

Treasury Department and the IRS 

determined that these approaches 

would be more complex and could 

reach results that are less accurate for 

purposes of the Disallowance Rule. In 

particular, as previously mentioned, the 

partnership’s allocation of the qualified 

conservation contribution might differ 

from the way that the partnership would 

allocate gain and loss and make cash 

distributions with respect to the 

contributed property. Moreover, these 

approaches would require the 

partnership to obtain a valuation of each 

of its properties at the time of the 

qualified conservation contribution. The 

Treasury Department and the IRS also 

considered an approach under which 

each ultimate member’s portion of the 

partnership’s adjusted basis in all its 

properties would be determined in 

proportion to the ultimate member’s 

share of the qualified conservation 

contribution. Although such an 

approach would be simpler than using 

the partners’ interests in the 

partnership, it would be less accurate. 

The Treasury Department and the IRS 

also considered an approach based on 

section 704(b) capital accounts. 

However, not all partnerships use the 

section 704(b) capital account safe 

harbor, and such an approach would 

also require a revaluation of partnership 

properties as of the time of the 

contribution. The Treasury Department 

and the IRS also considered a rule based 

on how the partnership would allocate 

depreciation from the properties, similar 

to the rule in § 1.199A–2(a)(3)(ii). 

However, such a rule would not address 

property that is not depreciable. The 

Treasury Department and the IRS 

request comments on these proposed 

rules and alternatives. 

Proposed § 1.170A–14(m)(2)(iv) 

would provide a formulaic version of 

the narrative rules in proposed 

§ 1.170A–14(m)(2)(i) through (iii). 

b. Determination of Relevant Basis for 

an Ultimate Member Holding a Direct 

Interest in a Contributing S Corporation 

Proposed § 1.170A–14(m)(3)(i) would 

provide a narrative rule for the 

determination of relevant basis for an 

ultimate member holding a direct 

interest in a contributing S corporation. 

It would provide that a contributing S 

corporation must determine each such 

ultimate member’s relevant basis as 

provided therein. Relevant basis would 

equal each ultimate member’s modified 

basis as determined under proposed 

§ 1.170A–14(l)(3) multiplied by a 

fraction (1) the numerator of which is 

the ultimate member’s pro rata portion 

of the contributing S corporation’s 

adjusted basis in the portion of the real 

property with respect to which the 

qualified conservation contribution is 

made; and (2) the denominator of which 

is the ultimate member’s pro rata 

portion of the adjusted basis in all the 


ddrumheller on DSK120RN23PROD with PROPOSALS3
80922 Federal Register / Vol. 88, No. 222 / Monday, November 20, 2023 / Proposed Rules 

3Under the order of operations for mathematical 

computations, operations contained in parenthesis 

(such as the addition of J and U) are performed 

before the rest of the equation. 

contributing S corporation’s properties 

(including the portion of the real 

property with respect to which the 

qualified conservation contribution is 

made). The Treasury Department and 

the IRS request comments on whether 

this rule is sufficiently clear, and 

whether additional rules are needed 

regarding the time at which the pro rata 

portions of bases are determined. For 

example, the regulations could provide 

that these determinations are made as of 

the time of the qualified conservation 

contribution; however, in the event that 

an ultimate member is not a shareholder 

at that time, it would be unclear when 

the determination is to be made. 

Proposed § 1.170A–14(m)(3)(ii) would 

provide a formulaic version of the 

narrative rules in proposed § 1.170A– 

14(m)(3)(i). 

c. Determination of Relevant Basis for 

an Ultimate Member Holding a Direct 

Interest in an Upper-Tier Partnership 

Proposed § 1.170A–14(m)(4) would 

provide rules for determining the 

relevant basis of an ultimate member 

holding a direct interest in an upper-tier 

partnership. Proposed § 1.170A– 

14(m)(4)(i) would provide that each 

such ultimate member’s modified basis 

must be traced through all upper-tier 

partnerships to the contributing 

partnership, and the contributing 

partnership must determine the relevant 

basis. This would involve a multi-step 

process under which, beginning with 

the upper-tier partnership in which the 

ultimate member holds a direct interest, 

each upper-tier partnership would be 

required to perform calculations, and 

then finally the contributing partnership 

would be required to use those 

calculations to compute the ultimate 

member’s relevant basis. For simplicity, 

proposed § 1.170A–14(m)(4) would 

describe a situation in which there are 

two tiers of partnerships—a contributing 

partnership and an upper-tier 

partnership. Proposed § 1.170A– 

14(m)(4)(i) would provide that, in a 

situation involving more tiers, each 

partnership must apply the rules and 

principles of proposed § 1.170A– 

14(m)(4) iteratively to determine 

relevant basis. In a tiered structure, the 

determination of relevant basis should 

reflect the basis of the ultimate members 

that intend to claim a portion of the 

deduction and thus, cannot be done 

without computations at the level of 

each entity. The Treasury Department 

and the IRS request comments on 

whether, and how, these rules can be 

simplified, and whether any additional 

rules are necessary to prevent the 

avoidance of the Disallowance Rule in 

tiered structures. 

Proposed § 1.170A–14(m)(4)(ii)(A) 

would provide a narrative rule for the 

upper-tier partnership. It would provide 

that the upper-tier partnership must 

determine the portion of each ultimate 

member’s modified basis that is 

allocable to the upper-tier partnership’s 

interest in the partnership in which it 

holds a direct interest (in a situation 

involving only two tiers of partnerships, 

that would be the contributing 

partnership). This proposed regulation 

would require this determination to be 

made in accordance with the principles 

of proposed § 1.170A–14(m)(2), and the 

formula provided in proposed § 1.170A– 

14(m)(4)(ii)(B). In other words, the 

formula provided in proposed § 1.170A– 

14(m)(4)(ii)(B) would be similar to the 

formula provided in proposed § 1.170A– 

14(m)(2)(iv), except that, instead of 

determining the portion of modified 

basis that is allocable to the portion of 

the real property with respect to which 

the qualified conservation contribution 

is made, the formula in proposed 

§ 1.170A–14(m)(4)(ii)(B) would 

determine the portion of modified basis 

that is allocable to the upper-tier 

partnership’s interest in the next lowertier partnership. As explained in 

proposed § 1.170A–14(m)(4)(iii), the 

contributing partnership then would be 

required to use the amount determined 

as the result of the formula in proposed 

§ 1.170A–14(m)(4)(ii)(B) in another set 

of computations that would determine 

the portion of modified basis that is 

allocable to the portion of the real 

property with respect to which the 

qualified conservation contribution is 

made. 

Proposed § 1.170A–14(m)(4)(ii)(B) 

would provide that the rule of proposed 

§ 1.170A–14(m)(4)(ii) is also expressed 

in the following formula: 3

G = M × (U ÷ (J + U)) 

Where: 

G = The portion of the ultimate member’s 

modified basis that is allocable to the 

upper-tier partnership’s interest in the 

contributing partnership. 

M = Modified basis as determined under 

proposed § 1.170A–14(l). 

J = Ultimate member’s portion of the adjusted 

basis in all the upper-tier partnership’s 

properties (other than the upper-tier 

partnership’s interest in the contributing 

partnership), determined by 

apportioning among the partners of the 

upper-tier partnership in accordance 

with their interests in the partnership 

under section 704(b) its adjusted basis in 

each of its properties (other than the 

upper-tier partnership’s interest in the 

contributing partnership), using the 

adjusted bases immediately before the 

qualified conservation contribution, 

without duplication or omission of any 

property, and by treating the adjusted 

basis in each property as not less than 

zero. 

U = Ultimate member’s share of the uppertier partnership’s adjusted basis in its 

interest in the contributing partnership, 

determined according to the following 

formula: H × (B ÷ K). 

H = Upper-tier partnership’s adjusted basis in 

its interest in the contributing 

partnership. 

B = Ultimate member’s distributive share of 

the qualified conservation contribution. 

K = Upper-tier partnership’s allocated 

portion of the qualified conservation 

contribution. 

After this formula is computed, then 

the contributing partnership must 

perform computations using the amount 

determined for item ‘‘G’’ to determine 

relevant basis. Proposed § 1.170A– 

14(m)(4)(iii)(A) would provide a 

narrative rule for the contributing 

partnership to complete this second 

step. It would provide that the 

contributing partnership must 

determine the portion of the amount 

determined under proposed § 1.170A– 

14(m)(4)(ii) with respect to each 

ultimate member that is allocable to the 

portion of the real property with respect 

to which the qualified conservation 

contribution is made. The proposed 

regulations would require this 

determination to be made in accordance 

with the principles of proposed 

§ 1.170A–14(m)(2), and the formula 

provided in proposed § 1.170A– 

14(m)(4)(iii)(B). 

Proposed § 1.170A–14(m)(4)(iii)(B) 

would provide that the rule of proposed 

§ 1.170A–14(m)(4)(iii) is also expressed 

in the following formula: 

R = G × (V ÷ (L + V)) 

Where: 

R = Relevant basis. 

G = Amount determined with respect to item 

G as described previously under 

proposed § 1.170A–14(m)(4)(ii)(B). 

L = Upper-tier partnership’s portion of 

adjusted basis in all the contributing 

partnership’s properties (other than the 

portion of the real property with respect 

to which the qualified conservation 

contribution is made), determined by 

apportioning among the partners of the 

contributing partnership in accordance 

with their interests in the partnership 

under section 704(b) its adjusted basis in 

each of its properties (except the portion 

of the real property with respect to 

which the qualified conservation 

contribution is made), using the adjusted 

bases immediately before the qualified 

conservation contribution, without 

duplication or omission of any property, 

and by treating the adjusted basis in each 

property as not less than zero. 


ddrumheller on DSK120RN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 222 / Monday, November 20, 2023 / Proposed Rules 80923 

V = Upper-tier partnership’s share of the 

contributing partnership’s adjusted basis 

in the portion of the real property with 

respect to which the qualified 

conservation contribution is made, 

determined according to the following 

formula: A × (K ÷ C). 

A = Contributing partnership’s adjusted basis 

in the portion of the real property with 

respect to which the qualified 

conservation contribution is made. 

K = Upper-tier partnership’s allocated 

portion of the qualified conservation 

contribution. 

C = Total amount of the contributing 

partnership’s qualified conservation 

contribution. 

d. Determination of Relevant Basis for 

an Ultimate Member Holding a Direct 

Interest in an Upper-Tier S Corporation 

Proposed § 1.170A–14(m)(5) would 

provide rules for determining relevant 

basis for an ultimate member holding a 

direct interest in an upper-tier S 

corporation. Proposed § 1.170A– 

14(m)(5)(i) would provide that each 

such ultimate member’s modified basis 

must be traced through the upper-tier S 

corporation and any upper-tier 

partnerships to the contributing 

partnership, and the contributing 

partnership must determine the relevant 

basis. This would involve a multi-step 

process under which, beginning with 

the upper-tier S corporation, the uppertier S corporation and any upper-tier 

partnerships would be required to 

perform calculations, and then finally 

the contributing partnership would be 

required to use those calculations to 

compute the ultimate member’s relevant 

basis. For simplicity, proposed 

§ 1.170A–14(m)(5) would describe a 

situation in which there are two tiers— 

a contributing partnership and an 

upper-tier S corporation. Proposed 

§ 1.170A–14(m)(5)(i) would provide 

that, in a situation involving more tiers, 

each partnership and the upper-tier S 

corporation must apply the rules and 

principles of proposed § 1.170A–14(m) 

iteratively to determine relevant basis. 

Proposed § 1.170A–14(m)(5)(ii)(A) 

would provide a narrative rule for the 

upper-tier S corporation. It would 

provide that the upper-tier S 

corporation must determine the portion 

of each ultimate member’s modified 

basis that is allocable to the upper-tier 

S corporation’s interest in the 

partnership in which it holds a direct 

interest (in a situation involving only 

two tiers, that would be the contributing 

partnership). The proposed regulations 

would require this determination to be 

made in accordance with the principles 

of proposed § 1.170A–14(m)(3), and the 

formula provided in proposed § 1.170A– 

14(m)(5)(ii)(B). In other words, the 

formula provided in proposed § 1.170A– 

14(m)(5)(ii)(B) would be similar to the 

formula provided in proposed § 1.170A– 

14(m)(3)(ii), except that, instead of 

determining the portion of modified 

basis that is allocable to the portion of 

the real property with respect to which 

the qualified conservation contribution 

is made, the formula in proposed 

§ 1.170A–14(m)(5)(ii)(B) would 

determine the portion of modified basis 

that is allocable to the upper-tier S 

corporation’s interest in the next lowertier partnership. As explained in 

proposed § 1.170A–14(m)(5)(iii), the 

contributing partnership then would be 

required to use the amount determined 

as the result of the formula in proposed 

§ 1.170A–14(m)(5)(ii)(B) in another set 

of computations that would determine 

the portion of modified basis that is 

allocable to the portion of the real 

property with respect to which the 

qualified conservation contribution is 

made. 

Proposed § 1.170A–14(m)(5)(ii)(B) 

would provide that the rule of proposed 

§ 1.170A–14(m)(5)(ii) is also expressed 

in the following formula: 

N = M × (P ÷ Q) 

Where: 

N = Portion of the ultimate member’s 

modified basis that is allocable to the 

upper-tier S corporation’s interest in the 

contributing partnership. 

M = Modified basis as determined under 

proposed § 1.170A–14(l). 

P = Ultimate member’s pro rata portion of the 

upper-tier S corporation’s adjusted basis 

in its interest in the contributing 

partnership. 

Q = Ultimate member’s pro rata portion of 

the adjusted basis in all the upper-tier S 

corporation’s properties (including the 

upper-tier S corporation’s interest in the 

contributing partnership). 

After this formula is computed, then 

the contributing partnership must 

perform computations using the amount 

determined for item ‘‘N’’ to determine 

relevant basis. Proposed § 1.170A– 

14(m)(5)(iii)(A) would provide a 

narrative rule for the contributing 

partnership to compute this second 

step. It would provide that the 

contributing partnership must 

determine the portion of the amount 

determined under proposed § 1.170A– 

14(m)(5)(ii) with respect to each 

ultimate member that is allocable to the 

portion of the real property with respect 

to which the qualified conservation 

contribution is made. The proposed 

regulations would require this 

determination to be made in accordance 

with the principles of proposed 

§ 1.170A–14(m)(2), and the formula 

provided in proposed § 1.170A– 

14(m)(5)(iii)(B). 

Proposed § 1.170A–14(m)(5)(iii)(B) 

would provide that the rule of proposed 

§ 1.170A–14(m)(5)(iii) is also expressed 

in the following formula: 

R = N × (W ÷ (S + W)) 

Where: 

R = Relevant basis. 

N = Amount determined with respect to item 

N as described previously under 

proposed § 1.170A–14(m)(5)(ii)(B). 

S = Upper-tier S corporation’s portion of the 

adjusted basis in all the contributing 

partnership’s properties (other than the 

portion of the real property with respect 

to which the qualified conservation 

contribution is made), determined by 

apportioning among the partners of the 

contributing partnership in accordance 

with their interests in the partnership 

under section 704(b) its adjusted basis in 

each of its properties (other than the 

portion of the real property with respect 

to which the qualified conservation 

contribution is made), using the adjusted 

bases immediately before the qualified 

conservation contribution, without 

duplication or omission of any property, 

and by treating the adjusted basis in each 

property as not less than zero. 

W = Upper-tier S corporation’s share of the 

contributing partnership’s adjusted basis 

in the portion of the real property with 

respect to which the qualified 

conservation contribution is made, 

determined according to the following 

formula: A × (Y ÷ C). 

A = Contributing partnership’s adjusted basis 

in the portion of the real property with 

respect to which the qualified 

conservation contribution is made. 

Y = Upper-tier S corporation’s distributive 

share of the qualified conservation 

contribution. 

C = Total amount of the contributing 

partnership’s qualified conservation 

contribution. 

The proposed regulations would 

provide examples illustrating these 

rules. The Treasury Department and the 

IRS request comments on the 

determination of relevant basis. 

3. Recordkeeping Requirements 

Proposed § 1.170A–14(m)(6) would 

provide that contributing partnerships, 

contributing S corporations, upper-tier 

partnerships, and upper-tier S 

corporations must each maintain dated, 

written statements in their books and 

records, by the due date, including 

extensions, of their Federal income tax 

returns, substantiating the computation 

of each ultimate member’s adjusted 

basis, modified basis, and relevant basis. 

It would also provide that these 

statements need not be maintained (nor 

does modified basis or relevant basis 

need to be computed) with respect to 

contributions that meet an exception in 

proposed § 1.170A–14(n)(2) 

(contributions outside a three-year 

holding period) or (n)(3) (family passVerDate Sep<11>2014 19:34 Nov 17, 2023 Jkt 262001 PO 00000 Frm 00015 Fmt 4701 Sfmt 4702 E:\FR\FM\20NOP3.SGM 20NOP3

ddrumheller on DSK120RN23PROD with PROPOSALS3
80924 Federal Register / Vol. 88, No. 222 / Monday, November 20, 2023 / Proposed Rules 

4Section 1.706–1(c)(2) provides in part that a 

partnership taxable year closes with respect to a 

partner who sells or exchanges the partner’s entire 

interest in the partnership, with respect to a partner 

whose entire interest in the partnership is 

liquidated, and with respect to a partner who dies. 

Section 1.706–1(c)(3) provides that if a partner sells 

or exchanges a part of the partner’s interest in a 

partnership, or if the interest of a partner is 

reduced, the partnership taxable year continues to 

its normal end. 

through entities). However, these 

statements must be maintained with 

respect to contributions that meet the 

exception in proposed § 1.170A– 

14(n)(4) for certified historic structures 

because section 170(f)(19) imposes 

special reporting requirements for such 

contributions if they exceed 2.5 times 

the sum of relevant basis. 

F. Exceptions to the Disallowance Rule 

Consistent with section 170(h)(7)(C), 

(D), and (E), the rules in proposed 

§ 1.170A–14(n) would provide 

definitions and additional guidance 

relating to the three exceptions to the 

Disallowance Rule. It would also 

provide that there is no presumption 

that such a contribution otherwise is 

compliant with section 170, any other 

section of the Code, or the regulations 

or any other guidance thereunder; being 

described in proposed § 1.170A–14(n) is 

not a safe harbor for purposes of any 

other provision of law or with respect to 

the value of the contribution; such 

transactions are subject to adjustment or 

disallowance for any other reason, 

including failure to satisfy the other 

requirements of section 170 and 

overvaluation of the contribution; and 

taxpayers who engage in such 

transactions may be required to disclose 

under § 1.6011–4 the transactions as 

listed transactions. 

1. Exception for Contributions Outside 

Three-Year Holding Period 

Consistent with section 170(h)(7)(C), 

proposed § 1.170A–14(n)(2)(i) would 

provide that § 1.170A–14(j) does not 

apply to any qualified conservation 

contribution by a contributing 

partnership or contributing S 

corporation that is made at least three 

years after the latest of (1) the last date 

on which the contributing partnership 

or contributing S corporation acquired 

any portion of the real property with 

respect to which such qualified 

conservation contribution is made, (2) 

the last date on which any partner in the 

contributing partnership or shareholder 

in the contributing S corporation 

acquired any interest in such 

partnership or S corporation, and (3) if 

the interest in the contributing 

partnership is held through one or more 

upper-tier partnerships or upper-tier S 

corporations (A) the last date on which 

any such upper-tier partnership or 

upper-tier S corporation acquired any 

interest in the contributing partnership 

or any other such upper-tier 

partnership, and (B) the last date on 

which any partner or shareholder in any 

such upper-tier partnership or uppertier S corporation acquired any interest 

in such upper-tier partnership or uppertier S corporation. 

Neither section 605 of SECURE 2.0 

Act nor section 170 defines the phrase 

‘‘acquired any interest.’’ An acquisition 

of an interest in a partnership can occur 

in several ways, including by 

inheritance, purchase from an existing 

partner, in a section 721 exchange with 

the partnership, in exchange for the 

provision of services, or as a 

distribution from an upper-tier 

partnership. An existing partner can 

also acquire additional interests in the 

partnership. In addition, one partner’s 

complete or partial disposition of an 

interest in the partnership can be 

economically similar to the acquisition 

of an interest in the partnership by the 

remaining partners. For example, if a 

partnership makes a distribution that 

reduces one partner’s interest in the 

profits or losses of the partnership, the 

remaining partners’ interests, in the 

aggregate, may increase in the same 

manner as if they had acquired 

additional interests in the partnership. 

The rules under section 706(c) and (d) 

address partnership allocations in 

situations involving variations in 

partners’ interests attributable to 

acquisitions and dispositions. Section 

1.706–4(a)(1) provides rules for 

determining the partners’ distributive 

shares of partnership items when a 

partner’s interest in a partnership varies 

during the taxable year as a result of the 

disposition of a partial or entire interest 

in a partnership as described in § 1.706– 

1(c)(2) and (3),4 or with respect to a 

partner whose interest in a partnership 

is reduced as described in § 1.706– 

1(c)(3), including by the entry of a new 

partner, collectively referred to as a 

‘‘variation.’’ Generally, a variation 

includes any acquisition, partial 

disposition, or complete disposition of 

an interest in the partnership. However, 

§ 1.706–4(b)(1) provides that the rules in 

§ 1.706–4(a)(3) do not preclude changes 

in the allocations of the distributive 

share of items described in section 

702(a) among contemporaneous 

partners, provided that any variation in 

a partner’s interest is not attributable to 

a contribution of money or property by 

a partner to the partnership or a 

distribution of money or property by the 

partnership to a partner, and the 

allocations resulting from the 

modification satisfy the requirements in 

section 704(b) and the regulations 

thereunder. Generally, partnerships are 

familiar with the rules under § 1.706–4 

because they must apply such rules in 

computing allocations whenever there is 

an acquisition or disposition of a 

partner’s interest during the taxable 

year. 

The definition of ‘‘variation’’ in 

§ 1.706–4 would provide an 

administrable standard consistent with 

the purposes of section 170(h)(7)(C). 

Accordingly, proposed § 1.170A– 

14(n)(2)(ii) would provide that, for 

purposes of § 1.170A–14(n)(2), an 

acquisition of any interest in a 

partnership is any ‘‘variation’’ within 

the meaning of that term in § 1.706– 

4(a)(1); however, a variation would not 

include a change in allocations that 

satisfies the requirements of § 1.706– 

4(b)(1). The Treasury Department and 

the IRS considered alternatives to this 

rule, including defining acquisition as 

any acquisition by purchase, 

contribution, or gift. However, because 

certain other transactions such as 

redemptions and abandonments may 

reach results that are substantively 

similar to an acquisition by purchase, 

contribution, or gift, the Treasury 

Department and the IRS determined that 

the variation rules of § 1.706–4 would 

be more appropriate in this context. 

Proposed § 1.170A–14(n)(2)(iii) would 

define an acquisition of any interest in 

an S corporation as any transfer, 

issuance, redemption, or other 

disposition of stock in the S 

corporation; however, an acquisition 

would not include any issuance or 

redemption involving all shareholders 

that does not affect the proportionate 

ownership of any shareholder (for 

example, a stock split). The Treasury 

Department and the IRS considered 

alternatives to this rule, including 

defining acquisition as any acquisition 

by purchase, contribution, or gift. 

However, because certain other 

transactions such as redemptions and 

abandonments may reach results that 

are substantively similar to an 

acquisition by purchase, contribution, 

or gift, the Treasury Department and the 

IRS determined that the proposed rule 

would be more appropriate in this 

context. 

Proposed § 1.170A–14(n)(2)(iv) would 

provide that, if the contributing 

partnership or contributing S 

corporation does not satisfy the 

requirements of proposed § 1.170A– 

14(n)(2), then proposed § 1.170A– 

14(n)(2) would not apply to any person 

who receives a distributive share or pro 

rata share of the qualified conservation 


ddrumheller on DSK120RN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 222 / Monday, November 20, 2023 / Proposed Rules 80925 

contribution (including an upper-tier 

partnership or upper-tier S corporation), 

regardless of whether the person 

receiving such distributive share or pro 

rata share would have satisfied the 

requirements of proposed § 1.170A– 

14(n)(2) if the person had been the one 

to make the qualified conservation 

contribution. The Treasury Department 

and the IRS considered alternatives to 

this rule, such as allowing upper-tier 

partnerships and upper-tier S 

corporations to apply the three-yearholding-period exception even if the 

contributing partnership failed to satisfy 

the exception. Such an approach, 

however, would be inconsistent with 

section 170(h)(7)(C), which explicitly 

applies the holding period requirements 

to the contributing partnership. 

The proposed regulations contain two 

examples illustrating these rules. The 

Treasury Department and the IRS 

request comments on whether any 

additional rules or examples should be 

provided for the three-year holding 

period exception. 

2. Exception for Family Pass-Through 

Entities 

As mentioned earlier, section 

170(h)(7)(D)(i) provides the 

Disallowance Rule does not apply to 

any contribution made by any 

partnership if substantially all of the 

partnership interests in such 

partnership are held, directly or 

indirectly, by an individual and 

members of the family of such 

individual. The Treasury Department 

and the IRS are aware that the meaning 

of the term ‘‘substantially all’’ in section 

170(h)(7)(D)(i) may not be clear and that 

such ambiguity could impair taxpayers’ 

ability to determine whether they 

qualify for the family pass-through 

entity exception. For purposes of 

applying different provisions of the 

Code that also use that term, various 

Income Tax Regulations define the term 

‘‘substantially all’’ as comprising 

different percentages, including: 70 

percent (§ 1.1400Z2(d)–2(d)(4)); 80 

percent (§§ 1.41–2(d)(2), 1.41–4(a)(6)); 

85 percent (§§ 1.45D–1(c)(5), 1.72(e)–1T, 

Q&A 3; 1.528–4(b) and (c)); 90 percent 

(§§ 1.103–8(a)(1)(i), 1.103–16(c), 1.731– 

2(c)(3)(i); 1.1400Z2(d)–2(d)(3)); and 95 

percent (§§ 1.448–1T(e)(4)(i) and 

(e)(5)(i), 1.460–6(d)(4)(i)(D)(1)). It is 

appropriate to select a percentage at the 

higher end of this range to carry out the 

purpose of section 170(h)(7) of 

preventing abusive syndications of 

qualified conservation contributions. 

Accordingly, the Treasury Department 

and the IRS propose to define 

‘‘substantially all’’ for purposes of 

section 170(h)(7)(D)(i) and § 1.170A– 

14(n)(3)(i) as 90 percent of the interests 

in the contributing partnership or 

contributing S corporation that meets 

the requirements of proposed § 1.170A– 

14(n)(3). 

Thus, proposed § 1.170A–14(n)(3)(i) 

would provide that § 1.170A–14(j) does 

not apply with respect to any qualified 

conservation contribution made by a 

contributing partnership or contributing 

S corporation if at least 90 percent of the 

interests in the contributing partnership 

or contributing S corporation are held 

by an individual and members of the 

family of such individual, and the 

contributing partnership or contributing 

S corporation meets the requirements of 

proposed § 1.170A–14(n)(3). 

The Treasury Department and the IRS 

are also aware that it may be unclear 

what ‘‘interests’’ in the contributing 

partnership or contributing S 

corporation are to be taken into account 

for purposes of the family pass-through 

entity exception. Generally, the Code 

characterizes interests in a partnership 

as comprising the ‘‘capital interests’’ in 

the partnership and the ‘‘profits 

interests’’ in the partnership. See, for 

example, section 707(b) of the Code. 

The Treasury Department and the IRS 

propose limiting the family passthrough entity exception to situations in 

which an individual and the family 

members of such individual own at least 

90 percent of both the capital and 

profits interests in the contributing 

partnership. Doing so would help to 

ensure that the family pass-through 

entity exception does not apply in 

situations in which persons outside an 

individual’s family own a substantial 

economic interest in the partnership. 

Accordingly, proposed § 1.170A– 

14(n)(3)(ii)(A) would provide that, in 

the case of a contributing partnership, at 

least 90 percent of the interests in the 

contributing partnership are held by an 

individual and members of the family of 

such individual if, at the time of the 

qualified conservation contribution, at 

least 90 percent of the interests in 

capital and profits in such partnership 

are held, directly or indirectly, by an 

individual and members of the family of 

such individual. 

A similar rule is proposed for S 

corporations. Section 1361(b)(1)(D) 

requires that an S corporation have only 

one class of stock. However, section 

1361(c)(4) provides that differences in 

voting rights alone do not create a 

second class of stock. The Treasury 

Department and the IRS propose 

limiting the family pass-through entity 

exception in the case of S corporations 

to situations in which the individual 

and the family of such individual own 

stock in the contributing S corporation 

possessing at least 90 percent of the 

total voting power and at least 90 

percent of the total value of the 

outstanding stock of the contributing S 

corporation. Doing so would help to 

ensure that the family pass-through 

exception does not apply in situations 

in which persons outside an 

individual’s family own a substantial 

economic interest in the S corporation. 

Accordingly, proposed § 1.170A– 

14(n)(3)(ii)(B) would provide that, in the 

case of a contributing S corporation, at 

least 90 percent of the interests in the 

contributing S corporation are held by 

an individual and members of the 

family of such individual if, at the time 

of the qualified conservation 

contribution, at least 90 percent of the 

total value and at least 90 percent of the 

total voting power of the outstanding 

stock in such S corporation are held by 

an individual and members of the 

family of such individual. 

The Treasury Department and the IRS 

request comments on whether these 

definitions of ‘‘substantially all of the 

interests’’ in the contributing 

partnership or contributing S 

corporation are appropriate and 

sufficient to ensure the intended 

application of the family pass-through 

entity exception. 

Consistent with section 

170(h)(7)(D)(ii), proposed § 1.170A– 

14(n)(3)(iii) would provide that, for 

purposes of § 1.170A–14(n)(3), the term 

‘‘members of the family’’ means, with 

respect to any individual (1) the spouse 

of such individual, and (2) any 

individual who bears a relationship to 

such individual that is described in 

section 152(d)(2)(A) through (G). Under 

these proposed regulations, members of 

the family would be limited to 

individuals. The Treasury Department 

and the IRS request comments on 

whether certain estates or trusts should 

be treated as members of the family for 

purposes of this rule. The Treasury 

Department and the IRS note that, under 

existing § 1.1361–1(e)(3)(ii), certain 

estates and trusts of deceased members 

of the family are treated as members of 

the family for purposes of the limitation 

on the number of shareholders in an S 

corporation. 

As described earlier in this preamble, 

the Disallowance Rule and its 

exceptions in section 170(h)(7) are 

generally mechanical. However, 

Congress recognized that additional 

guidance may be needed to prevent 

situations in which those mechanical 

rules are used to avoid the purposes of 

the Disallowance Rule. As mentioned 

previously, section 170(h)(7)(G)(ii) 

provides the Secretary with authority to 

issue regulations or other guidance to 


ddrumheller on DSK120RN23PROD with PROPOSALS3
80926 Federal Register / Vol. 88, No. 222 / Monday, November 20, 2023 / Proposed Rules 

prevent the avoidance of the purposes of 

section 170(h)(7). Accordingly, these 

proposed regulations would provide 

two anti-abuse rules designed to ensure 

that the family pass-through entity 

exception in proposed § 1.170A– 

14(n)(3) is not used inappropriately to 

circumvent the Disallowance Rule. 

First, the Treasury Department and 

the IRS propose to limit the family passthrough entity exception to situations in 

which an individual and members of 

that individual’s family have held the 

requisite ownership interest in the 

property for at least one year prior to the 

contribution. The need for such a rule 

is the concern that, in the absence of a 

requirement that the members of the 

family hold the contributed property for 

a certain period of time before the 

contribution, promoters could structure 

transactions to inappropriately take 

advantage of tacked holding periods 

under section 1223 of the Code together 

with the family pass-through entity 

exception. Due to the operation of 

section 170(e), most contributions that 

exceed 2.5 times the sum of relevant 

basis would be expected to be of longterm capital gain property because, in 

those situations, the amount of the 

contribution would not be limited to the 

donor’s basis. Transactions in which a 

family is relying on a tacked-holding 

period under section 1223 from another 

owner outside the family to claim a 

contribution in excess of 2.5 times the 

sum of relevant basis raise serious 

concerns that the family pass-through 

entity exception is being used 

inappropriately to circumvent the 

Disallowance Rule. Accordingly, 

proposed § 1.170A–14(n)(3)(iv)(A) 

would provide that the exception in 

proposed § 1.170A–14(n)(3) does not 

apply unless at least 90 percent of the 

interests in the property with respect to 

which the qualified conservation 

contribution was made were owned, 

directly or indirectly, by one individual 

and members of the family of that 

individual for at least one year prior to 

the date of the contribution. The 

proposed rules would clarify that the 

members of the family during that year 

need not be the same members of the 

family that own an interest at the time 

of the qualified conservation 

contribution; however, at least one 

individual must own an interest for the 

entire year, and at least 90 percent of the 

interests in the property must be owned, 

directly or indirectly, during that year 

by that individual and members of the 

family with respect to that individual. 

The proposed regulations contain an 

example illustrating the application of 

this rule. 

Second, proposed § 1.170A– 

14(n)(3)(iv)(B) would provide that the 

exception in proposed § 1.170A– 

14(n)(3) does not apply unless at least 

90 percent of the qualified conservation 

contribution is allocated to the 

individual and all members of the 

individual’s family who own at least 90 

percent of all the interests in the 

contributing partnership or contributing 

S corporation. The Treasury Department 

and the IRS are concerned that, without 

such a rule, contributing partnerships or 

contributing S corporations might be 

structured to meet the family passthrough exception, but the qualified 

conservation contribution would be 

allocated disproportionately to persons 

that are not members of the family. 

Proposed § 1.170A–14(n)(3)(v) would 

provide that, in the case of tiered passthrough entities, the family passthrough exception is available only if 

the contributing partnership or 

contributing S corporation satisfies the 

requirements of § 1.170A–14(n)(3). If the 

contributing partnership or contributing 

S corporation satisfies the requirements 

of proposed § 1.170A–14(n)(3), then any 

upper-tier partnership or upper-tier S 

corporation need not apply § 1.170A– 

14(j) through (n) to its allocated portion 

of such contribution. If the contributing 

partnership or contributing S 

corporation does not satisfy the 

requirements of proposed § 1.170A– 

14(n)(3), then the exception in 

§ 1.170A–14(n)(3) would not apply to 

any person who receives a distributive 

share or pro rata share of the qualified 

conservation contribution (including an 

upper-tier partnership or upper-tier S 

corporation), regardless of whether the 

person receiving such distributive share 

or pro rata share would have satisfied 

the requirements of proposed § 1.170A– 

14(n)(3) if the person had been the one 

to make the contribution. The Treasury 

Department and the IRS considered 

alternatives to this rule, such as 

allowing upper-tier partnerships and 

upper-tier S corporations to apply the 

family pass-through entity exception 

even if the contributing partnership 

failed to satisfy the exception. Such an 

approach, however, would be 

inconsistent with section 170(h)(7)(D), 

which explicitly applies the 

substantially-all requirement to the 

contributing partnership or contributing 

S corporation. 

3. Exception for Contributions To 

Preserve Certified Historic Structures 

Consistent with section 170(h)(7)(E), 

proposed § 1.170A–14(n)(4) would 

provide that proposed § 1.170A–14(j) 

does not apply to any qualified 

conservation contribution the 

conservation purpose of which is the 

preservation of any building that is a 

certified historic structure (as defined in 

section 170(h)(4)(C)). Proposed 

§ 1.170A–14(n)(4) would also contain a 

cross-reference to the special reporting 

requirements in proposed § 1.170A– 

16(f)(6) for a contribution that meets the 

certified historic structure exception. 

IV. Reporting Requirements 

Existing § 1.170A–16 imposes 

substantiation and reporting 

requirements for noncash charitable 

contributions. Subject to certain 

exceptions, § 1.170A–16 requires the 

donor to file Form 8283, Noncash 

Charitable Contributions, in the case of 

a noncash charitable contribution 

exceeding $500. Specifically, existing 

§ 1.170A–16(c) generally requires the 

donor to complete Form 8283 (Section 

A) in the case of a noncash charitable 

contribution of more than $500 but not 

more than $5,000. Existing § 1.170A– 

16(d) generally requires the donor to 

complete Form 8283 (Section A or 

Section B, or both, as applicable) in the 

case of a noncash charitable 

contribution of more than $5,000. 

Existing § 1.170A–16(e) applies to 

noncash charitable contributions of 

more than $500,000 and generally 

requires the donor to complete Form 

8283 (Section A or Section B, or both, 

as applicable). Consistent with section 

170(f)(11)(D), § 1.170A–16(e) requires a 

donor of a noncash contribution of more 

than $500,000 to attach an appraisal to 

the return on which the deduction is 

claimed. Existing § 1.170A–16(f) 

provides additional substantiation rules, 

including rules for donors that are 

partnerships or S corporations. 

A. Requirement That Numbers Be 

Entered in Sections A and B of Form 

8283 

Existing § 1.170A–16(c)(3) and (d)(3) 

define a completed Form 8283 (Section 

A) and Form 8283 (Section B), 

respectively. To further clarify reporting 

requirements for donated property, 

proposed § 1.170A–16(c)(3)(v) and 

(d)(3)(ix) would add a requirement that, 

if a box in Section A or Section B of the 

Form 8283 (respectively) requests 

insertion of a number, the taxpayer must 

include the number in the box or attach 

a statement explaining why the taxpayer 

cannot include the number in the box. 

Taxpayers that do not include numbers 

where required or engage in a practice 

to obfuscate or otherwise defeat the 

requirement to include a number in the 

box, could be subject to heightened 

scrutiny and a denial of the deduction 

for failure to provide the requested 

information on the Form 8283. 


ddrumheller on DSK120RN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 222 / Monday, November 20, 2023 / Proposed Rules 80927 

5The proposed regulations would redesignate 

existing § 1.170A–16(d)(3)(viii) to § 1.170A– 

16(d)(3)(x). 

6 In other words, a charitable contribution of more 

than $500 but not more than $5,000, § 1.170A– 

16(c), a charitable contribution of more than $5,000, 

§ 1.170A–16(d), or noncash charitable contributions 

of more than $500,000, § 1.170A–16(e). 

The Treasury Department and the IRS 

believe that this rule regarding specific 

reporting of numerical amounts is 

reasonable and necessary because the 

IRS has observed a pronounced increase 

in taxpayers filing a Form 8283 that 

does not contain any numbers and 

instead refers the IRS to an attachment. 

Often, the attachment includes 

nonresponsive information, such as 

‘‘available upon request,’’ is entirely 

blank, or otherwise does not provide the 

information required by Form 8283. 

Other times, the attachment includes 

multiple numbers for different boxes, 

leaving the IRS to surmise which of the 

included numbers is appropriate for a 

particular box. These actions are to the 

detriment of fair and effective tax 

administration. Accordingly, the 

proposed regulations state that Sections 

A and B of Form 8283, including any 

attachments thereto, may not include 

nonresponsive information, such as 

‘‘available upon request,’’ ‘‘provided 

upon request,’’ or any other 

nonresponsive information other than 

the information requested. Including 

any nonresponsive language may result 

in a presumption that Form 8283 is 

incomplete. 

While many taxpayers 

understandably want to attach a 

statement to the Form 8283 to verify 

their calculations and provide 

appropriate supplemental information, 

having the numerical information in the 

appropriate box on Sections A and B of 

Form 8283 is critical to the IRS’s ability 

to ensure the integrity of each filing, as 

IRS systems are programmed to match a 

partner’s or shareholder’s information to 

the appropriate contributing 

partnership’s or contributing S 

corporation’s information. Moreover, 

information requested on Sections A 

and B of Form 8283 is information that 

the partnership or S corporation should 

already have and is already required to 

provide to the partner or shareholder, as 

appropriate. See § 1.170A–16(f)(4). 

B. Clarification of Reporting of Certain 

Qualified Conservation Contributions 

Made by a Partnership or S Corporation 

Existing § 1.170A–16(d)(3) defines a 

completed Form 8283 (Section B) 

required to substantiate charitable 

contributions of more than $5,000. To 

ensure that taxpayers claiming qualified 

conservation contributions properly 

comply with section 170(f)(19) and 

(h)(7), which require a partnership or S 

corporation to calculate the sum of the 

relevant basis of the partnership’s or S 

corporation’s partners or shareholders, 

the IRS must have relevant basis 

reporting from both the contributing 

partnership or contributing S 

corporation and each partner or 

shareholder receiving an allocation of 

the contribution (which will be ultimate 

members, upper-tier partnerships, or 

upper-tier S corporations). Accordingly, 

these proposed regulations would insert 

a new paragraph, proposed § 1.170A– 

16(d)(3)(viii).5

The new paragraph would provide 

that, for certain qualified conservation 

contributions made by a partnership or 

S corporation, the sum of each ultimate 

member’s relevant bases, computed in 

accordance with § 1.170A–14(j) through 

(m), must be reported on the Form 8283 

(Section B) in order for the Form 8283 

(Section B) to be considered complete. 

This new requirement applies to 

contributions described in section 

170(h)(7)(E) and § 1.170A–14(n)(4) (for 

contributions to preserve certified 

historic structures), regardless of 

whether they are also described in 

section 170(h)(7)(C) and § 1.170A– 

14(n)(2) (for contributions made outside 

of the three-year holding period) and/or 

section 170(h)(7)(D) and § 1.170A– 

14(n)(3) (for contributions made by 

certain family partnerships or S 

corporations). While contributions by 

partnerships or S corporations to 

preserve historic structures are excepted 

from the Disallowance Rule of section 

170(h)(7), they are potentially subject to 

section 170(f)(19), which applies when 

the amount of the contribution exceeds 

2.5 times of the relevant bases. The 

Treasury Department and the IRS 

request comments on whether any 

adjustments to relevant basis are 

warranted in the case of a contribution 

to preserve a historic structure. 

This new requirement also would 

apply for any other qualified 

conservation contribution by a 

partnership or S corporation, provided 

that the contribution is not described in 

section 170(h)(7)(C) and § 1.170A– 

14(n)(2) (for contributions made outside 

of the three-year holding period) and/or 

section 170(h)(7)(D) and § 1.170A– 

14(n)(3) (for contributions made by 

certain family partnerships or S 

corporations). If the contribution is 

disallowed by section 170(h)(7) and 

proposed § 1.170A–14(j), then the 

Treasury Department and the IRS expect 

that the contribution will not be 

reported to the IRS on Form 8283 

because no deduction can be taken. 

C. Clarification of Reporting of Noncash 

Charitable Contributions Over $500 

Made by a Partnership or S Corporation 

Existing § 1.170A–16(d)(6) refers to 

existing § 1.170A–16(f) for additional 

substantiation rules. Existing § 1.170A– 

16(f)(4) provides special substantiation 

rules for partner and S corporation 

shareholders. 

Existing § 1.170A–16(f)(4)(i) provides 

that, if the donor is a partnership or S 

corporation, the donor must provide a 

copy of the completed Form 8283 to 

every partner or shareholder who 

receives an allocation of a charitable 

contribution under section 170 for the 

property described in the Form 8283. 

Similarly, existing § 1.170A–16(f)(4)(i) 

provides that a recipient partner or 

shareholder that is a partnership or S 

corporation must provide a copy of the 

completed Form 8283 to each of its 

partners or shareholders who receives 

an allocation of a charitable 

contribution under section 170 for the 

property described in Form 8283. 

Existing § 1.170A–16(f)(4)(ii) provides 

that a partner of a partnership or 

shareholder of an S corporation who 

receives an allocation of a charitable 

contribution under section 170 for 

property to which § 1.170A–16(c), (d), 

or (e) applies 6 must attach a copy of the 

partnership’s or S corporation’s 

completed Form 8283 to the return on 

which the deduction is claimed. 

In pass-through and tiered entity 

structures, the IRS regularly observes 

partners and shareholders providing 

incomplete information to substantiate 

their charitable contribution deductions. 

For example, an ultimate member might 

complete a Form 8283 that contains the 

necessary information from the Form K– 

1 received from the contributing 

partnership, contributing S corporation, 

or an upper-tier partnership or uppertier S corporation. However, often, the 

ultimate member fails to provide a copy 

of the appropriate partnership’s or S 

corporation’s Form 8283 and the Form 

K–1. In accordance with the authority 

granted by section 170(h)(7)(G) to 

‘‘prescribe such regulations or other 

guidance as may be necessary or 

appropriate to carry out the purposes of 

this paragraph, including regulations or 

other guidance . . . to require reporting, 

including reporting related to tiered 

partnerships and the modified basis of 

partners,’’ these proposed regulations 

would revise paragraph § 1.170A– 

16(f)(4). 


ddrumheller on DSK120RN23PROD with PROPOSALS3
80928 Federal Register / Vol. 88, No. 222 / Monday, November 20, 2023 / Proposed Rules 

Proposed § 1.170A–16(f)(4)(i) would 

retain the requirement that a donor that 

is a partnership or S corporation 

provide a copy of the completed Form 

8283 to every partner or shareholder 

who receives an allocation. That 

paragraph also would retain the 

requirement that a partnership or 

corporation that receives an allocation 

of a charitable contribution under 

section 170 must provide a copy of the 

donor’s Form 8283 to its partners or 

shareholders who receive an allocation 

of the deduction, but would clarify that 

this reporting is required through any 

additional tiers. 

Proposed § 1.170A–16(f)(4)(ii) would 

retain the rule that a partner of a 

partnership or shareholder of an S 

corporation who receives an allocation 

of a charitable contribution to which 

§ 1.170A–16(c), (d), or (e) applies must 

attach the donor partnership’s or S 

corporation’s Form 8283 to the return 

on which the deduction is claimed. A 

clarifying requirement is added that the 

partner or shareholder must also attach 

a copy of any additional Forms 8283 

that they must receive as provided in 

proposed § 1.170A–16(f)(4)(iii)(A). 

Proposed § 1.170A–16(f)(4)(iii)(A) 

would provide that a partner of a 

partnership or shareholder of an S 

corporation that receives an allocation 

of a charitable contribution under 

section 170 for property to which 

§ 1.170A–16(c), (d), or (e) applies must 

complete their own Form 8283 with any 

information required by Form 8283 and 

the instructions to Form 8283. In 

addition, a partner that is itself a 

partnership or S corporation must 

complete its own Form 8283 and 

provide a copy of that Form 8283 to 

every partner or shareholder who 

receives an allocation of the charitable 

contribution, and so on through any 

additional tiers. The partner or 

shareholder must attach its separate 

Form 8283 to the return on which the 

contribution is claimed in addition to 

the copy of donor’s Form 8283 as well 

as other Forms 8283 that the partner or 

shareholder received. This new 

requirement would apply to all noncash 

charitable contributions over $500 made 

by a partnership or S corporation, not 

just those for conservation easements. 

Proposed § 1.170A–16(f)(4)(iii)(B) 

would provide that, if the contribution 

was a qualified conservation 

contribution, an ultimate member’s 

separate Form 8283 must include the 

ultimate member’s own relevant basis. 

An upper-tier partnership’s or uppertier S corporation’s separate Form 8283 

must include the sum of each of its 

ultimate member’s relevant bases. 

However, the requirements that an 

ultimate member provide their own 

relevant basis and that an upper-tier 

partnership or upper-tier S corporation 

include the sum of its ultimate 

member’s relevant bases do not apply to 

contributions described in section 

170(h)(7)(C) and § 1.170A–14(n)(2) (for 

contributions made outside of the threeyear holding period) or section 

170(h)(7)(D) and § 1.170A–14(n)(3) (for 

contributions made by certain family 

partnerships or S corporations), 

provided that they are not also 

described in section 170(h)(7)(E) and 

§ 1.170A–14(n)(4) (for contributions to 

preserve certified historic structures), in 

which case proposed paragraph 

§ 1.170A–16(f)(4)(iii)(B) does apply. The 

Form 8283 instructions will be revised 

accordingly. 

D. Additional Reporting Required by 

Section 170(f)(19) 

To ensure proper reporting under 

section 170(f)(19), the proposed 

regulations would add new § 1.170A– 

16(f)(6). Specifically, proposed 

§ 1.170A–16(f)(6)(i) would provide that, 

in the case of any contribution 

described in section 170(h)(4)(C) and 

proposed § 1.170A–16(f)(6)(ii) (relating 

to the preservation of certified historic 

structures), pursuant to section 

170(f)(19), no deduction is allowed 

under section 170 or any other 

provision of the Code under which 

deductions are allowable to passthrough entities with respect to such 

contribution unless each partnership or 

S corporation (1) includes on its return 

for the taxable year in which the 

contribution is made a statement that it 

made such a contribution or received 

such allocated portion and (2) provides 

such information about the contribution 

as the Secretary may require in 

guidance, forms, or instructions. The 

reference to ‘‘any other provision of the 

Code under which deductions are 

allowable to pass-through entities’’ is 

included under the authority of section 

170(f)(19)(C) to apply these rules to S 

corporations and other pass-through 

entities in the same manner as such 

rules apply to partnerships and their 

partners, and is necessary to prevent 

such pass-through entities and their 

owners from claiming a deduction 

under a different provision of the Code 

other than section 170, such as section 

642(c), unless the statutory and 

regulatory requirements of section 

170(f)(19) are met. 

Proposed § 1.170A–16(f)(6)(ii) 

describes (using terms defined in 

proposed § 1.170A–14(j)(3)) the 

contributions to which proposed 

§ 1.170A–16(f)(6) would apply, namely 

any qualified conservation contribution 

(as defined in section 170(h)(1) and 

proposed § 1.170A–14) for which: (1) 

the conservation purpose of which is 

preservation of a building that is a 

certified historic structure (as defined in 

section 170(h)(4)(C)); (2) that is either 

made by a contributing partnership or 

contributing S corporation, or that is an 

allocated portion of an upper-tier 

partnership or upper-tier S corporation; 

and (3) the amount of such contribution 

or such allocated portion exceeds 2.5 

times the sum of each ultimate 

member’s relevant basis (as defined in 

proposed § 1.170A–14(j) through (m)). 

Proposed § 1.170A–16(f)(6)(iii) would 

provide that a partnership or S 

corporation satisfies the requirement to 

have made a statement that it made such 

a contribution or received such 

allocated portion and to provide such 

information about the contribution as 

the Secretary may require by filing Form 

8283 (including information about 

relevant basis) in accordance with 

section 170, the regulations under 

section 170 (including those proposed 

in this notice of proposed rulemaking), 

and the instructions to Form 8283. 

V. Section 706 Regulations 

The general mechanism of section 

170(h)(7) with respect to partnerships is 

to compare the amount of the 

partnership’s contribution (or its 

distributive share of a contribution 

made by another partnership) to 2.5 

times the sum of each of its partner’s 

relevant basis. Relevant basis is based 

on modified basis, which is based on 

the partner’s adjusted basis in its 

partnership interest immediately before 

the contribution. Without additional 

rules, there may be situations in which 

the contribution is allocated to partners 

that did not hold an interest at the time 

of the qualified conservation 

contribution. Such partners would not 

have any adjusted basis in their 

partnership interests immediately before 

the contribution, and thus, without 

additional rules, their relevant basis 

would be zero. Therefore, rules are 

needed to align the computation of 

relevant basis (which is generally 

required to be computed immediately 

before the computation) with the 

allocation of the contribution among the 

partners. 

Generally, section 706 and § 1.706–4 

of the existing regulations provide rules 

for determining a partner’s distributive 

share of partnership items when a 

partner’s interest in the partnership 

varies during the taxable year. For 

example, assume a partner holding a 25 

percent interest in a calendar-year 

partnership sells its 25 percent interest 

on July 1. Under section 706 and 


ddrumheller on DSK120RN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 222 / Monday, November 20, 2023 / Proposed Rules 80929 

7The rules of § 1.706–4 also require the use of 

conventions to determine the date on which 

variations are deemed to occur. Discussion of these 

conventions is beyond the scope of this preamble. 

§ 1.706–4, the partnership would not 

allocate the selling partner 25 percent of 

all items of income for the year because 

the selling partner had no interest in the 

partnership for the final half of the year. 

Instead, the partnership would follow 

the rules of § 1.706–4 to ensure that the 

allocations properly reflect the sale of 

the partner’s interest. Generally, the 

rules of § 1.706–4 allow partnerships to 

use either a proration method or an 

interim closing of the books method 

(interim closing method).7 In the 

example, a partnership using the 

proration method generally would 

allocate the selling partner 12.5 percent 

(reflecting the fact that the selling 

partner held a 25 percent interest in the 

partnership for half of the year) of every 

item of the partnership for the full year, 

regardless of whether the partnership 

incurred the item in the first or second 

half of the year. Alternatively, a 

partnership using the interim closing 

method generally would allocate the 

selling partner 25 percent of every item 

occurring in the first half of the year. 

Section 1.706–4 provides an 

exception to these rules for certain 

‘‘extraordinary items,’’ which must be 

allocated in accordance with the 

partners’ interests in the item at the time 

of day the extraordinary item occurred. 

Section 1.706–4(e)(2) provides a list of 

these extraordinary items. In particular, 

§ 1.706–4(e)(2)(i) and (ii) provide that an 

extraordinary item includes any item 

from the disposition or abandonment 

(other than in the ordinary course of 

business) of a capital asset as defined in 

section 1221 of the Code (determined 

without the application of any other 

rules of law) and any item from the 

disposition or abandonment (other than 

in the ordinary course of business) of 

property used in a trade or business as 

defined in section 1231(b) of the Code 

(determined without the application of 

any holding period requirement). 

Section 1.706–4(e)(3) provides a ‘‘small 

item exception’’ under which certain 

items in the list in § 1.706–4(e)(2) 

nevertheless are not extraordinary items 

if they fall below certain thresholds. 

Proposed § 1.706–4(e)(2)(ix) would 

provide that an extraordinary item 

includes any qualified conservation 

contribution (without regard to whether 

such contribution is a disallowed 

qualified conservation contribution 

within the meaning of § 1.170A– 

14(j)(3)(vii)). The proposed amendments 

to existing § 1.706–4(e)(3) contained in 

these proposed regulations would 

provide that the small item exception 

does not apply to any qualified 

conservation contribution. These rules 

are designed to ensure that modified 

basis can be computed immediately 

before the contribution, as directed in 

section 170(h)(7). The Treasury 

Department and the IRS considered 

alternatives to this rule. However, many, 

and perhaps most, qualified 

conservation contributions are already 

considered extraordinary items under 

existing § 1.706–4(e)(2)(i) or (ii). The 

proposed rule, however, provides clarity 

and uniformity regarding the 

application of the extraordinary item 

rule to qualified conservation 

contributions and facilitates the 

computation of a partner’s modified 

basis immediately before the 

contribution as directed by the statute. 

Section 706(d)(3) provides rules for an 

upper-tier partnership’s allocation of 

items to its partners attributable to an 

interest in a lower-tier partnership. It 

provides that if, during any taxable year 

of the upper-tier partnership there is a 

change in any partner’s interest in the 

upper-tier partnership, then (except to 

the extent provided in regulations) each 

partner’s distributive share of any item 

of the upper-tier partnership attributable 

to the lower-tier partnership must be 

determined by assigning the appropriate 

portion (determined by applying 

principles similar to the principles of 

section 706(d)(2)(C) and (D)) of each 

such item to the appropriate days 

during which the upper-tier partnership 

is a partner in the lower-tier partnership 

and by allocating the portion assigned to 

any such day among the partners in 

proportion to their interests in the 

upper-tier partnership at the close of 

such day. The Treasury Department and 

the IRS are concerned that, even if a 

lower-tier partnership’s qualified 

conservation contribution is treated as 

an extraordinary item with respect to 

the lower-tier partnership, an upper-tier 

partnership might nevertheless attempt 

to rely on section 706(d)(3) and allocate 

its share of the contribution to partners 

that were not partners on the date of 

contribution. To facilitate the 

computation of a partner’s relevant basis 

immediately before the contribution, 

proposed § 1.706–3(a) would provide 

that, for purposes of section 706(d)(3), 

in the case of a qualified conservation 

contribution (without regard to whether 

such contribution is a disallowed 

qualified conservation contribution 

within the meaning of § 1.170A– 

14(j)(3)(vii)) by a partnership that is 

allocated to an upper-tier partnership, 

the upper-tier partnership must allocate 

the contribution among its partners in 

proportion to their interests in the 

upper-tier partnership at the time of day 

at which the contribution was made, 

regardless of the method (interim 

closing or proration) and convention 

(daily, semi-monthly, or monthly) 

otherwise used by the upper-tier 

partnership under § 1.706–4. The 

Treasury Department and the IRS 

request comments on whether these 

rules are necessary and sufficient to 

ensure the appropriate operation of the 

Disallowance Rule. 

Proposed Applicability Dates 

Section 605(c) of the SECURE 2.0 Act 

provides that the amendments made by 

section 605 of the SECURE 2.0 Act 

apply to contributions made after 

December 29, 2022. Pursuant to section 

7805(b)(2) of the Code, regulations 

issued under section 170(f)(19) and 

(h)(7) within 18 months of the December 

29, 2022, date of enactment of section 

605 of the SECURE 2.0 Act are 

permitted to apply to periods ending 

before the dates provided under section 

7805(b)(1). Accordingly, the proposed 

regulations under §§ 1.170A–14(j) 

through (n), 1.706–3, and 1.706–4 are 

proposed to apply to contributions 

made after December 29, 2022. 

To align the reporting requirements 

under § 1.170A–16 with the publication 

of the revised Form 8283 and its 

instructions, the proposed regulations 

under § 1.170A–16 are proposed to 

apply to contributions made in taxable 

years ending on or after November 20, 

2023. 

Special Analyses 

I. Paperwork Reduction Act 

The Paperwork Reduction Act of 1995 

(44 U.S.C. 3501–3520) generally 

requires that a Federal agency obtain the 

approval of the Office of Management 

and Budget (OMB) before collecting 

information from the public, whether 

such collection of information is 

mandatory, voluntary, or required to 

obtain or retain a benefit. 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 control number. 

The collection of information 

contained in these proposed regulations 

is reflected in the collection of 

information for Form 8283 and 

Schedule K–1 for Forms 1065, U.S. 

Return of Partnership Income, and 

1120–S, U.S. Income Tax Return for an 

S corporation, that have been reviewed 

and approved by the Office of 

Management and Budget in accordance 

with the Paperwork Reduction Act (44 


ddrumheller on DSK120RN23PROD with PROPOSALS3
80930 Federal Register / Vol. 88, No. 222 / Monday, November 20, 2023 / Proposed Rules 

U.S.C. 3507(c)) under control numbers 

1545–0074 and 1545–0123. The 

estimated burden for taxpayers filing 

Form 8283 under OMB control number 

1545–0074 is nineteen minutes for 

recordkeeping, twenty-nine minutes for 

learning about the law or the form, one 

hour and four minutes for preparing the 

form, and thirty-four minutes for 

copying, assembling, and sending the 

form to the IRS. 

To the extent there is a change in 

burden as a result of these regulations, 

the change in burden will be reflected 

in the updated burden estimates for the 

Form 8283 and Schedule K–1 for Forms 

1065 and 1120–S. The requirement to 

maintain records to substantiate 

information on Form 8283 and Schedule 

K–1 for Forms 1065 and 1120–S is 

already contained in the burden 

associated with the control number for 

the forms and remains unchanged. 

II. Regulatory Flexibility Act 

The Secretary of the Treasury hereby 

certifies that the proposed regulations 

will not have a significant economic 

impact on a substantial number of small 

entities pursuant to the Regulatory 

Flexibility Act (5 U.S.C. chapter 6). This 

rule would affect partnerships and S 

corporations that claim qualified 

conservation contributions, and partners 

and S corporation shareholders that 

receive a distributive share or pro rata 

share of a noncash charitable 

contribution. Although data is not 

readily available about the number of 

small entities that are potentially 

affected by this rule, it is possible that 

a substantial number of small entities 

may be affected. 

The impact of these proposed 

regulations can be described in the 

following four categories. 

First, proposed § 1.170A–14(j) 

through (n) would provide guidance in 

applying section 170(h)(7), including 

providing definitions, formulas for the 

required calculations, and examples to 

help ensure the effective application of 

section 170(h)(7), and proposed 

§§ 1.706–3 and 1.706–4(e)(2)(ix) would 

provide special rules for allocating 

qualified conservation contributions. 

Even assuming that these provisions 

affect a substantial number of small 

entities, they will not have a significant 

economic impact. Section 170(h)(7) is 

self-executing and imposes the burden 

of calculating relevant basis and 

applying the Disallowance Rule. 

Because these proposed regulations are 

focused on providing definitional and 

computational guidance related to 

section 170(h)(7), their economic impact 

is expected to be minimal. 

Second, proposed § 1.170A– 

16(d)(3)(viii) would require the Form 

8283 filed by contributing partnerships 

and contributing S corporations to 

include the sum of each ultimate 

member’s relevant basis. The existing 

regulations under § 1.170A–16 already 

requires these entities to file Form 8283. 

Even assuming that this provision 

affects a substantial number of small 

entities, it will not have a significant 

economic impact because it simply 

requires contributing partnerships and 

contributing S corporations to put a 

small amount of additional information, 

which section 170(h)(7) and (f)(19) 

requires them to determine, on a form 

they are already required to file. 

Third, proposed § 1.170A–16(f)(6) 

would require a partnership or S 

corporation to file a completed Form 

8283 to be considered to satisfy the 

requirements of section 170(f)(19)(A)(i). 

Even assuming that this provision 

affects a substantial number of small 

entities, it will not have a significant 

economic impact because it simply 

requires contributing partnerships and 

contributing S corporations to put a 

small amount of additional information 

on a form they are already required to 

file. 

Fourth, proposed § 1.170A– 

16(f)(4)(iii) would require all partners 

and shareholders of S corporations who 

receive an allocation of a noncash 

charitable contribution to file a separate 

Form 8283. Many of these partners and 

shareholders will be individuals, not 

small entities. However, even assuming 

that this provision affects a substantial 

number of small entities, it will not 

have a significant economic impact. The 

partnership or S corporation will 

provide the partner or shareholder with 

all, or substantially all, of the 

information to be reported on the 

separate Form 8283; this information 

will be contained either on the 

partnership’s or S corporation’s Form 

8283 or the Schedule K–1 issued to the 

partner or shareholder. Accordingly, in 

most cases partners and shareholders 

will simply be transcribing information 

provided to them onto the separate 

Form 8283. 

For the reasons stated, a regulatory 

flexibility analysis under the Regulatory 

Flexibility Act is not required. The 

Treasury Department and the IRS invite 

comments on the impact of the 

proposed regulations on small entities. 

Pursuant to section 7805(f), this 

notice of proposed rulemaking has been 

submitted to the Chief Counsel for the 

Office of Advocacy of the Small 

Business Administration for comment 

on its impact on small business. 

III. Unfunded Mandates Reform Act 

Section 202 of the Unfunded Mandate 

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). These proposed regulations 

do 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. These proposed 

regulations do not have federalism 

implications and do not impose 

substantial, direct compliance costs on 

State and local governments or preempt 

State law within the meaning of the 

Executive order. 

V. Executive Order 13175: Consultation 

and Coordination With Indian Tribal 

Governments 

Executive Order 13175 (Consultation 

and Coordination With Indian Tribal 

Governments) prohibits an agency from 

publishing any rule that has Tribal 

implications if the rule either imposes 

substantial, direct compliance costs on 

Indian Tribal governments, and is not 

required by statute, or preempts Tribal 

law, unless the agency meets the 

consultation and funding requirements 

of section 5 of the Executive order. This 

proposed rule does not have substantial 

direct effects on one or more federally 

recognized Indian tribes and does not 

impose substantial direct compliance 

costs on Indian Tribal governments 

within the meaning of the Executive 

order. 

VI. 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 of 

Executive Order 12866, as amended. 

Therefore, a regulatory impact 

assessment is not required. 


ddrumheller on DSK120RN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 222 / Monday, November 20, 2023 / Proposed Rules 80931 

Comments and Public Hearing 

Before these proposed regulations are 

adopted as final regulations, 

consideration will be given to comments 

that are submitted timely to the IRS as 

prescribed in the preamble under the 

ADDRESSES section. The Treasury 

Department and the IRS request 

comments on all aspects of the proposed 

regulations. Any electronic comments 

submitted, and any paper comments 

submitted, will be made available at 

https://www.regulations.gov or upon 

request. Once submitted to the Federal 

eRulemaking Portal, comments cannot 

be edited or withdrawn. 

Announcement 2023–16, 2023–20 

I.R.B. 854 (May 15, 2023), provides that 

public hearings will be conducted in 

person, although the IRS will continue 

to provide a telephonic option for 

individuals who wish to attend or 

testify at a hearing by telephone. Any 

telephonic hearing will be made 

accessible to people with disabilities. 

A public hearing has been scheduled 

for January 3, 2024, beginning at 10 a.m. 

ET, in the Auditorium at the Internal 

Revenue Building, 1111 Constitution 

Avenue NW, Washington, DC, unless no 

outlines are received by December 20, 

2023. Due to building security 

procedures, visitors must enter at the 

Constitution Avenue entrance. In 

addition, all visitors must present photo 

identification to enter the building. 

Because of access restrictions, visitors 

will not be admitted beyond the 

immediate entrance area more than 30 

minutes before the hearing starts. 

Participants may alternatively attend the 

public hearing by telephone. 

The rules of 26 CFR 601.601(a)(3) 

apply to the hearing. Persons who wish 

to comment by telephone at the hearing 

must submit written or electronic 

comments and an outline of the topics 

to be discussed as well as the time to be 

devoted to each topic by December 20, 

2023, as prescribed in the preamble 

under the ADDRESSES section. 

A period of ten minutes will be 

allocated to each person for making 

comments. After the deadline for 

receiving outlines has passed, the IRS 

will prepare an agenda containing the 

schedule of speakers. If no outline of the 

topics to be discussed at the hearing is 

received by December 20, 2023, the 

public hearing will be cancelled. If the 

public hearing is cancelled, a notice of 

cancellation of the public hearing will 

be published in the Federal Register. 

Copies of the agenda will be available 

free of charge at the hearing, and via the 

Federal eRulemaking Portal (https://

www.regulations.gov) under the title of 

Supporting & Related Material. Copies 

of the agenda will also be available by 

emailing a request to publichearings@

irs.gov. Please put ‘‘REG–112916–23 

Agenda Request’’ in the subject line of 

the email. 

Individuals who want to testify in 

person at the public hearing must send 

an email to publichearings@irs.gov to 

have your name added to the building 

access list. The subject line of the email 

must contain the regulation number 

REG–112916–23 and the language 

‘‘TESTIFY In Person.’’ For example, the 

subject line may say: Request to 

TESTIFY In Person at Hearing for REG– 

112916–23. 

Individuals who want to testify by 

telephone at the public hearing must 

send an email to publichearings@irs.gov 

to receive the telephone number and 

access code for the hearing. The subject 

line of the email must contain the 

regulation number REG–112916–23 and 

the language ‘‘TESTIFY 

Telephonically.’’ For example, the 

subject line may say: Request to 

TESTIFY Telephonically at Hearing for 

REG–112916–23. 

Individuals who want to attend the 

public hearing in person without 

testifying must also send an email to 

publichearings@irs.gov to have your 

name added to the building access list. 

The subject line of the email must 

contain the regulation number REG– 

112916–23 and the language ‘‘ATTEND 

In Person.’’ For example, the subject 

line may say: Request to ATTEND 

Hearing In Person for REG–112916–23. 

Individuals who want to attend the 

public hearing by telephone without 

testifying must also send an email to 

publichearings@irs.gov to receive the 

telephone number and access code for 

the hearing. The subject line of the 

email must contain the regulation 

number REG–112916–23 and the 

language ‘‘ATTEND Hearing 

Telephonically.’’ For example, the 

subject line may say: Request to 

ATTEND Hearing Telephonically for 

REG–112916–23. Requests to attend the 

public hearing must be received by 5 

p.m. ET on December 29, 2023. 

Hearings will be made accessible to 

people with disabilities. To request 

special assistance during a hearing 

please contact the Publications and 

Regulations Branch of the Office of 

Associate Chief Counsel (Procedure and 

Administration) by sending an email to 

publichearings@irs.gov (preferred) or by 

telephone at (202) 317–6901 (not a tollfree number) by December 28, 2023. 

Statement of Availability of IRS 

Documents 

IRS notices and other guidance cited 

in this preamble are published in the 

Internal Revenue Bulletin (or 

Cumulative Bulletin) and are 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 

proposed are Elizabeth Boone and 

Hannah Kim, Office of the Associate 

Chief Counsel (Income Tax & 

Accounting), IRS, and Benjamin 

Weaver, Office of the Associate Chief 

Counsel (Passthroughs & Special 

Industries), IRS. However, 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. 

Proposed Amendments to the 

Regulations 

Accordingly, the Treasury Department 

and the IRS propose to amend 26 CFR 

part 1 as follows: 

PART 1—INCOME TAXES 

■ Paragraph 1. The authority citation 

for part 1 is amended by: 

■ 1. Adding an entry for § 1.170A–14 in 

numerical order; 

■ 2. Revising the entry for § 1.170A–16; 

■ 3. Adding an entry for § 1.706–3 in 

numerical order; and 

■ 4. Revising the entry for § 1.706–4. 

The additions and revisions read as 

follows: 

Authority: 26 U.S.C. 7805 * * * 

* * * * * 

Section 1.170A–14 also issued under 26 

U.S.C. 170(f)(11) and 170(h)(7). 

* * * * * 

Section 1.170A–16 also issued under 26 

U.S.C. 170(f)(11), 170(f)(19), 170(h)(7)(G), 

6001, and 6011. 

* * * * * 

Section 1.706–3 also issued under 26 

U.S.C. 170(h)(7)(G). 

* * * * * 

Section 1.706–4 also issued under 26 

U.S.C. 170(h)(7)(G). 

* * * * * 

■ Par. 2. Section 1.170A–14 is amended 

by: 

■ 1. Revising paragraph (a); 

■ 2. Redesignating paragraph (j) as 

paragraph (o) and adding new paragraph 

(j); 

■ 3. Adding paragraphs (k) through (n); 

and 

■ 4. Revising newly designated 

paragraph (o). 

The additions and revisions read as 

follows: 


ddrumheller on DSK120RN23PROD with PROPOSALS3
80932 Federal Register / Vol. 88, No. 222 / Monday, November 20, 2023 / Proposed Rules 

§ 1.170A–14 Qualified conservation 

contributions. 

(a) Qualified conservation 

contributions. A deduction under 

section 170 of the Internal Revenue 

Code (Code) is generally not allowed for 

a charitable contribution of any interest 

in property that consists of less than the 

donor’s entire interest in the property 

other than certain transfers in trust (see 

§ 1.170A–6 relating to charitable 

contributions in trust and § 1.170A–7 

relating to contributions not in trust of 

partial interests in property). However, 

a deduction may be allowed under 

section 170(f)(3)(B)(iii) for the value of 

a qualified conservation contribution if 

the requirements of this section are met 

and the contribution is not a disallowed 

qualified conservation contribution 

within the meaning of paragraph (j) of 

this section. A qualified conservation 

contribution is the contribution of a 

qualified real property interest to a 

qualified organization exclusively for 

conservation purposes. To be eligible for 

a deduction under section 170(h) and 

this section, the conservation purpose 

must be protected in perpetuity. 

* * * * * 

(j) Disallowance of certain deductions 

for contributions by partnerships and S 

corporations that exceed 2.5 times the 

sum of relevant bases—(1) In general. 

This paragraph (j) applies the rules of 

section 170(h)(7), which disallow a 

deduction for certain qualified 

conservation contributions, as defined 

in section 170(h)(1) and this section, 

made by, or allocated to, partnerships or 

S corporations (as defined in section 

1361(a)(1) of the Code) if the amount of 

the qualified conservation contribution 

exceeds 2.5 times the sum of the 

relevant bases, as determined by this 

paragraph (j) and paragraphs (k) through 

(m) of this section (Disallowance Rule). 

See paragraph (n) of this section for 

certain exceptions. See paragraph (j)(3) 

of this section for definitions of terms 

used in this paragraph (j) and 

paragraphs (k) through (n) of this 

section. 

(2) Application—(i) Contributing 

partnerships and contributing S 

corporations. Except as provided in 

paragraph (n) of this section, a qualified 

conservation contribution by a 

contributing partnership or a 

contributing S corporation is a 

disallowed qualified conservation 

contribution if the amount of the 

qualified conservation contribution 

exceeds 2.5 times the sum of each of the 

contributing partnership’s or 

contributing S corporation’s ultimate 

member’s relevant basis as determined 

under this paragraph (j) and paragraphs 

(k) through (m) of this section. 

(ii) Upper-tier partnerships and 

upper-tier S corporations. Except as 

provided in paragraph (n) of this 

section, an allocated portion received by 

an upper-tier partnership or upper-tier S 

corporation is a disallowed qualified 

conservation contribution if either the 

contribution is a disallowed qualified 

conservation contribution with respect 

to the partnership that allocated the 

allocated portion to the upper-tier 

partnership or upper-tier S corporation, 

or such allocated portion exceeds 2.5 

times the sum of each of that upper-tier 

partnership’s or upper-tier S 

corporation’s ultimate member’s 

relevant basis as determined under this 

paragraph (j) and paragraphs (k) through 

(m) of this section. 

(3) Definitions. The following 

definitions apply for purposes of this 

paragraph (j) and paragraphs (k) through 

(n) of this section: 

(i) Allocated portion. In the case of an 

upper-tier partnership or upper-tier S 

corporation that receives, directly or 

indirectly, a distributive share of a 

qualified conservation contribution, the 

phrase allocated portion means the 

amount of such distributive share. 

(ii) Amount of qualified conservation 

contribution. The amount of a 

contributing partnership’s or 

contributing S corporation’s qualified 

conservation contribution is the amount 

claimed as a qualified conservation 

contribution on the return of the 

contributing partnership or contributing 

S corporation for the taxable year in 

which the contribution is made. If the 

contributing partnership or contributing 

S corporation files an amended return or 

administrative adjustment request under 

section 6227 of the Code claiming a 

different amount with respect to the 

qualified conservation contribution, the 

rules of this section must be re-applied 

with respect to such different amount to 

determine the application of section 

170(h)(7) and this section. 

(iii) Contributing partnership. The 

term contributing partnership means a 

partnership that makes a qualified 

conservation contribution. 

(iv) Contributing S corporation. The 

term contributing S corporation means 

an S corporation that makes a qualified 

conservation contribution. 

(v) Direct interest. The term direct 

interest refers to an ownership interest 

in a contributing partnership, upper-tier 

partnership, contributing S corporation, 

or upper-tier S corporation that is held 

directly, or through an entity 

disregarded as separate from its owner 

for Federal income tax purposes, a 

qualified subchapter S subsidiary as 

defined in section 1361(b)(3), or through 

a grantor trust (under subpart E of part 

1 of subchapter J of chapter 1 of the 

Code). In the case of a partner that is a 

C corporation (as defined in section 

1361(a)(2)), non-grantor trust, or an 

estate, or an S corporation shareholder 

that is a non-grantor trust or an estate, 

the direct interest in the partnership or 

S corporation, as applicable, is held by 

the C corporation, non-grantor trust, or 

estate; the C corporation’s shareholders, 

trust beneficiaries, and estate 

beneficiaries are not considered to hold 

any interest in the partnership or S 

corporation, as applicable, for purposes 

of this paragraph (j) and paragraphs (k) 

through (n) of this section. 

(vi) Directly. An ownership interest is 

held directly if it is not held through one 

or more upper-tier partnerships or 

upper-tier S corporations. A distributive 

share or pro rata share of a qualified 

conservation contribution is received 

directly if it does not pass through one 

or more upper-tier partnerships or 

upper-tier S corporations. 

(vii) Disallowed qualified 

conservation contribution. The term 

disallowed qualified conservation 

contribution means a qualified 

conservation contribution or allocated 

portion for which no deduction is 

allowed pursuant to section 170(h)(7) 

and this paragraph (j). 

(viii) Indirect interest. The term 

indirect interest refers to an ownership 

interest in a contributing partnership, 

contributing S corporation, upper-tier 

partnership, or upper-tier S corporation 

held through an upper-tier S 

corporation or one or more upper-tier 

partnerships. 

(ix) Indirectly. An ownership interest 

is held indirectly if it is held through 

one or more upper-tier partnerships or 

upper-tier S corporations. A distributive 

share or pro rata share of a qualified 

conservation contribution is received 

indirectly if it passes through one or 

more upper-tier partnerships or uppertier S corporations. 

(x) Ultimate member. The term 

ultimate member means, with respect to 

any partnership or S corporation, any 

partner (that is not itself a partnership 

or S corporation) or S corporation 

shareholder that receives a distributive 

share or pro rata share, directly or 

indirectly, of a qualified conservation 

contribution. Thus, ultimate members 

will either be partners holding a direct 

interest in a partnership, which may be 

the contributing partnership or an 

upper-tier partnership, or shareholders 

holding a direct interest in an S 

corporation, which may be the 

contributing S corporation or an uppertier S corporation. Upper-tier S 


ddrumheller on DSK120RN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 222 / Monday, November 20, 2023 / Proposed Rules 80933 

corporations and upper-tier 

partnerships themselves are not 

considered ultimate members. 

(xi) Upper-tier partnership. The term 

upper-tier partnership means a 

partnership that receives an allocated 

portion. 

(xii) Upper-tier S corporation. The 

term upper-tier S corporation means an 

S corporation that receives an allocated 

portion. 

(4) Effect of Disallowance Rule—(i) If 

the Disallowance Rule applies to a 

contributing partnership or contributing 

S corporation. If a contributing 

partnership’s or contributing S 

corporation’s qualified conservation 

contribution is a disallowed qualified 

conservation contribution under this 

paragraph (j), then: 

(A) Any upper-tier partnership’s or 

upper-tier S corporation’s allocated 

portion of such contribution is a 

disallowed qualified conservation 

contribution, regardless of whether such 

allocated portion exceeds 2.5 times the 

sum of each of the upper-tier 

partnership’s or upper-tier S 

corporation’s ultimate member’s 

relevant basis; and 

(B) No person (whether holding a 

direct or indirect interest in such 

contributing partnership or contributing 

S corporation) may claim a deduction 

under any provision of the Code with 

respect to any amount of such 

disallowed qualified conservation 

contribution, regardless of whether that 

person’s distributive share or pro rata 

share of the disallowed qualified 

conservation contribution exceeds 2.5 

times its relevant basis. 

(ii) If the Disallowance Rule does not 

apply to a contributing partnership or 

contributing S corporation. If a 

contributing partnership’s or 

contributing S corporation’s qualified 

conservation contribution is not a 

disallowed qualified conservation 

contribution under this paragraph (j), 

then: 

(A) The distributive share or pro rata 

share of any ultimate member holding a 

direct interest in the contributing 

partnership or contributing S 

corporation is not a disallowed qualified 

conservation contribution; and 

(B) Any upper-tier partnership or 

upper-tier S corporation that receives an 

allocated portion of such qualified 

conservation contribution must 

separately apply the rules of section 

170(h)(7) and this paragraph (j) and 

paragraphs (k) through (m) of this 

section to determine whether that 

upper-tier partnership’s or upper-tier S 

corporation’s allocated portion is a 

disallowed qualified conservation 

contribution. 

(iii) If the Disallowance Rule applies 

to an upper-tier partnership or an 

upper-tier S corporation. If an upper-tier 

partnership’s or upper-tier S 

corporation’s allocated portion is a 

disallowed qualified conservation 

contribution under this paragraph (j), 

then: 

(A) Any subsequent upper-tier 

partnership’s or upper-tier S 

corporation’s allocated portion of such 

allocated portion is a disallowed 

qualified conservation contribution, 

regardless of whether the subsequent 

upper-tier partnership’s or upper-tier S 

corporation’s allocated portion exceeds 

2.5 times the sum of each of subsequent 

upper-tier partnership’s or upper-tier S 

corporation’s ultimate member’s 

relevant basis; and 

(B) No person holding a direct or 

indirect interest in that upper-tier 

partnership or upper-tier S corporation 

may claim a deduction under any 

provision of the Code with respect to 

any amount of that upper-tier 

partnership’s or upper-tier S 

corporation’s allocated portion, 

regardless of whether that person’s 

distributive share or pro rata share of 

the allocated portion exceeds 2.5 times 

its relevant basis. However, this does 

not affect the application of this 

paragraph (j) and paragraphs (k) through 

(m) of this section to another partner of 

the contributing partnership; for 

example, if the qualified conservation 

contribution is not a disallowed 

qualified conservation contribution with 

respect to the contributing partnership, 

then the distributive share of such 

contribution of an ultimate member 

holding a direct interest in the 

contributing partnership is not a 

disallowed qualified conservation 

contribution, notwithstanding that the 

qualified conservation contribution is a 

disallowed qualified conservation 

contribution with respect to one or more 

upper-tier partnerships or upper-tier S 

corporations. 

(iv) If the Disallowance Rule does not 

apply to an upper-tier partnership or 

upper-tier S corporation. If an upper-tier 

partnership’s or upper-tier S 

corporation’s allocated portion is not a 

disallowed qualified conservation 

contribution under this paragraph (j), 

then: 

(A) The distributive share or pro rata 

share of such allocated portion of any 

ultimate member holding a direct 

interest in the upper-tier partnership or 

upper-tier S corporation is not a 

disallowed qualified conservation 

contribution; and 

(B) Any subsequent upper-tier 

partnership or upper-tier S corporation 

that receives an allocated portion of 

such allocated portion must separately 

apply the rules of section 170(h)(7) and 

this paragraph (j) and paragraphs (k) 

through (m) of this section to determine 

whether that subsequent upper-tier 

partnership’s or upper-tier S 

corporation’s allocated portion is treated 

as a disallowed qualified conservation 

contribution. 

(5) No inference. There is no 

presumption that a qualified 

conservation contribution that is not a 

disallowed qualified conservation 

contribution as defined in paragraph 

(j)(3)(vii) of this section is compliant 

with section 170, any other section of 

the Code, the regulations, or any other 

guidance. Compliance with section 

170(h)(7) and this paragraph (j) and 

paragraphs (k) through (n) of this 

section is not a safe harbor for purposes 

of any other provision of law or with 

respect to the value of the contribution. 

Such transactions are subject to 

adjustment or disallowance for any 

other reason, including failure to satisfy 

the other requirements of section 170 

and overvaluation of the contribution. 

In addition, taxpayers who engage in 

such transactions may be required to 

disclose under § 1.6011–4 the 

transactions as listed transactions. 

(6) Examples. The following examples 

illustrate the rules of this paragraph (j). 

For these three examples in this 

paragraph (j)(6), assume that the 

partnership allocations comply with the 

rules of subchapter K of chapter 1 of the 

Code, and that the exceptions in 

paragraph (n) of this section do not 

apply. 

(i) Example 1: Disallowed qualified 

conservation contribution—(A) Facts. A, 

an individual, and B, a C corporation, 

form AB Partnership, a partnership for 

Federal income tax purposes. AB 

Partnership acquires real property. Two 

years later, AB Partnership makes a 

qualified conservation contribution with 

respect to the property and claims a 

contribution of $100X on its return. AB 

Partnership allocates the contribution 

equally to A and B. A’s relevant basis 

is $30X, and B’s relevant basis is $8X. 

(B) Analysis. A and B are the ultimate 

members of AB Partnership because 

they each receive a distributive share of 

the qualified conservation contribution 

and are not partnerships or S 

corporations. The claimed amount of 

AB Partnership’s qualified conservation 

contribution is $100X, which exceeds 

2.5 times the sum of A’s and B’s 

relevant bases, which is $95X ($95X = 

2.5 × (A’s $30X relevant basis + B’s $8X 

relevant basis)). Therefore, AB 

Partnership’s contribution is a 

disallowed qualified conservation 

contribution. No person may claim any 


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deduction with respect to this 

contribution, even though A’s $50X 

distributive share of the contribution 

does not exceed 2.5 times A’s $30X 

relevant basis. 

(ii) Example 2: Not a disallowed 

qualified conservation contribution— 

(A) Facts. Individuals C and D form CD 

Partnership, a partnership for Federal 

income tax purposes. CD Partnership 

acquires real property. Two years later, 

CD Partnership makes a qualified 

conservation contribution with respect 

to the property and claims a 

contribution of $100X on its return. CD 

Partnership allocates the contribution 

$5X to C and $95X to D. C’s relevant 

basis is $6X, and D’s relevant basis is 

$34X. 

(B) Analysis. C and D are the ultimate 

members of CD Partnership because 

they each receive a distributive share of 

the qualified conservation contribution 

and are not partnerships or S 

corporations. The claimed amount of CD 

Partnership’s qualified conservation 

contribution is $100X, which does not 

exceed 2.5 times the sum of C’s and D’s 

relevant bases, which is also $100X 

($100X = 2.5 × (C’s $6X relevant basis 

+ D’s $34X relevant basis)). Therefore, 

CD Partnership’s contribution is not a 

disallowed qualified conservation 

contribution (that is, not disallowed by 

section 170(h)(7) and this paragraph (j)) 

with respect to CD Partnership, C, or D, 

even though D’s $95X distributive share 

of the contribution exceeds 2.5 times D’s 

$34X relevant basis. 

(iii) Example 3: Tiered partnerships— 

(A) Facts. Individuals E and F form UTP 

Partnership, a partnership for Federal 

income tax purposes. UTP Partnership 

and G, a C corporation, form LTP 

Partnership, a partnership for Federal 

income tax purposes. LTP Partnership 

acquires real property. Two years later, 

LTP Partnership makes a qualified 

conservation contribution with respect 

to the property and claims a 

contribution of $100X on its return. LTP 

Partnership allocates the contribution 

$5X to G and $95X to UTP Partnership. 

UTP Partnership allocates its $95X 

portion of the contribution $45X to E 

and $50X to F. G’s relevant basis is 

$10X, E’s relevant basis is $11X, and F’s 

relevant basis is $21X. 

(B) Analysis for LTP Partnership. The 

ultimate members of LTP Partnership 

are G, E, and F because they each 

receive a distributive share of the 

qualified conservation contribution and 

are not a partnership or S corporation. 

Because UTP Partnership is a 

partnership, it is not an ultimate 

member of LTP Partnership, even 

though it receives a distributive share of 

the qualified conservation contribution. 

The amount of LTP Partnership’s 

qualified conservation contribution is 

$100X, which does not exceed 2.5 times 

the sum of each of the ultimate 

member’s relevant basis, which is 

$105X ($105X = 2.5 × (G’s $10X relevant 

basis + E’s $11X relevant basis + F’s 

$21X relevant basis)). Therefore, LTP 

Partnership’s contribution is not a 

disallowed qualified conservation 

contribution (that is, is not disallowed 

by section 170(h)(7) and this paragraph 

(j)) with respect to LTP Partnership and 

G. 

(C) Analysis for UTP Partnership. 

Because UTP Partnership receives an 

allocated portion, UTP Partnership must 

apply this paragraph (j) and paragraphs 

(k) through (m) of this section to 

determine whether its allocated portion 

is a disallowed qualified conservation 

contribution. The ultimate members of 

UTP Partnership are E and F because 

they each receive a distributive share of 

UTP Partnership’s allocated portion and 

are not partnerships or S corporations. 

The amount of UTP Partnership’s 

allocated portion of LTP Partnership’s 

qualified conservation contribution is 

$95X, which exceeds 2.5 times the sum 

of E’s and F’s relevant bases, which is 

$80X ($80X = 2.5 × (E’s $11X relevant 

basis + F’s $21X relevant basis)). 

Therefore, UTP Partnership’s allocated 

portion of LTP Partnership’s 

contribution is a disallowed qualified 

conservation contribution with respect 

to UTP Partnership, E, and F. No partner 

of UTP Partnership may claim any 

deduction with respect to this 

contribution, even though F’s $50X 

distributive share of the contribution 

does not exceed 2.5 times F’s $21X 

relevant basis. This does not affect the 

determination that G’s distributive share 

of the contribution is not a disallowed 

qualified conservation contribution. 

(k) Determination of relevant basis. 

For purposes of this section, the term 

relevant basis means, with respect to 

any ultimate member, the portion of 

such ultimate member’s modified basis 

(as determined under paragraph (l) of 

this section) that is allocable (under the 

rules of paragraph (m) of this section) to 

the portion of the real property with 

respect to which the qualified 

conservation contribution is made. 

(l) Determination of modified basis— 

(1) In general. In the case of an ultimate 

member holding a direct interest in a 

partnership, the ultimate member’s 

modified basis is determined by such 

partnership immediately before the 

qualified conservation contribution is 

made in the manner described in 

paragraph (l)(2) of this section. In the 

case of an ultimate member holding a 

direct interest in an S corporation, the 

ultimate member’s modified basis is 

determined by such S corporation in the 

manner described in paragraph (l)(3) of 

this section. 

(2) Partners in partnerships—(i) 

Computation. For purposes of this 

section, the term modified basis means, 

with respect to any ultimate member 

that is a direct partner in either a 

contributing partnership or an uppertier partnership, such ultimate 

member’s adjusted basis in its interest 

in the partnership in which the ultimate 

member holds a direct interest as of the 

beginning of the first day of the 

partnership’s taxable year in which the 

qualified conservation contribution is 

made, with adjustments as determined 

under paragraphs (l)(2)(ii) through (v) of 

this section. However, if the ultimate 

member was not a partner as of the 

beginning of the first day of the 

partnership’s taxable year in which the 

qualified conservation contribution is 

made, then the term modified basis 

means such ultimate member’s adjusted 

basis in its interest in the partnership 

immediately after the transaction that 

resulted in the ultimate member 

becoming a partner, with adjustments as 

determined under paragraphs (l)(2)(ii) 

through (v) of this section. The 

adjustments under paragraphs (l)(2)(ii) 

through (v) of this section must be made 

in the order in which they are listed. 

(ii) Step 1. First, the computation of 

modified basis must start with the 

ultimate member’s adjusted basis under 

paragraph (l)(2)(i) of this section and 

then reflect an increase for any 

contributions made by the ultimate 

member to the partnership during the 

portion of the year commencing with 

the beginning of the taxable year of the 

partnership and ending immediately 

prior to the time of day at which the 

qualified conservation contribution is 

made as provided in section 722 of the 

Code. 

(iii) Step 2. Second, the amount 

determined under paragraph (l)(2)(ii) of 

this section must be adjusted, as 

provided in section 705 of the Code, by 

the ultimate member’s hypothetical 

distributive share of partnership items 

attributable to the portion of the year 

commencing with the beginning of the 

taxable year of the partnership and 

ending immediately prior to the time of 

day at which the qualified conservation 

contribution is made. In making this 

determination, the partnership must 

apply the rules of § 1.706–4 and apply 

a hypothetical interim closing method 

to allocate the partnership’s items 

attributable to the portion of the year 

commencing with the beginning of the 

taxable year of the partnership and 

ending immediately prior to the time of 


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day at which the qualified conservation 

contribution is made. The partnership 

cannot apply any convention in § 1.706– 

4(c) to the hypothetical determination of 

the partners’ distributive shares, but 

rather must perform the calculation as 

though the determination occurred 

immediately prior to the time of day at 

which the qualified conservation 

contribution is made. This hypothetical 

determination of the partners’ 

distributive shares is only for purposes 

of calculating modified basis. This 

paragraph (l) does not require the 

partnership to use the interim closing 

method with respect to the 

determination of its partners’ actual 

distributive shares of partnership items 

of income, gain, loss, deduction, and 

credit for the taxable year in which the 

qualified conservation contribution is 

made or otherwise. See § 1.706–4 for 

applicable rules for the determination of 

a partner’s distributive share when a 

partner’s interest varies during a 

partnership taxable year. 

(iv) Step 3. Third, the amount 

determined under paragraph (l)(2)(iii) of 

this section must be reduced (but not 

below zero) by any distributions made 

by the partnership to the ultimate 

member during the portion of the year 

commencing with the beginning of the 

taxable year of the partnership and 

ending immediately prior to the time of 

day at which the qualified conservation 

contribution is made as provided in 

section 733 of the Code. 

(v) Step 4. Fourth, the amount 

determined under paragraph (l)(2)(iv) of 

this section must be reduced by the full 

amount of the ultimate member’s share 

of § 1.752–1 liabilities of any 

partnership (including a lower-tier 

partnership). The remaining amount is 

such ultimate member’s modified basis. 

Thus, an ultimate member’s modified 

basis may be less than zero. 

(3) S corporation shareholder—(i) 

Computation. For purposes of this 

section, the term modified basis means, 

with respect to any ultimate member 

that is a shareholder of either a 

contributing S corporation or an uppertier S corporation, such ultimate 

member’s adjusted basis in its shares in 

the S corporation as of the end of the S 

corporation’s taxable year in which the 

qualified conservation contribution is 

made, with adjustments as determined 

under paragraphs (l)(3)(ii) and (iii) of 

this section. However, if the ultimate 

member was not a shareholder at the 

end of the S corporation’s taxable year 

in which the qualified conservation 

contribution is made, then the term 

modified basis means such ultimate 

member’s adjusted basis in its shares in 

the S corporation immediately prior to 

the transaction that terminated its 

interest in the S corporation, with 

adjustments as determined under 

paragraphs (l)(3)(ii) and (iii) of this 

section. Modified basis does not include 

the ultimate member’s adjusted basis of 

any indebtedness of the S corporation to 

the ultimate member. The adjustments 

under paragraphs (l)(3)(ii) and (iii) of 

this section must be made in the order 

in which they are listed. 

(ii) Step 1. First, the computation of 

modified basis must start with the 

ultimate member’s adjusted basis under 

paragraph (l)(3)(i) of this section, and 

then reflect an increase for the extent to 

which the ultimate member’s adjusted 

basis reflects a reduction as a result of 

the qualified conservation contribution. 

Thus, the ultimate member’s modified 

basis with respect to a qualified 

conservation contribution does not 

reflect any reduction for the ultimate 

member’s pro rata share of the S 

corporation’s basis in the conservation 

easement or other property contributed 

in the qualified conservation 

contribution. 

(iii) Step 2. Second, the amount 

determined under paragraph (l)(3)(ii) of 

this section must be multiplied by the 

number of days during the S 

corporation’s taxable year in which the 

ultimate member was a shareholder and 

divided by the total number of days 

during the S corporation’s taxable year. 

The resulting amount is such ultimate 

member’s modified basis. 

(4) Examples. The following examples 

illustrate the provisions of this 

paragraph (l). For the three examples in 

this paragraph (l)(4), assume that the 

exceptions in paragraph (n) of this 

section do not apply. 

(i) Example 1—(A) Facts. AB 

Partnership is a calendar-year 

partnership for Federal income tax 

purposes whose partners are A and B, 

each of whom is an individual and has 

a 50 percent interest in income, gain, 

loss, and deduction. Several years ago, 

B contributed property to AB 

Partnership subject to a § 1.752–1 

liability. At the beginning of AB 

Partnership’s 2024 taxable year (the 

beginning of the day on January 1, 

2024), A’s adjusted basis in its interest 

in AB Partnership is $19X, and B’s 

adjusted basis in its interest in AB 

Partnership is $17X. At 10:01 a.m. on 

August 29, 2024, AB Partnership makes 

a qualified conservation contribution. 

On August 29, 2024, the amount of the 

§ 1.752–1 liability is $10X and is 

allocated under the rules of section 752 

to A. During 2024, there were no 

variations in any partner’s interests in 

AB Partnership within the meaning of 

section 706. During 2024, AB 

Partnership earned $8X of ordinary 

income and sustained ($4X) of capital 

loss in the ordinary course of its 

business, both of which are allocated 

equally to A and B. Within 2024, AB 

Partnership earned $6X of ordinary 

income, and sustained ($4X) of capital 

loss between the beginning of the day 

on January 1, 2024, and 10:00 a.m. on 

August 29, 2024, and AB Partnership 

earned $2X of ordinary income, and 

sustained $0X of capital loss between 

10:01 a.m. on August 29, 2024, and the 

end of the day on December 31, 2024. 

Other than the qualified conservation 

contribution, none of AB Partnership’s 

items are extraordinary items within the 

meaning of § 1.706–4(e)(2). In April 

2024, AB Partnership distributed $1X 

cash to A. In November 2024, B 

contributed $2X cash to AB Partnership. 

(B) Analysis. The ultimate members of 

AB Partnership are A and B because 

they each receive a distributive share of 

the qualified conservation contribution 

and are not partnerships or S 

corporations. To determine A’s and B’s 

modified bases, AB Partnership must 

start with A’s and B’s adjusted bases in 

the AB Partnership as of the beginning 

of the first day of the taxable year of AB 

Partnership and then make the 

adjustments required under paragraphs 

(l)(2)(ii) through (v) of this section. 

Accordingly, the computation of A’s 

beginning modified basis begins with 

$19X, and the computation of B’s 

modified basis begins with $17X. First, 

those amounts must be increased by any 

contributions between the beginning of 

the day on January 1, 2024, and 10:00 

a.m. on August 29, 2024. Because there 

were none, after this step, the 

computation of A’s modified basis 

remains at $19X and the computation of 

B’s modified basis remains at $17X. 

Then these amounts must be adjusted as 

provided in section 705 by A’s and B’s 

hypothetical distributive share of AB 

Partnership’s items attributable to the 

portion of the year between the 

beginning of the day on January 1, 2024, 

and 10:00 a.m. on August 29, 2024. 

Thus, the computations of A’s and B’s 

modified bases will each reflect an 

increase for their hypothetical $3X 

distributive share of the $6X ordinary 

income that AB Partnership earned 

between the beginning of the day on 

January 1, 2024, and 10:00 a.m. on 

August 29, 2024, and a decrease for 

their hypothetical ($2X) distributive 

share of the ($4X) capital loss that AB 

Partnership incurred between the 

beginning of the day on January 1, 2024, 

and 10:00 a.m. on August 29, 2024. 

Therefore, after this step, the 

computation of A’s modified basis 


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reflects an increase from $19X to $20X, 

and the computation of B’s modified 

basis reflects an increase from $17X to 

$18X. Next, these amounts must be 

reduced by any distributions between 

the beginning of the day on January 1, 

2024, and 10:00 a.m. on August 29, 

2024. Thus, the computation of A’s 

modified basis reflects a reduction from 

$20X to $19X. B did not receive any 

distribution, so the computation of B’s 

modified basis remains at $18X. Finally, 

the full amount of A’s and B’s shares of 

§ 1.752–1 liabilities must be subtracted. 

Thus, the computation of A’s modified 

basis reflects a reduction from $19X to 

$9X, which is A’s modified basis. B’s 

modified basis is $18X. 

(ii) Example 2—(A) Facts. CD 

Partnership, a partnership for Federal 

income tax purposes, is a calendar-year 

partnership using the calendar day 

convention under § 1.706–4 whose 

partners on January 1, 2024, are C and 

D, each of whom is an individual and 

has a 50 percent interest in income, 

gain, loss, and deduction. On March 15, 

2024, C sells its interest to E, a C 

corporation. At 1:15 p.m. on September 

15, 2024, CD Partnership makes a 

qualified conservation contribution. On 

September 21, 2024, D sells its interest 

to F, an individual. During 2024, CD 

Partnership earned $8X of ordinary 

income and sustained ($14X) of 

ordinary loss. Within 2024, CD 

Partnership earned all $8X of ordinary 

income in November and December, 

and sustained all ($14X) of ordinary loss 

in April through August. In May 2024, 

D contributed $6X cash to CD 

Partnership, and E contributed property 

with a fair market value of $6X and 

basis of $3X. D and E are equal partners 

during the period in which they are 

both partners. CD Partnership made no 

distributions during 2024. CD 

Partnership had no § 1.752–1 liabilities 

during 2024. In accordance with 

§ 1.706–4(e)(2)(ix), CD Partnership treats 

its qualified conservation contribution 

as an extraordinary item allocable only 

to D and E, its partners at 1:15 p.m. on 

September 15, 2024. Other than the 

qualified conservation contribution, 

none of AB Partnership’s items are 

extraordinary items within the meaning 

of § 1.706–4(e)(2). CD Partnership uses 

the proration method under § 1.706–4 to 

allocate its items among C, D, E, and F. 

Under the proration method, CD 

Partnership allocates each C, D, E, and 

F a distributive share of a portion of 

both the $8X ordinary income and the 

($14X) ordinary loss. D’s adjusted basis 

in its interest in CD Partnership at the 

beginning of CD Partnership’s 2024 

taxable year (the beginning of the day on 

January 1, 2024), is $8X. E’s adjusted 

basis in its interest in CD Partnership 

immediately after E acquires C’s interest 

in CD Partnership is $6X. 

(B) Analysis. The ultimate members of 

CD Partnership are D and E because 

they each receive a distributive share of 

the qualified conservation contribution 

and are not partnerships or S 

corporations. To determine D’s and E’s 

modified bases, CD Partnership must 

start with D’s and E’s adjusted bases in 

CD Partnership as of the beginning of 

the day on January 1, 2024, and then 

make the adjustments required under 

paragraphs (l)(2)(ii) through (v) of this 

section. However, because E was not a 

partner as of the beginning of the day on 

January 1, 2024, CD Partnership must 

start with E’s adjusted basis 

immediately after E’s purchase of C’s 

interest in CD Partnership. Accordingly, 

the computation of D’s modified basis 

begins with $8X, and the computation 

of E’s modified basis begins with $6X. 

Then, these amounts must be increased 

by any contributions made by D or E, 

respectively, to CD Partnership between 

the beginning of the day on January 1, 

2024, and 1:14 p.m. on September 15, 

2024. Therefore, the computation of D’s 

modified basis reflects an increase from 

$8X to $14X (for D’s $6X contribution 

of cash to CD Partnership in May 2024), 

and the computation of E’s modified 

basis reflects an increase from $6X to 

$9X (for E’s contribution of property to 

CD Partnership with a basis of $3X in 

May 2024). Next, these amounts must be 

adjusted as provided in section 705 by 

D’s and E’s hypothetical distributive 

share of CD Partnership’s items 

attributable to the portion of the year 

between the beginning of the day on 

January 1, 2024, and 1:14 p.m. on 

September 15, 2024. CD Partnership 

must perform the analysis using an 

interim closing method to a 

hypothetical variation at 1:14 p.m. on 

September 15, 2024, immediately prior 

to the qualified conservation 

contribution. The computation of D’s 

modified basis will reflect an 

adjustment for its hypothetical 

distributive share of all CD Partnership’s 

items incurred from the beginning of the 

day on January 1, 2024, through 1:14 

p.m. on September 15, 2024. The 

computation of E’s modified basis will 

reflect an adjustment for its hypothetical 

distributive share of all CD Partnership’s 

items incurred from the end of the day 

on March 15, 2024, through 1:14 p.m. 

on September 15, 2024. For purposes of 

this paragraph (l)(4)(ii)(B) (Example 2), 

it does not matter that CD Partnership 

actually used the proration method to 

allocate its 2024 income. Instead, under 

this hypothetical calculation of the 

distributive share, the computation of 

D’s and E’s modified bases will each 

reflect a reduction for their 50 percent 

share of the ($14X) ordinary loss. 

Because none of CD Partnership’s $8X 

of ordinary income was earned between 

the beginning of the day on January 1, 

2024, and 1:14 p.m. on September 15, 

2024, neither D’s nor E’s modified basis 

will reflect an increase for any amount 

of that income. Thus, after this step, the 

computation of D’s modified basis 

reflects a reduction from $14X to $7X, 

and the computation of E’s modified 

basis reflects a reduction from $9X to 

$2X. Then, these amounts must be 

reduced by any distributions between 

the beginning of the day on January 1, 

2024, and 1:14 p.m. on September 15, 

2024. Because there were none, after 

this step, the computation of D’s 

modified basis remains at $7X, and the 

computation of E’s modified basis 

remains at $2X. Finally, the full amount 

of D’s and E’s shares of § 1.752–1 

liabilities must be subtracted. Because 

there were none, D’s modified basis is 

$7X, and E’s modified basis is $2X. 

(iii) Example 3—(A) Facts. HI Inc. is 

a calendar-year S corporation whose 

shareholders on January 1, 2024, are H 

and I, each of whom owns 50 percent of 

the shares. On May 1, 2024, H sells all 

of its stock to J. In June 2024, HI Inc. 

contributes a conservation easement 

that is a qualified conservation 

contribution on 400 acres of real 

property. HI Inc.’s adjusted basis in the 

conservation easement is $12X (which 

is different from HI Inc.’s adjusted basis 

in the 400 acres and also may be 

different from the value of the 

conservation easement). On July 1, 

2024, I sells all of its stock to K. Under 

§ 1.1377–1, HI Inc. allocates its qualified 

conservation contribution 1⁄6 to H, 1⁄4 to 

I, 1⁄3 to J, and 1⁄4 to K. Pursuant to the 

second sentence of section 

1367(a)(2)(B), as a result of the qualified 

conservation contribution, H’s adjusted 

basis in its shares is reduced by $2X, I’s 

adjusted basis in its shares is reduced by 

$3X, J’s adjusted basis in its shares is 

reduced by $4X, and K’s adjusted basis 

in its shares is reduced by $3X. At the 

end of HI Inc.’s 2024 taxable year (the 

end of the day on December 31, 2024), 

J’s adjusted basis in its shares is $15X 

and K’s adjusted basis in its shares is 

$11X. Immediately prior to H’s sale to 

J, H’s adjusted basis in its shares was 

$8X. Immediately prior to I’s sale to K, 

I’s adjusted basis in its shares was $7X. 

Whether H, I, J, or K have adjusted basis 

in indebtedness of HI Inc., has no effect 

on the computation of their modified 

bases. H is an estate of a deceased 


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shareholder, and I, J, and K are 

individuals that are not nonresident 

aliens. 

(B) Analysis. The ultimate members of 

HI Inc. are H, I, J, and K, because they 

each receive a pro rata share of the 

qualified conservation contribution and 

are not partnerships or S corporations. 

To determine H’s, I’s, J’s, and K’s 

modified bases, HI Inc. must begin with 

each shareholder’s adjusted basis in its 

shares as of the end of the day on 

December 31, 2024 (the end of the S 

corporation’s taxable year in which it 

made the qualified conservation 

contribution). However, because H and 

I were not shareholders as of the end of 

the day on December 31, 2024, HI Inc. 

must begin with H’s adjusted basis 

immediately before H’s sale to J, and I’s 

adjusted basis immediately before I’s 

sale to K. Accordingly, the computation 

of H’s modified basis begins with $8X, 

the computation of I’s modified basis 

begins with $7X, the computation of J’s 

modified basis begins with $15X, and 

the computation of K’s modified basis 

begins with $11K. Next, HI Inc. must 

increase these amounts by the extent the 

adjusted bases were reduced as a result 

of the qualified conservation 

contribution. Accordingly, the 

computation of H’s modified basis 

reflects an increase from $8X to $10X, 

the computation of I’s modified basis 

reflects an increase from $7X to $10X, 

the computation of J’s modified basis 

reflects an increase from $15X to $19X, 

and the computation of K’s modified 

basis reflects an increase from $11X to 

$14X. Finally, HI Inc. must multiply 

each of these amounts by the number of 

days during 2024 in which each 

ultimate member was a shareholder, and 

divide by 366 (the total number of days 

in HI Inc.’s 2024 taxable year). H was a 

shareholder for 122 days. Thus, H’s 

modified basis is $3.33X ($10X × 122/ 

366). I was a shareholder for 183 days. 

Thus, I’s modified basis is $5X ($10X × 

183/366). J was a shareholder for 244 

days. Thus, J’s modified basis is 

$12.67X ($19X × 244/366). K was a 

shareholder for 183 days. Thus, K’s is 

$7X ($14X × 183/366). 

(m) Allocation of modified basis—(1) 

In general. An allocation of an ultimate 

member’s modified basis to the portion 

of the real property with respect to 

which the qualified conservation 

contribution is made must be made in 

accordance with this paragraph (m). 

Rules for allocating an ultimate 

member’s modified basis in a 

contributing partnership are provided in 

paragraph (m)(2) of this section. Rules 

for allocating an ultimate member’s 

modified basis in a contributing S 

corporation are provided in paragraph 

(m)(3) of this section. Rules for 

allocating an ultimate member’s 

modified basis in an upper-tier 

partnership are provided in paragraph 

(m)(4) of this section. Rules for 

allocating an ultimate member’s 

modified basis in an upper-tier S 

corporation are provided in paragraph 

(m)(5) of this section. Records must be 

kept in accordance with paragraph 

(m)(6) of this section. 

(2) Determination of relevant basis for 

an ultimate member holding a direct 

interest in a contributing partnership— 

(i) Narrative rule. This paragraph (m)(2) 

applies in the case of an ultimate 

member holding a direct interest in a 

contributing partnership and provides 

that a contributing partnership must 

determine each such ultimate member’s 

relevant basis as provided in this 

paragraph (m)(2). Relevant basis equals 

each ultimate member’s modified basis 

as determined under paragraph (l)(2) of 

this section multiplied by a fraction— 

(A) The numerator of which is the 

ultimate member’s share of the 

contributing partnership’s adjusted 

basis in the portion of the real property 

with respect to which the qualified 

conservation contribution is made as 

determined under paragraph (m)(2)(ii) 

of this section; and 

(B) The denominator of which is the 

ultimate member’s portion of the 

adjusted basis in all the contributing 

partnership’s properties as determined 

under paragraph (m)(2)(iii) of this 

section. 

(ii) Ultimate member’s share of the 

contributing partnership’s adjusted 

basis in the portion of the real property 

with respect to which the qualified 

conservation contribution is made. For 

purposes of this paragraph (m)(2), an 

ultimate member’s share of the 

contributing partnership’s adjusted 

basis in the portion of the real property 

with respect to which the qualified 

conservation contribution is made 

equals the contributing partnership’s 

adjusted basis in the portion of the real 

property with respect to which the 

qualified conservation contribution is 

made (determined as of the time of day 

of the contribution) multiplied by a 

fraction— 

(A) The numerator of which is the 

ultimate member’s distributive share of 

the qualified conservation contribution; 

and 

(B) The denominator of which is the 

total amount of the contributing 

partnership’s qualified conservation 

contribution. 

(iii) Ultimate member’s portion of the 

adjusted basis in all the contributing 

partnership’s properties. For purposes 

of this paragraph (m)(2), an ultimate 

member’s portion of the adjusted basis 

in all the contributing partnership’s 

properties is equal to the sum of: 

(A) The ultimate member’s share of 

the contributing partnership’s adjusted 

basis in the portion of the real property 

with respect to which the qualified 

conservation contribution is made as 

determined under paragraph (m)(2)(ii) 

of this section; plus 

(B) The ultimate member’s portion of 

the adjusted basis in all the contributing 

partnership’s properties other than the 

portion of the real property with respect 

to which the qualified conservation 

contribution is made. To determine the 

ultimate member’s portion of the 

adjusted basis in all the contributing 

partnership’s properties, the 

contributing partnership must apportion 

among its partners in accordance with 

their interests in the partnership under 

section 704(b) its adjusted basis in each 

of its properties (except the portion of 

the real property with respect to which 

the qualified conservation contribution 

is made), using the adjusted bases 

immediately before the qualified 

conservation contribution, without 

duplication or omission of any property, 

and by treating the adjusted basis in 

each property as not less than zero. 

(iv) Formulaic rule. The rule of this 

paragraph (m)(2) is also expressed in the 

following formula: 

Figure 1 to Paragraph (m)(2)(iv) 

R = M × (T ÷ (D + T)) 

Where: 

R = Relevant basis. 

M = Modified basis as determined under 

paragraph (l) of this section. 

D = Ultimate member’s portion of the 

adjusted basis in all the contributing 

partnership’s properties (other than the 

portion of the real property with respect 

to which the qualified conservation 

contribution is made), determined by 

apportioning among the partners of the 

contributing partnership in accordance 

with their interests in the partnership 

under section 704(b) its adjusted basis in 

each of its properties (other than the 

portion of the real property with respect 

to which the qualified conservation 

contribution is made), using the adjusted 

bases immediately before the qualified 

conservation contribution, without 

duplication or omission of any property, 

and by treating the adjusted basis in each 

property as not less than zero. 

T = Ultimate member’s share of the 

contributing partnership’s adjusted basis 

in the portion of the real property with 

respect to which the qualified 

conservation contribution is made, 

determined according to the following 

formula: A × (B ÷ C). 

A = Contributing partnership’s adjusted basis 

in the portion of the real property with 

respect to which the qualified 

conservation contribution is made. 


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80938 Federal Register / Vol. 88, No. 222 / Monday, November 20, 2023 / Proposed Rules 

B = Ultimate member’s distributive share of 

the qualified conservation contribution. 

C = Total amount of the contributing 

partnership’s qualified conservation 

contribution. 

(3) Determination of relevant basis for 

an ultimate member holding a direct 

interest in a contributing S 

corporation—(i) Narrative rule. This 

paragraph (m)(3) applies in the case of 

an ultimate member holding a direct 

interest in a contributing S corporation 

and provides that a contributing S 

corporation must determine each such 

ultimate member’s relevant basis as 

provided in this paragraph (m)(3). 

Relevant basis equals each ultimate 

member’s modified basis as determined 

under paragraph (l)(3) of this section 

multiplied by a fraction— 

(A) The numerator of which is the 

ultimate member’s pro rata portion of 

the contributing S corporation’s 

adjusted basis in the portion of the real 

property with respect to which the 

qualified conservation contribution is 

made; and 

(B) The denominator of which is the 

ultimate member’s pro rata portion of 

the adjusted basis in all the contributing 

S corporation’s properties (including the 

portion of the real property with respect 

to which the qualified conservation 

contribution is made). 

(ii) Formulaic rule. The rule of this 

paragraph (m)(3) is also expressed in the 

following formula: 

Figure 2 to Paragraph (m)(3)(ii) 

R = M × (E ÷ F) 

Where: 

R = Relevant basis. 

M = Modified basis as determined under 

paragraph (l) of this section. 

E = Ultimate member’s pro rata portion of the 

contributing S corporation’s adjusted 

basis in the portion of the real property 

with respect to which the qualified 

conservation contribution is made. 

F = Ultimate member’s pro rata portion of the 

adjusted basis in all the contributing S 

corporation’s properties (including the 

portion of the real property with respect 

to which the qualified conservation 

contribution is made). 

(4) Determination of relevant basis for 

an ultimate member holding a direct 

interest in an upper-tier partnership—(i) 

In general. This paragraph (m)(4) 

applies in the case of an ultimate 

member holding a direct interest in an 

upper-tier partnership. Each such 

ultimate member’s modified basis must 

be traced through all upper-tier 

partnerships to the contributing 

partnership, and the contributing 

partnership must determine the relevant 

basis. This involves a multi-step process 

under which, beginning with the uppertier partnership in which the ultimate 

member holds a direct interest, each 

upper-tier partnership must perform 

calculations, and then finally the 

contributing partnership must use those 

calculations to compute the ultimate 

member’s relevant basis. For simplicity, 

this paragraph (m)(4) describes a 

situation in which there are two tiers of 

partnerships—a contributing 

partnership and an upper-tier 

partnership. In a situation involving 

more tiers, each partnership must apply 

the rules and principles of this 

paragraph (m)(4) iteratively to 

determine relevant basis. 

(ii) Upper-tier partnership—(A) 

Narrative rule. The upper-tier 

partnership must determine the portion 

of each ultimate member’s modified 

basis that is allocable to the upper-tier 

partnership’s interest in the partnership 

in which it holds a direct interest (in a 

situation involving only two tiers of 

partnerships, that will be the 

contributing partnership). This 

determination must be done in 

accordance with the principles of 

paragraph (m)(2) of this section, and the 

formula provided in paragraph 

(m)(4)(ii)(B) of this section. In other 

words, the formula provided in 

paragraph (m)(4)(ii)(B) is similar to the 

formula provided in paragraph 

(m)(2)(iv) of this section, except that, 

instead of determining the portion of 

modified basis that is allocable to the 

portion of the real property with respect 

to which the qualified conservation 

contribution is made, the formula in 

paragraph (m)(4)(ii)(B) determines the 

portion of modified basis that is 

allocable to the upper-tier partnership’s 

interest in the next lower-tier 

partnership. As explained in paragraph 

(m)(4)(iii) of this section, the 

contributing partnership will then use 

the amount determined under the 

formula in paragraph (m)(4)(ii)(B) to 

compute the portion of modified basis 

that is allocable to the portion of the real 

property with respect to which the 

qualified conservation contribution is 

made. 

(B) Formulaic rule. The rule of this 

paragraph (m)(4)(ii) is also expressed in 

the following formula: 

Figure 3 to Paragraph (m)(4)(ii)(B) 

G = M × (U ÷ (J + U)) 

Where: 

G = The portion of the ultimate member’s 

modified basis that is allocable to the 

upper-tier partnership’s interest in the 

contributing partnership. 

M = Modified basis as determined under 

paragraph (l) of this section. 

J = Ultimate member’s portion of the adjusted 

basis in all the upper-tier partnership’s 

properties (other than the upper-tier 

partnership’s interest in the contributing 

partnership), determined by 

apportioning among the partners of the 

upper-tier partnership in accordance 

with their interests in the partnership 

under section 704(b) its adjusted basis in 

each of its properties (other than the 

upper-tier partnership’s interest in the 

contributing partnership), using the 

adjusted bases immediately before the 

qualified conservation contribution, 

without duplication or omission of any 

property, and by treating the adjusted 

basis in each property as not less than 

zero. 

U = Ultimate member’s share of the uppertier partnership’s adjusted basis in its 

interest in the contributing partnership, 

determined according to the following 

formula: H × (B ÷ K). 

H = Upper-tier partnership’s adjusted basis in 

its interest in the contributing 

partnership. 

B = Ultimate member’s distributive share of 

the qualified conservation contribution. 

K = Upper-tier partnership’s allocated 

portion of the qualified conservation 

contribution. 

(iii) Contributing partnership—(A) 

Narrative rule. After completion of the 

computations under paragraph (m)(4)(ii) 

of this section, the contributing 

partnership must determine the portion 

of the amount determined under item G 

(see paragraph (m)(4)(ii)(B) of this 

section) with respect to each ultimate 

member that is allocable to the portion 

of the real property with respect to 

which the qualified conservation 

contribution is made. This 

determination must be done in 

accordance with the principles of 

paragraph (m)(2) of this section, and the 

formula provided in paragraph 

(m)(4)(iii)(B) of this section. 

(B) Formulaic rule. The rule of this 

paragraph (m)(4)(iii) is also expressed in 

the following formula: 

Figure 5 to Paragraph (m)(4)(iii)(B) 

R = G × (V ÷ (L + V)) 

Where: 

R = Relevant basis. 

G = Amount determined with respect to item 

G as described under paragraph 

(m)(4)(ii)(B) of this section. 

L = Upper-tier partnership’s portion of 

adjusted basis in all the contributing 

partnership’s properties (other than the 

portion of the real property with respect 

to which the qualified conservation 

contribution is made), determined by 

apportioning among the partners of the 

contributing partnership in accordance 

with their interests in the partnership 

under section 704(b) its adjusted basis in 

each of its properties (except the interest 

in the contributing partnership), using 

the adjusted bases immediately before 

the qualified conservation contribution, 

without duplication or omission of any 

property, and by treating the adjusted 

basis in each property as not less than 

zero. 


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Federal Register / Vol. 88, No. 222 / Monday, November 20, 2023 / Proposed Rules 80939 

V = Upper-tier partnership’s share of the 

contributing partnership’s adjusted basis 

in the portion of the real property with 

respect to which the qualified 

conservation contribution is made, 

determined according to the following 

formula: A × (K ÷ C). 

A = Contributing partnership’s adjusted basis 

in the portion of the real property with 

respect to which the qualified 

conservation contribution is made. 

K = Upper-tier partnership’s allocated 

portion of the qualified conservation 

contribution. 

C = Total amount of the contributing 

partnership’s qualified conservation 

contribution. 

(5) Determination of relevant basis for 

an ultimate member holding a direct 

interest in an upper-tier S corporation— 

(i) In general. This paragraph (m)(5) 

applies in the case of an ultimate 

member holding a direct interest in an 

upper-tier S corporation. Each such 

ultimate member’s modified basis must 

be traced through the upper-tier S 

corporation and any upper-tier 

partnerships to the contributing 

partnership, and the contributing 

partnership must determine the relevant 

basis. This involves a multi-step process 

under which, beginning with the uppertier S corporation, the upper-tier S 

corporation and any upper-tier 

partnerships must perform calculations, 

and then finally the contributing 

partnership must use those calculations 

to compute the ultimate member’s 

relevant basis. For simplicity, this 

paragraph (m)(5) describes a situation in 

which there are two tiers—a 

contributing partnership and an uppertier S corporation. In a situation 

involving more tiers, each partnership 

and the upper-tier S corporation must 

apply the rules and principles of this 

paragraph (m) iteratively to determine 

relevant basis. 

(ii) Upper-tier S corporation—(A) 

Narrative rule. The upper-tier S 

corporation must determine the portion 

of each ultimate member’s modified 

basis that is allocable to the upper-tier 

S corporation’s interest in the 

partnership in which it holds a direct 

interest (in a situation involving only 

two tiers, that will be the contributing 

partnership). This determination must 

be done in accordance with the 

principles of paragraph (m)(3) of this 

section, and the formula provided in 

paragraph (m)(5)(ii)(B) of this section. In 

other words, the formula provided in 

paragraph (m)(5)(ii)(B) is similar to the 

formula provided in paragraph (m)(3)(ii) 

of this section, except that, instead of 

determining the portion of modified 

basis that is allocable to the portion of 

the real property with respect to which 

the qualified conservation contribution 

is made, the formula in paragraph 

(m)(5)(ii)(B) determines the portion of 

modified basis that is allocable to the 

upper-tier S corporation’s interest in the 

next lower-tier partnership. As 

explained in paragraph (m)(5)(iii) of this 

section, the contributing partnership 

will then use the amount determined 

under the formula in paragraph 

(m)(5)(ii)(B) to compute the portion of 

modified basis that is allocable to the 

portion of the real property with respect 

to which the qualified conservation 

contribution is made. 

(B) Formulaic rule. The rule of this 

paragraph (m)(5)(ii) is also expressed in 

the following formula: 

Figure 6 to Paragraph (m)(5)(ii)(B) 

N = M × (P ÷ Q) 

Where: 

N = Portion of the ultimate member’s 

modified basis that is allocable to the 

upper-tier S corporation’s interest in the 

contributing partnership. 

M = Modified basis as determined under 

paragraph (l) of this section. 

P = Ultimate member’s pro rata portion of the 

upper-tier S corporation’s adjusted basis 

in its interest in the contributing 

partnership. 

Q = Ultimate member’s pro rata portion of 

the adjusted basis in all the upper-tier S 

corporation’s properties (including the 

upper-tier S corporation’s adjusted basis 

in its interest in the contributing 

partnership). 

(iii) Contributing partnership—(A) 

Narrative rule. After completion of the 

computations under paragraph (m)(5)(ii) 

of this section, the contributing 

partnership must determine the portion 

of the amount determined under item N 

(see paragraph (m)(5)(ii)(B) of this 

section) with respect to each ultimate 

member that is allocable to the portion 

of the real property with respect to 

which the qualified conservation 

contribution is made. This 

determination must be done in 

accordance with the principles of 

paragraph (m)(2) of this section, and the 

formula provided in paragraph 

(m)(5)(iii)(B) of this section. 

(B) Formulaic rule. The rule of this 

paragraph (m)(5)(iii) is also expressed in 

the following formula: 

Figure 7 to Paragraph (m)(5)(iii)(B) 

R = N × (W ÷ (S + W)) 

Where: 

R = Relevant basis. 

N = Amount determined with respect to item 

N as described under paragraph 

(m)(5)(ii)(B) of this section. 

S = Upper-tier S corporation’s portion of the 

adjusted basis in all the contributing 

partnership’s properties (other than the 

portion of the real property with respect 

to which the qualified conservation 

contribution is made), determined by 

apportioning among the partners of the 

contributing partnership in accordance 

with their interests in the partnership 

under section 704(b) its adjusted basis in 

each of its properties (other than the 

portion of the real property with respect 

to which the qualified conservation 

contribution is made), using the adjusted 

bases immediately before the qualified 

conservation contribution, without 

duplication or omission of any property, 

and by treating the adjusted basis in each 

property as not less than zero. 

W = Upper-tier S corporation’s share of the 

contributing partnership’s adjusted basis 

in the portion of the real property with 

respect to which the qualified 

conservation contribution is made, 

determined according to the following 

formula: A × (Y ÷ C). 

A = Contributing partnership’s adjusted basis 

in the portion of the real property with 

respect to which the qualified 

conservation contribution is made. 

Y = Upper-tier S corporation’s allocated 

portion of the qualified conservation 

contribution. 

C = Total amount of the contributing 

partnership’s qualified conservation 

contribution. 

(6) Recordkeeping requirements. 

Contributing partnerships, contributing 

S corporations, upper-tier partnerships, 

and upper-tier S corporations must 

maintain dated, written statements in 

their books and records, by the due date, 

including extensions, of their Federal 

income tax returns, substantiating the 

computation of each ultimate member’s 

adjusted basis, modified basis, and 

relevant basis. See § 1.6001–1. These 

statements need not be maintained (nor 

does modified basis or relevant basis 

need to be computed) with respect to 

contributions that meet an exception in 

paragraph (n)(2) or (3) of this section. 

(7) Examples. The following examples 

illustrate the provisions of this 

paragraph (m). For the three examples 

in this paragraph (m)(7), assume that the 

partnership allocations comply with the 

rules of subchapter K of chapter 1 of the 

Code and the exceptions in paragraph 

(n) of this section do not apply. 

(i) Example 1—(A) Facts. YZ 

Partnership is a partnership for Federal 

income tax purposes whose partners are 

individuals Y and Z. YZ Partnership 

owns 100 acres of real property with an 

adjusted basis of $10X. YZ Partnership 

makes a qualified conservation 

contribution on 60 acres of the property. 

YZ Partnership claims a contribution of 

$18X, which it allocates $12X to Y and 

$6X to Z. YZ Partnership’s adjusted 

basis in the 60 acres is $6X, and its 

adjusted basis in all of its other 

properties (including its $4X basis in 

the 40 acres on which a qualified 

conservation contribution was not 

made) is $18X. Y’s modified basis is 


ddrumheller on DSK120RN23PROD with PROPOSALS3
80940 Federal Register / Vol. 88, No. 222 / Monday, November 20, 2023 / Proposed Rules 

$8X. Y’s portion of YZ Partnership’s 

adjusted basis in all partnership 

property (other than the 60 acres) as 

determined in accordance with Y’s 

interest in YZ Partnership is $4X. Z’s 

modified basis is $12X. Z’s portion of 

YZ Partnership’s adjusted basis in all 

partnership property (other than the 60 

acres) as determined in accordance with 

Z’s interest in YZ Partnership is $14X. 

(B) General analysis. Y and Z are the 

ultimate members of YZ Partnership 

because they each receive a distributive 

share of the qualified conservation 

contribution and are not partnerships or 

S corporations. Their relevant bases 

must be determined according to the 

following formula: 

Figure 8 to Paragraph (m)(7)(i)(B) 

R = M × (T ÷ (D + T)) 

Where: 

R = Relevant basis. 

M = Modified basis as determined under 

paragraph (l) of this section. 

D = Ultimate member’s portion of the 

adjusted basis in all of the contributing 

partnership’s properties (other than the 

portion of the real property with respect 

to which the qualified conservation 

contribution is made). 

T = Ultimate member’s share of the 

contributing partnership’s adjusted basis 

in the portion of the real property with 

respect to which the qualified 

conservation contribution is made, 

determined according to the following 

formula: A × (B ÷ C). 

A = Contributing partnership’s adjusted basis 

in the portion of the real property with 

respect to which the qualified 

conservation contribution is made. 

B = Ultimate member’s distributive share of 

the qualified conservation contribution. 

C = Total amount of the contributing 

partnership’s qualified conservation 

contribution. 

(C) Y’s relevant basis. With respect to 

Y: 

(1) M = $8X. 

(2) D = $4X. 

(3) A = $6X. 

(4) B = $12X. 

(5) C = $18X. 

(6) Thus, T is $4X = $6X × ($12X ÷ 

$18X). 

(7) Accordingly, Y’s relevant basis is 

$4X = $8X × ($4X ÷ ($4X + $4X)). 

(D) Z’s relevant basis. With respect to 

Z: 

(1) M = $12X. 

(2) D = $14X. 

(3) A = $6X. 

(4) B = $6X. 

(5) C = $18X. 

(6) Thus, T is $2X = $6X × ($6X ÷ 

$18X). 

(7) Accordingly, Z’s relevant basis is 

$1.5X = $12X × ($2X ÷ ($14X + $2X)). 

(E) Sum of relevant bases. The 

amount of YZ Partnership’s claimed 

contribution is $18X, which exceeds 2.5 

times the sum of Y’s and Z’s relevant 

bases, which is $13.75X ($13.75X = 2.5 

x (Y’s relevant basis of $4X + Z’s 

relevant basis of $1.5X)). Accordingly, 

YZ Partnership’s contribution is a 

disallowed qualified conservation 

contribution. No person may claim any 

deduction with respect to this 

contribution. 

(ii) Example 2—(A) Facts. CD Inc. is 

an S corporation with shareholders C 

and D, each of whom is an individual 

that is not a nonresident alien. C owns 

one third of the outstanding stock in CD 

Inc., and D owns the remaining two 

thirds. CD Inc. owns 100 acres of real 

property with an adjusted basis of $10X. 

CD Inc. makes a qualified conservation 

contribution on 60 acres of the property. 

CD Inc. claims a contribution of $9X, 

which it allocates $3X to C and $6X to 

D. CD Inc.’s adjusted basis in the 60 

acres is $6X, and its adjusted basis in all 

its properties (including its $6X basis in 

the 60 acres) is $24X. C’s modified basis 

in CD Inc. is $8X. D’s modified basis in 

CD Inc. is $12X. 

(B) General analysis. C and D are the 

ultimate members of CD Inc. because 

they each receive a pro rata share of the 

qualified conservation contribution and 

are not partnerships or S corporations. 

Their relevant bases must be determined 

according to the following formula: 

Figure 9 to Paragraph (m)(7)(ii)(B) 

R = M × (E ÷ F) 

Where: 

R = Relevant basis. 

M = Modified basis as determined under 

paragraph (l) of this section. 

E = Ultimate member’s pro rata portion of the 

contributing S corporation’s adjusted 

basis in the portion of the real property 

with respect to which the qualified 

conservation contribution is made. 

F = Ultimate member’s pro rata portion of the 

adjusted basis in all the contributing S 

corporation’s properties (including the 

portion of the real property with respect 

to which the qualified conservation 

contribution is made). 

(C) C’s relevant basis. With respect to 

C: 

(1) M = $8X. 

(2) E = $2X (1⁄3 of $6X). 

(3) F = $8X (1⁄3 of $24X). 

(4) Thus, C’s relevant basis is $2X = 

$8X × ($2X ÷ $8X). 

(D) D’s relevant basis. With respect to 

D: 

(1) M = $12X. 

(2) E = $4X (2⁄3 of $6X). 

(3) F = $16X (2⁄3 of $24X). 

(4) Thus, D’s relevant basis is $3X = 

$12X × ($4X ÷ $16X). 

(E) Sum of relevant bases. The 

amount of CD Inc.’s claimed qualified 

conservation contribution is $9X, which 

does not exceed 2.5 times the sum of C’s 

and D’s relevant bases, which is $12.50 

($12.50X = 2.5 × (C’s relevant basis of 

$2X + D’s relevant basis of $3X)). 

Accordingly, CD Inc.’s contribution is 

not a disallowed qualified conservation 

contribution (that is, is not disallowed 

by section 170(h)(7) and paragraph (j) of 

this section). 

(iii) Example 3—(A) Facts. LTP 

Partnership is a partnership for Federal 

income tax purposes whose partners are 

individual E and UTP Partnership, a 

partnership for Federal income tax 

purposes. UTP Partnership’s partners 

are C corporations P and Q. LTP 

Partnership owns 300 acres of real 

property. LTP Partnership makes a 

qualified conservation contribution on 

all 300 acres. LTP Partnership claims a 

qualified conservation contribution of 

$22X, which it allocates $2X to E and 

$20X to UTP Partnership. UTP 

Partnership allocates its $20X share of 

the qualified conservation contribution 

$6X to P and $14X to Q. LTP 

Partnership’s basis in the 300 acres is 

$18X, and its adjusted basis in all of its 

other properties is $12X. E’s modified 

basis in LTP Partnership is $4X. E’s 

portion of LTP Partnership’s adjusted 

basis in all partnership property (other 

than the 300 acres) as determined in 

accordance with E’s interest in LTP 

Partnership is $4.36X. UTP 

Partnership’s portion of LTP 

Partnership’s adjusted basis in all 

partnership property (other than the 300 

acres) as determined in accordance with 

UTP Partnership’s interest in LTP 

Partnership is $7.64X. UTP 

Partnership’s adjusted basis in its 

interest in LTP Partnership is $19, and 

its adjusted basis in all other properties 

is $6X. P’s modified basis in UTP 

Partnership is $12X. P’s portion of UTP 

Partnership’s adjusted basis in all 

partnership property (other than the 

interest in LTP Partnership) as 

determined in accordance with P’s 

interest in UTP Partnership is $3.6X. Q’s 

modified basis in UTP Partnership is 

$8X. Q’s portion of UTP Partnership’s 

adjusted basis of all partnership 

property (other than the interest in LTP 

Partnership) as determined in 

accordance with Q’s interest in UTP 

Partnership is $2.4X. 

(B) Analysis: partner E. (1) The 

ultimate members of LTP Partnership 

are E, P, and Q because they each 

receive a distributive share of the 

qualified conservation contribution and 

are not partnerships or S corporations. 

Because E holds a direct interest in LTP 

Partnership, E’s relevant basis must be 

determined in accordance with the 

following formula: 


ddrumheller on DSK120RN23PROD with PROPOSALS3
Federal Register / Vol. 88, No. 222 / Monday, November 20, 2023 / Proposed Rules 80941 

Figure 10 to Paragraph (m)(7)(iii)(B)(1) 

R = M × (T ÷ (D + T)) 

Where: 

R = Relevant basis. 

M = Modified basis as determined under 

paragraph (l) of this section. 

D = Ultimate member’s portion of the 

adjusted basis in all the contributing 

partnership’s properties (other than the 

portion of the real property with respect 

to which the qualified conservation 

contribution is made). 

T = Ultimate member’s share of the 

contributing partnership’s adjusted basis 

in the portion of the real property with 

respect to which the qualified 

conservation contribution is made, 

determined according to the following 

formula: A × (B ÷ C). 

A = Contributing partnership’s adjusted basis 

in the portion of the real property with 

respect to which the qualified 

conservation contribution is made. 

B = Ultimate member’s distributive share of 

the qualified conservation contribution. 

C = Total amount of the contributing 

partnership’s qualified conservation 

contribution. 

(2) With respect to E: 

(i) M = $4X. 

(ii) D = $4.36X. 

(iii) A = $18X. 

(iv) B = $2X. 

(v) C = $22X. 

(vi) Thus, T is $1.64X = $18X × ($2X 

÷ $22X). 

(vii) Accordingly, E’s relevant basis is 

$1.09X = $4X × ($1.64X ÷ ($4.36X + 

$1.64X)). 

(C) Analysis: General rule for UTP 

Partnership. Because P and Q hold 

interests in an upper-tier partnership, 

UTP Partnership must first determine 

the portions of P’s and Q’s modified 

bases that are allocable to UTP 

Partnership’s interest in LTP 

Partnership. This is to be done 

according to the following formula: 

Figure 11 to Paragraph (m)(7)(iii)(C) 

G = M × (U ÷ (J + U)) 

Where: 

G = The portion of the ultimate member’s 

modified basis that is allocable to the 

upper-tier partnership’s interest in the 

contributing partnership. 

M = Modified basis as determined under 

paragraph (l) of this section. 

J = Ultimate member’s portion of adjusted 

basis in all the upper-tier partnership’s 

properties (other than the upper-tier 

partnership’s interest in the contributing 

partnership). 

U = Ultimate member’s share of the uppertier partnership’s adjusted basis in its 

interest in the contributing partnership, 

determined according to the following 

formula: H × (B ÷ K). 

H = Upper-tier partnership’s adjusted basis in 

its interest in the contributing 

partnership. 

B = Ultimate member’s distributive share of 

the qualified conservation contribution. 

K = Upper-tier partnership’s allocated 

portion of the qualified conservation 

contribution. 

(D) Analysis: Step 1 for P. With 

respect to P: 

(1. 

(E) Analysis: Step 1 for Q. With 

respect to Q: 

(1) M = $8X. 

(2) J = $2.4X. 

(3) H = $19X. 

(4) B = $14X. 

(5) K = $20X. 

(6) Thus, U is $13.30X = $19X × ($14X 

÷ $20X). 

(7) Accordingly, the portion of Q’s 

modified basis that is allocable to UTP 

Partnership’s interest in LTP 

Partnership is $6.78X = $8X × ($13.30X 

÷ ($2.40X + $13.30X)). 

(F) Analysis: General rule for LTP 

Partnership. Next, LTP Partnership 

must determine P’s and Q’s relevant 

bases, which equals the portions of the 

amounts determined under paragraphs 

(m)(7)(iii)(D) and (E) of this section 

(Example 3) that are allocable to the 

portion of the real property with respect 

to which the qualified conservation 

contribution was made. This must be 

done according to the following 

formula: 

Figure 12 to Paragraph (m)(7)(iii)(F) 

R = G × (V ÷ (L + V)) 

Where: 

R = Relevant basis. 

G = Amount determined with respect to item 

G under paragraph (m)(4)(ii)(B) of this 

section. 

L = Upper-tier partnership’s portion of 

adjusted basis in all the contributing 

partnership’s properties (other than the 

portion of the real property with respect 

to which the qualified conservation 

contribution is made). 

V = Upper-tier partnership’s share of the 

contributing partnership’s adjusted basis 

in the portion of the real property with 

respect to which the qualified 

conservation contribution is made, 

determined according to the following 

formula: A × (K ÷ C). 

A = Contributing partnership’s adjusted basis 

in the portion of the real property with 

respect to which the qualified 

conservation contribution is made. 

K = Upper-tier partnership’s allocated 

portion of the qualified conservation 

contribution. 

C = Total amount of the contributing 

partnership’s qualified conservation 

contribution. 

(G) Analysis: Step 2 for P. With 

respect to P: 

(1) G = $7.35X. 

(2) L = $7.64X. 

(3) A = $18X. 

(4) K = $20X. 

(5) C = $22X. 

(6) Thus, V is $16.36X = $18X × ($20X 

÷ $22X). 

(7) Accordingly, P’s relevant basis is 

$5.01X = $7.35X × ($16.36X ÷ ($7.64X 

+ $16.36X)). 

(H) Analysis: Step 2 for Q. With 

respect to Q: 

(1) G = $6.78X. 

(2) L = $7.64X. 

(3) A = $18X. 

(4) K = $20X. 

(5) C = $22X. 

(6) Thus, V is $16.36X = $18X × ($20X 

÷ $22X). 

(7) Accordingly, Q’s relevant basis is 

$4.62X = $6.78X × ($16.36X ÷ ($7.64X 

+ $16.36X)). 

(I) Analysis: Computation of 2.5 times 

sum of relevant bases. The ultimate 

members of LTP Partnership are E, P, 

and Q. The amount of LTP Partnership’s 

qualified conservation contribution is 

$22X. This does not exceed 2.5 times 

the sum of each of the ultimate 

member’s relevant basis, which totals 

$26.80 ($26.80 = 2.5 × (E’s relevant basis 

of 1.09X + P’s relevant basis of $5.01X 

+ Q’s relevant basis of $4.62X)). 

Therefore, LTP Partnership’s 

contribution is not a disallowed 

qualified conservation contribution (that 

is, is not disallowed by section 170(h)(7) 

and paragraph (j) of this section). 

Because UTP Partnership receives an 

allocated portion, it must apply 

paragraphs (j) through (l) of this section 

and this paragraph (m) to determine 

whether its allocated portion is a 

disallowed qualified conservation 

contribution. The ultimate members of 

UTP Partnership are P and Q. The 

amount of UTP Partnership’s allocated 

portion of LTP Partnership’s qualified 

conservation contribution is $20X. This 

does not exceed 2.5 times the sum of P’s 

and Q’s relevant bases, which is 

$24.08X ($24.08X = 2.5 × (P’s relevant 

basis of $5.01X + Q’s relevant basis of 

$4.62X)). Therefore, UTP Partnership’s 

allocated portion of LTP Partnership’s 

contribution is not a disallowed 

qualified conservation contribution (that 

is, is not disallowed by section 170(h)(7) 

and paragraph (j) of this section). 

(n) Exceptions—(1) In general. 

Paragraph (j) of this section does not 

apply to any qualified conservation 

contribution that satisfies one or more of 

the three exceptions in this paragraph 

(n). However, as provided in paragraph 

(j)(5) of this section, there is no 

presumption that such a contribution is 

compliant with section 170, any other 

section of the Code, or the regulations 

in this part or any other guidance. Being 

described in this paragraph (n) is not a 

safe harbor for purposes of any other 

provision of law or with respect to the 

value of the contribution. Such 

transactions are subject to adjustment or 

disallowance for any other reason, 


ddrumheller on DSK120RN23PROD with PROPOSALS3
80942 Federal Register / Vol. 88, No. 222 / Monday, November 20, 2023 / Proposed Rules 

including failure to satisfy other 

requirements of section 170 and 

overvaluation of the contribution. In 

addition, taxpayers who engage in such 

transactions may be required to disclose 

under § 1.6011–4 the transactions as 

listed transactions. 

(2) Exception for contributions 

outside three-year holding period—(i) In 

general. Paragraph (j) of this section 

does not apply to any qualified 

conservation contribution by a 

contributing partnership or contributing 

S corporation made at least three years 

after the latest of— 

(A) The last date on which the 

contributing partnership or contributing 

S corporation acquired any portion of 

the real property with respect to which 

such qualified conservation 

contribution is made; 

(B) The last date on which any partner 

in the contributing partnership or 

shareholder in the contributing S 

corporation acquired any interest in 

such partnership or S corporation; and 

(C) If the interest in the contributing 

partnership is held through one or more 

upper-tier partnerships or upper-tier S 

corporations— 

(1) The last date on which any such 

upper-tier partnership or upper-tier S 

corporation acquired any interest in the 

contributing partnership or any other 

upper-tier partnership; and 

(2) The last date on which any partner 

or shareholder in any such upper-tier 

partnership or upper-tier S corporation 

acquired any interest in such upper-tier 

partnership or upper-tier S corporation. 

(ii) Acquisition of partnership 

interest. For purposes of this paragraph 

(n)(2), an acquisition of any interest in 

a partnership is any variation within the 

meaning of that term in § 1.706–4(a)(1); 

however, a variation does not include a 

change in allocations that satisfies the 

requirements of § 1.706–4(b)(1). 

(iii) Acquisition of interest in an S 

corporation. For purposes of this 

paragraph (n)(2), an acquisition of any 

interest in an S corporation is any 

transfer, issuance, redemption, or other 

disposition of stock in the S 

corporation; however, an acquisition 

does not include any issuance or 

redemption involving all shareholders 

that does not affect the proportionate 

ownership of any shareholder. 

(iv) Exception is determined at the 

level of the contributing partnership or 

contributing S corporation. If the 

contributing partnership or contributing 

S corporation does not satisfy the 

requirements of this paragraph (n)(2), 

then this paragraph (n)(2) will not apply 

to any person who receives a 

distributive share or pro rata share of 

the qualified conservation contribution 

(including an upper-tier partnership or 

upper-tier S corporation), regardless of 

whether the person receiving such 

distributive share or pro rata share 

would have satisfied the requirements 

of this paragraph (n)(2) if the person had 

been the one to make the qualified 

conservation contribution. 

(v) Examples. The following examples 

illustrate the provisions of this 

paragraph (n)(2). For the two examples 

in this paragraph (n)(2)(v), assume that 

the exceptions in paragraphs (n)(3) and 

(4) of this section do not apply. 

(A) Example 1—(1) Facts. ABC 

Partnership is a partnership for Federal 

income tax purposes. Since 2015, ABC 

Partnership’s partners have been A, an 

individual, and BC Inc., an S 

corporation. Since 2015, BC Inc.’s 

shareholders have been B and C, each of 

whom is an individual that is not a 

nonresident alien. On December 27, 

2024, ABC partnership acquires real 

property. On August 29, 2025, BC Inc. 

redeems half of B’s shares in BC Inc. On 

December 28, 2027, ABC Partnership 

makes a qualified conservation 

contribution. 

(2) Analysis. Pursuant to paragraph 

(n)(2)(iii) of this section, BC Inc.’s 

redemption of some of B’s shares is 

treated as an acquisition of an interest 

in BC Inc. for purposes of this paragraph 

(n)(2). Accordingly, ABC Partnership’s 

contribution occurred less than three 

years after the latest acquisition of an 

interest in a partnership or S 

corporation that held an interest in ABC 

Partnership, the contributing 

partnership. Therefore, ABC 

Partnership’s contribution fails to satisfy 

the requirements of this paragraph (n)(2) 

and must apply the provisions of 

paragraphs (j) through (m) of this 

section to determine whether the 

contribution is a disallowed qualified 

conservation contribution. 

(B) Example 2—(1) Facts. LTP 

partnership is a partnership for Federal 

income tax purposes. Since 2017, LTP 

Partnership’s partners have been UTP 

Partnership, a partnership for Federal 

income tax purposes, and FG Inc., an S 

corporation. Since 2018, UTP 

Partnership’s partners have been 

individuals D and E, and there has been 

no variation in their ownership. Since 

2019, FG Inc.’s shareholders have been 

F and G, each of whom is an individual 

that is not a nonresident alien. On 

March 15, 2024, LTP Partnership 

acquires real property. On September 

15, 2026, D dies and D’s interest in UTP 

Partnership passes to D’s estate. On 

March 18, 2027, LTP Partnership makes 

a qualified conservation contribution. 

LTP Partnership allocates all of the 

qualified conservation contribution to 

FG Inc. 

(2) Analysis. Pursuant to paragraph 

(n)(2)(ii) of this section, the transfer of 

D’s interest in UTP Partnership to D’s 

estate is treated as an acquisition of an 

interest in UTP Partnership for purposes 

of paragraph (n)(2) of this section. 

Accordingly, LTP Partnership’s 

contribution occurred less than three 

years after the latest acquisition of an 

interest in a partnership or S 

corporation that held an interest in LTP 

Partnership, the contributing 

partnership. Therefore, LTP 

Partnership’s contribution fails to satisfy 

the requirement of this paragraph (n)(2). 

Pursuant to paragraph (n)(2)(iv) of this 

section, FG Inc. cannot avail itself of 

this paragraph (n)(2) with respect to its 

allocated portion of LTP Partnership’s 

contribution. Accordingly, FG Inc. must 

apply the provisions of paragraphs (j) 

through (m) of this section to determine 

whether its allocated portion is a 

disallowed qualified conservation 

contribution. 

(3) Exception for family partnerships 

and S corporations—(i) General rule. 

Paragraph (j) of this section does not 

apply with respect to any qualified 

conservation contribution made by a 

contributing partnership or contributing 

S corporation if at least 90 percent of the 

interests in the contributing partnership 

or contributing S corporation are held 

by an individual and members of the 

family of such individual, and the 

contributing partnership or contributing 

S corporation meets the requirements of 

this paragraph (n)(3). 

(ii) Ninety percent of the interests— 

(A) Family partnerships. In the case of 

a contributing partnership, at least 90 

percent of the interests in the 

contributing partnership are held by an 

individual and members of the family of 

such individual if, at the time of the 

qualified conservation contribution, at 

least 90 percent of the interests in 

capital and profits in such partnership 

are held, directly or indirectly, by an 

individual and members of the family of 

such individual. 

(B) Family S corporations. In the case 

of a contributing S corporation, at least 

90 percent of the interests in the 

contributing S corporation are held by 

an individual and members of the 

family of such individual if, at the time 

of the qualified conservation 

contribution, at least 90 percent of the 

total value and at least 90 percent of the 

total voting power of the outstanding 

stock in such S corporation are held by 

an individual and members of the 

family of such individual. 

(iii) Members of the family. For 

purposes of this paragraph (n)(3), the 


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Federal Register / Vol. 88, No. 222 / Monday, November 20, 2023 / Proposed Rules 80943 

term members of the family means, with 

respect to any individual— 

(A) The spouse of such individual; 

and 

(B) Any individual who bears a 

relationship to such individual that is 

described in section 152(d)(2)(A) 

through (G) of the Code. 

(iv) Anti-abuse rules—(A) Holding 

period. This paragraph (n)(3) does not 

apply unless at least 90 percent of the 

interests in the property with respect to 

which the qualified conservation 

contribution was made were owned, 

directly or indirectly, by one individual 

and members of the family of that 

individual for at least one year prior to 

the date of the contribution. The 

members of the family during that year 

need not be the same members of the 

family that own an interest at the time 

of the qualified conservation 

contribution; however, at least one 

individual must own an interest for the 

entire year, and at least 90 percent of the 

interests in the property must be owned, 

directly or indirectly, during that year 

by that individual and members of that 

individual’s family. 

(B) Allocations. This paragraph (n)(3) 

does not apply unless at least 90 percent 

of the qualified conservation 

contribution is allocated to the 

individual and all members of the 

family who own at least 90 percent of 

the interests in the contributing 

partnership or contributing S 

corporation under paragraph (n)(3)(ii) of 

this section. 

(v) Exception is determined at the 

level of the contributing partnership or 

contributing S corporation. If the 

contributing partnership or contributing 

S corporation satisfies the requirements 

of this paragraph (n)(3), then any uppertier partnership or upper-tier S 

corporation need not apply paragraphs 

(j) through (m) of this section and this 

paragraph (n) to its allocated portions of 

such contribution. If the contributing 

partnership or contributing S 

corporation does not satisfy the 

requirements of this paragraph (n)(3), 

then the exception in this paragraph 

(n)(3) will not apply to any person who 

receives a distributive share or pro rata 

share of the qualified conservation 

contribution (including an upper-tier 

partnership or upper-tier S corporation), 

regardless of whether the person 

receiving such distributive share or pro 

rata share would have satisfied the 

requirements of this paragraph (n)(3) if 

the person had been the one to make the 

contribution. 

(vi) Examples. The following 

examples illustrate the provisions of 

this paragraph (n)(3). For the two 

examples in this paragraph (n)(3)(vi), 

assume that the exceptions in 

paragraphs (n)(2) and (4) of this section 

do not apply. 

(A) Example 1—(1) Facts. Individual 

A and A’s sibling B acquire real 

property on July 5, 2024. On September 

14, 2024, B transfers its interest in the 

real property to B’s child C. On 

February 21, 2025, A and C transfer 

their interests in the real property to AC 

Partnership, a partnership for Federal 

income tax purposes whose only 

partners are A and C. On March 18, 

2025, A’s stepfather D becomes a 

partner in AC Partnership in exchange 

for a capital contribution. On September 

15, 2025, AC Partnership makes a 

qualified conservation contribution on 

the real property. AC Partnership never 

had any partners other than A, C, and 

D. 

(2) Analysis. B, C, and D qualify as 

members of the family with respect to 

A. Accordingly, as of the time of the 

qualified conservation contribution, at 

least 90 percent of the interests in 

capital and profits of AC Partnership 

were owned by an individual and 

members of that individual’s family. In 

addition, at least 90 percent of the 

interests in the property with respect to 

which the qualified conservation 

contribution was made were owned, 

directly and indirectly, by A and 

members of A’s family for at least one 

year prior to the date of the 

contribution. Moreover, at least 90 

percent of the contribution is allocated 

to A and members of A’s family. 

Accordingly, the requirements of this 

paragraph (n)(3) are satisfied, and the 

Disallowance Rule in section 

170(h)(7)(A) and paragraph (j) of this 

section does not apply. 

(B) Example 2—(1) Facts. LTP 

Partnership is a partnership for Federal 

income tax purposes whose partners are 

EF Inc., an S corporation, and UTP 

Partnership, a partnership for Federal 

income tax purposes. EF Inc. and UTP 

Partnership each hold a 50 percent 

interest in the profits and capital of LTP 

Partnership. The shareholders of EF Inc. 

are E and E’s sibling F. The partners of 

UTP Partnership are G and G’s child H. 

E and F are not related to G and H. LTP 

Partnership has held real property since 

2019. On July 5, 2024, LTP Partnership 

distributes half of the acres of its real 

property to EF Inc., and the remaining 

acres to UTP Partnership. On October 

21, 2024, EF Inc., makes a qualified 

conservation contribution on the real 

property it received from LTP 

Partnership. 

(2) Analysis. F qualifies as a member 

of the family with respect to E. 

Accordingly, as of the time of EF Inc.’s 

qualified conservation contribution, EF 

Inc. was owned at least 90 percent by an 

individual and members of that 

individual’s family. In addition, at least 

90 percent of EF Inc’s qualified 

conservation contribution is allocated to 

E and members of E’s family. However, 

E and members of E’s family failed to 

own at least 90 percent of the property 

with respect to which the qualified 

conservation contribution was made for 

at least one year prior to the date of the 

contribution. In particular, G and H 

(who are not members of the family 

with respect to E or F) indirectly owned 

a 50 percent interest in the property 

until July 5, 2024. Accordingly, the 

requirements of this paragraph (n)(3) are 

not satisfied. EF Inc. must apply the 

provisions of paragraphs (j) through (m) 

of this section to determine whether the 

contribution is a disallowed qualified 

conservation contribution. 

(4) Exception for contributions to 

preserve certified historic structures. 

Paragraph (j) of this section does not 

apply to any qualified conservation 

contribution the conservation purpose 

of which is the preservation of any 

building that is a certified historic 

structure (as defined in section 

170(h)(4)(C)). See § 1.170A–16(f)(6) for 

special reporting requirements for a 

contribution that meets the exception in 

this paragraph (n)(4). 

(o) Applicability dates—(1) In general. 

Except as provided in paragraphs 

(g)(4)(ii), (i), and (o)(2) of this section, 

paragraphs (a) through (i) of this section 

apply only to contributions made on or 

after December 18, 1980. Paragraphs (j) 

through (n) of this section apply to 

contributions made after December 29, 

2022. 

(2) Exception. Paragraph (h)(4)(ii) of 

this section applies on and after June 1, 

2023. 

■ Par. 3. Section 1.170A–16 is amended 

by: 

■ 1. In paragraph (c)(3)(iv)(F), adding 

the word ‘‘and’’ at the end of the 

paragraph; 

■ 2. In paragraph (c)(3)(iv)(G), removing 

the language ‘‘and’’ at the end of the 

paragraph; 

■ 3. Redesignating paragraph (c)(3)(v) as 

paragraph (c)(3)(vi) and adding new 

paragraph (c)(3)(v); 

■ 4. In paragraph (d)(3)(vii), removing 

the language ‘‘and’’ at the end of the 

paragraph; 

■ 5. Redesignating paragraph (d)(3)(viii) 

as paragraph (d)(3)(x) and adding new 

paragraph (d)(3)(viii); 

■ 6. Adding paragraph (d)(3)(ix); 

■ 7. Revising paragraph (f)(4); 

■ 8. Adding paragraph (f)(6); 

■ 9. Revising paragraph (g). 

The additions and revisions read as 

follows: 


ddrumheller on DSK120RN23PROD with PROPOSALS3
80944 Federal Register / Vol. 88, No. 222 / Monday, November 20, 2023 / Proposed Rules 

§ 1.170A–16 Substantiation and reporting 

requirements for noncash charitable 

contributions. 

* * * * * 

(c) * * * 

(3) * * * 

(v) Where a number can be inserted 

into any box on Form 8283 (Section A), 

the number inserted in the box on Form 

8283 (Section A). Alternatively, 

taxpayers may attach a statement to the 

Form 8283 explaining why a number 

cannot be inserted. Nothing in this 

paragraph (c)(3)(v) precludes a taxpayer 

from both inserting the number in the 

appropriate box on Form 8283 (Section 

A) and including an attached statement 

explaining any additional information 

regarding the number. Taxpayers may 

not respond to a request for information 

on Form 8283 (Section A) with 

nonresponsive responses, for example, 

by indicating that the requested 

information is available upon request or 

will be provided upon request. The 

inclusion of such nonresponsive 

language in response to a request for 

information on Form 8283 (Section A) 

may be treated by the IRS as being an 

incomplete filing of Form 8283; and 

* * * * * 

(d) * * * 

(3) * * * 

(viii) In the case of a partnership or S 

corporation that makes a qualified 

conservation contribution, the sum of 

each ultimate member’s relevant bases, 

computed in accordance with § 1.170A– 

14(j) through (m), but only: 

(A) For contributions described in 

section 170(h)(7)(E) and § 1.170A– 

14(n)(4) (for contributions to preserve 

certified historic structures), regardless 

of whether they are also described in 

section 170(h)(7)(C) and § 1.170A– 

14(n)(2) (for contributions made outside 

of the three-year holding period) and/or 

section 170(h)(7)(D) and § 1.170A– 

14(n)(3) (for contributions made by 

certain family partnerships or S 

corporations); and 

(B) For all contributions not described 

in section 170(h)(7)(E) and § 1.170A– 

14(n)(4), provided they are not 

described in section 170(h)(7)(C) and 

§ 1.170A–14(n)(2) (for contributions 

made outside of the three-year holding 

period) and/or section 170(h)(7)(D) and 

§ 1.170A–14(n)(3) (for contributions 

made by certain family partnerships or 

S corporations); 

(ix) Where a number can be inserted 

into any box on Form 8283 (Section B), 

the number inserted in the box on Form 

8283 (Section B). Alternatively, 

taxpayers may attach a statement to the 

Form 8283 explaining why a number 

cannot be inserted. Nothing in this 

paragraph (d)(3)(ix) precludes a 

taxpayer from both inserting the number 

in the appropriate box on Form 8283 

(Section B) and including an attached 

statement explaining any additional 

information regarding the number. 

Taxpayers may not respond to a request 

for information on Form 8283 (Section 

B) with nonresponsive responses, for 

example, by indicating that the 

requested information is available upon 

request or will be provided upon 

request. The inclusion of such 

nonresponsive language in response to a 

request for information on Form 8283 

(Section B) may be treated by the IRS as 

being an incomplete filing of Form 

8283; and 

* * * * * 

(f) * * * 

(4) Partners and S corporation 

shareholders—(i) Form 8283 (Section A 

or Section B) must be provided to 

partners and S corporation 

shareholders. If the donor is a 

partnership or an S corporation, the 

donor must provide a copy of its 

completed Form 8283 (Section A or 

Section B) to every partner or 

shareholder who receives an allocation 

of a charitable contribution under 

section 170 for the property described in 

Form 8283 (Section A or Section B). 

Similarly, a recipient partner that is a 

partnership or S corporation must 

provide a copy of the donor’s completed 

Form 8283 (Section A or Section B) to 

each of its partners or shareholders who 

receives an allocation of the charitable 

contribution, and so on through any 

additional tiers. 

(ii) Partners and S corporation 

shareholders must attach Forms 8283 

(Section A or Section B) to return. A 

partner of a partnership or shareholder 

of an S corporation who receives an 

allocation of a charitable contribution 

under section 170 for property to which 

paragraph (c), (d), or (e) of this section 

applies must attach to the return on 

which the contribution is claimed a 

copy of each Form 8283 that must be 

provided to them under paragraph 

(f)(4)(i) or (iii) of this section. 

(iii) Partners and S corporation 

shareholders must file separate Forms 

8283 and provide copies to any 

partners—(A) In general. Subject to 

paragraph (f)(4)(iii)(B) of this section, 

every partner of a partnership 

(including a partner that is itself a 

partnership or S corporation) or 

shareholder of an S corporation that 

receives an allocation of a charitable 

contribution under section 170 for 

which paragraph (c), (d), or (e) of this 

section applies must complete a 

separate Form 8283 with any 

information required by Form 8283 and 

the instructions to Form 8283. In the 

case of a partner that is itself a 

partnership or S corporation, that 

partnership or S corporation must 

provide a copy of its completed separate 

Form 8283 to every partner or 

shareholder who receives an allocation 

of the charitable contribution, and so on 

through any additional tiers. The 

partner or shareholder must attach its 

separate Form 8283 to the return on 

which the contribution is claimed, in 

addition to the copy of each Form 8283 

that the partner or shareholder is 

required to attach pursuant to paragraph 

(f)(4)(ii) of this section. 

(B) Conservation contributions. The 

terms defined in § 1.170A–14(j)(3) apply 

for purposes of this paragraph 

(f)(4)(iii)(B). In the case of a qualified 

conservation contribution that is made 

by a partnership or S corporation, an 

ultimate member’s separate Form 8283 

must include their own relevant basis. 

An upper-tier partnership’s or uppertier S corporation’s separate Form 8283 

must include the sum of each of its 

ultimate member’s relevant bases (as 

computed in accordance with § 1.170A– 

14(j) through (m)). This paragraph 

(f)(4)(iii)(B) does not apply to 

contributions described in section 

170(h)(7)(C) and § 1.170A–14(n)(2) (for 

contributions made outside of the threeyear holding period) or section 

170(h)(7)(D) and § 1.170A–14(n)(3) (for 

contributions made by certain family 

partnerships or S corporations), 

provided that they are not also 

described in section 170(h)(7)(E) and 

§ 1.170A–14(n)(4) (for contributions to 

preserve certified historic structures), in 

which case this paragraph (f)(4)(iii)(B) 

does apply. 

* * * * * 

(6) Conservation contributions by 

pass-through entities preserving 

certified historic structures—(i) In 

general. The terms defined in § 1.170A– 

14(j)(3) apply for purposes of this 

paragraph (f)(6). For any contribution 

described in paragraph (f)(6)(ii) of this 

section, pursuant to section 170(f)(19), 

no deduction is allowed under section 

170 or any other provision of the Code 

under which deductions are allowable 

to pass-through entities with respect to 

such contribution unless the 

contributing partnership, the 

contributing S corporation, the uppertier partnership, or the upper-tier S 

corporation, respectively— 

(A) Includes on its return for the 

taxable year in which the contribution 

is made a statement that it made such 

a contribution or received such 

allocated portion, as described in 

paragraph (f)(6)(iii) of this section; and 


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Federal Register / Vol. 88, No. 222 / Monday, November 20, 2023 / Proposed Rules 80945 

(B) Provides such information about 

the contribution as the Secretary may 

require in guidance, forms, or 

instructions. 

(ii) Contributions to which this 

paragraph (f)(6) applies. This paragraph 

(f)(6) applies to any qualified 

conservation contribution (as defined in 

section 170(h)(1) and § 1.170A–14): 

(A) The conservation purpose of 

which is preservation of a building that 

is a certified historic structure (as 

defined in section 170(h)(4)(C)); 

(B) That is either made by a 

contributing partnership or contributing 

S corporation (as defined in § 1.170A– 

14(j)(3)(iv)), or that is an allocated 

portion (as defined in § 1.170A– 

14(j)(3)(i)) of an upper-tier partnership 

(as defined in § 1.170A–14(j)(3)(xi)) or 

upper-tier S corporation (as defined in 

§ 1.170A–14(j)(3)(xii)); and 

(C) The amount of such contribution 

(as defined in § 1.170A–14(j)(3)(ii)) or 

such allocated portion (as defined in 

§ 1.170A–14(j)(3)(i)) exceeds 2.5 times 

the sum of each ultimate member’s 

relevant basis (as defined in § 1.170A– 

14(j) through (m)). 

(iii) Required information. A 

partnership or S corporation satisfies 

the requirements of section 170(f)(19)(A) 

and paragraph (f)(6)(i) of this section by 

filing a completed Form 8283, including 

information about relevant basis, in 

accordance with section 170, the 

regulations under section 170, and the 

instructions to Form 8283. 

(g) Applicability dates—(1) In general. 

Except as provided in paragraph (g)(2) 

of this section, this section applies to 

contributions made after July 30, 2018. 

(2) Certain paragraphs. Paragraphs 

(c)(3)(vi), (d)(3)(viii) and (x), and (f)(4) 

and (6) of this section apply to taxable 

years ending on or after November 20, 

2023. 

■ Par. 4. Section 1.706–0 is amended by 

revising the entry for § 1.706–3 to read 

as follows: 

§ 1.706–0 Table of contents. 

* * * * * 

§ 1.706–3 Items attributable to interest in 

lower-tier partnership. 

(a) Conservation contributions. 

(b) Applicability date. 

* * * * * 

■ Par. 5. Section 1.706–3 is revised to 

read as follows: 

§ 1.706–3 Items attributable to 

interest in lower-tier partnership. 

(a) Conservation contributions. For 

purposes of section 706(d)(3), in the 

case of a qualified conservation 

contribution (as defined in section 

170(h)(1) and § 1.170A–14(a) without 

regard to whether such contribution is 

a disallowed qualified conservation 

contribution within the meaning of 

§ 1.170A–14(j)(3)(vii)) by a partnership 

that is allocated to an upper-tier 

partnership, the upper-tier partnership 

must allocate the contribution among its 

partners in proportion to their interests 

in the upper-tier partnership at the time 

of day at which the contribution was 

made, regardless of the method (interim 

closing or proration) and convention 

(daily, semi-monthly, or monthly) 

otherwise used by the upper-tier 

partnership under § 1.706–4. 

(b) Applicability date. Paragraph (a) of 

this section applies to qualified 

conservation contributions made after 

December 29, 2022. 

■ Par. 6. Section 1.706–4 is amended 

by: 

■ 1. Redesignating paragraphs (e)(2)(ix) 

through (xi) as paragraphs (e)(2)(x) 

through (xii), respectively, and adding 

new paragraph (e)(2)(ix); 

■ 2. Adding the word ‘‘and’’ at the end 

of newly redesignated paragraph 

(e)(2)(xi); and 

■ 3. Revising paragraphs (e)(3) and (g). 

The addition and revisions read as 

follows: 

§ 1.706–4 Determination of distributive 

share when a partner’s interest varies. 

* * * * * 

(e) * * * 

(2) * * * 

(ix) Any qualified conservation 

contribution (as defined in section 

170(h)(1) and § 1.170A–14(a) without 

regard to whether such contribution is 

a disallowed qualified conservation 

contribution within the meaning of 

§ 1.170A–14(j)(3)(vii)); 

* * * * * 

(3) Small item exception. A 

partnership may treat an item described 

in paragraph (e)(2) of this section 

(except for an item described in 

paragraph (e)(2)(ix) of this section) as 

other than an extraordinary item for 

purposes of this paragraph (e) if, for the 

partnership’s taxable year the total of all 

items in the particular class of 

extraordinary items (as enumerated in 

paragraphs (e)(2)(i) through (xii) of this 

section, for example, all tort or similar 

liabilities, but in no event counting an 

extraordinary item more than once) is 

less than five percent of the 

partnership’s gross income, including 

tax-exempt income described in section 

705(a)(1)(B), in the case of income or 

gain items, or gross expenses and losses, 

including section 705(a)(2)(B) 

expenditures, in the case of losses and 

expense items; and the total amount of 

the extraordinary items from all classes 

of extraordinary items amounting to less 

than five percent of the partnership’s 

gross income, including tax-exempt 

income described in section 

705(a)(1)(B), in the case of income or 

gain items, or gross expenses and losses, 

including section 705(a)(2)(B) 

expenditures, in the case of losses and 

expense items, does not exceed $10 

million in the taxable year, determined 

by treating all such extraordinary items 

as positive amounts. 

* * * * * 

(g) Applicability dates—(1) In general. 

Except as provided in paragraphs (g)(2) 

and (3) of this section, this section 

applies for partnership taxable years 

that begin on or after August 3, 2015. 

(2) Paragraph (c)(3) of this section. 

The rules of paragraph (c)(3) of this 

section apply for taxable years of 

partnerships other than existing 

publicly traded partnerships that begin 

on or after August 3, 2015. For purposes 

of this paragraph (g)(2), an existing 

publicly traded partnership is a 

partnership described in section 7704(b) 

that was formed prior to April 14, 2009. 

For purposes of this paragraph (g)(2), 

the termination of a publicly traded 

partnership under section 708(b)(1)(B) 

due to the sale or exchange of 50 

percent or more of the total interests in 

partnership capital and profits in a 

taxable year beginning on or before 

December 31, 2017, is disregarded in 

determining whether the publicly 

traded partnership is an existing 

publicly traded partnership. 

(3) Paragraph (e)(2)(ix) of this section. 

Paragraph (e)(2)(ix) of this section 

applies to qualified conservation 

contributions made after December 29, 

2022. 

Douglas W. O’Donnell, 

Deputy Commissioner for Services and 

Enforcement. 

[FR Doc. 2023–25423 Filed 11–17–23; 8:45 am] 

BILLING CODE 4830–01–P 


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