Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Rules and Regulations 81341 

The Amendment 

In consideration of the foregoing, the 

Federal Aviation Administration 

amends 14 CFR part 71 as follows: 

PART 71—DESIGNATION OF CLASS A, 

B, C, D, AND E AIRSPACE AREAS; AIR 

TRAFFIC SERVICE ROUTES; AND 

REPORTING POINTS 

■ 1. The authority citation for 14 CFR 

part 71 continues to read as follows: 

Authority: 49 U.S.C. 106(f), 106(g); 40103, 

40113, 40120; E.O. 10854, 24 FR 9565, 3 CFR, 

1959–1963 Comp., p. 389. 

§ 71.1 [Amended] 

■ 2. The incorporation by reference in 

14 CFR 71.1 of FAA Order JO 7400.11J, 

Airspace Designations and Reporting 

Points, dated July 31, 2024, and 

effective September 15, 2024, is 

amended as follows: 

Paragraph 2004 Jet Routes. 

* * * * * 

J–35 [Amended] 

From Leeville, LA; Mc Comb, MS; Sidon, 

MS; Memphis, TN; to Farmington, MO. 

* * * * * 

J–101 [Amended] 

From Humble, TX; Lufkin, TX; Little Rock, 

AR; St. Louis, MO; to Spinner, IL. From 

Northbrook, IL; Badger, WI; Green Bay, WI; 

to Sault Ste Marie, MI. 

* * * * * 

Paragraph 6010(a) Domestic VOR Federal 

Airways. 

* * * * * 

V–9 [Amended] 

From Leeville, LA; Mc Comb, MS; INT Mc 

Comb 004° and Magnolia, MS, 194° radials; 

Magnolia; Sidon, MS; Marvell, AR; INT 

Marvell 326° and Walnut Ridge, AR, 187° 

radials; Walnut Ridge; Farmington, MO; St. 

Louis, MO; to Spinner, IL. From Janesville, 

WI; Madison, WI; Oshkosh, WI; Green Bay, 

WI; Iron Mountain, MI; to Houghton, MI. 

* * * * * 

V–48 [Amended] 

From Burlington, IA; to Peoria, IL. 

* * * * * 

V–69 [Amended] 

From El Dorado, AR; Pine Bluff, AR; INT 

Pine Bluff 038° and Walnut Ridge, AR, 187° 

radials; Walnut Ridge; Farmington, MO; 

Troy, IL; to Spinner, IL. 

* * * * * 

V–227 [Amended] 

From Boiler, IN; to Roberts, IL. 

* * * * * 

V–313 [Amended] 

From Centralia, IL; to Adders, IL. 

* * * * * 

V–586 [Removed] 

* * * * * 

Issued in Washington, DC, on October 2, 

2024. 

Frank Lias, 

Manager, Rules and Regulations Group. 

[FR Doc. 2024–23202 Filed 10–7–24; 8:45 am] 

BILLING CODE 4910–13–P 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 1 

[TD 10007] 

RIN 1545–BQ39 

Syndicated Conservation Easement 

Transactions as Listed Transactions 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Final regulations. 

SUMMARY: This document contains final 

regulations that identify certain 

syndicated conservation easement 

transactions and substantially similar 

transactions as listed transactions, a 

type of reportable transaction. Material 

advisors and certain participants in 

these listed transactions are required to 

file disclosures with the IRS and are 

subject to penalties for failure to 

disclose. The regulations affect 

participants in these transactions as 

well as material advisors. 

DATES: 

Effective date: These regulations are 

effective on October 8, 2024. 

Applicability date: For applicability 

dates, see § 1.6011–9(h). 

FOR FURTHER INFORMATION CONTACT: 

Concerning any provisions in the final 

regulations within the jurisdiction of the 

Associate Chief Counsel (Income Tax & 

Accounting), Joshua S. Klaber, (202) 

317–4624, and Eugene Kirman, (202) 

317–5149, and concerning any 

provisions in the final regulations 

within the jurisdiction of the Associate 

Chief Counsel (Passthroughs & Special 

Industries), Charles Wien, (202) 317– 

5279 (not toll-free numbers). 

SUPPLEMENTARY INFORMATION: 

Authority 

This document amends the Income 

Tax Regulations (26 CFR part 1) by 

adding final regulations under section 

6011 of the Internal Revenue Code 

(Code) to identify certain syndicated 

conservation easement transactions and 

substantially similar transactions as 

listed transactions, a type of reportable 

transaction (final regulations). 

Section 6001 of the Code provides an 

express delegation of authority to the 

Secretary of the Treasury or her delegate 

(Secretary), requiring every taxpayer to 

keep the records, render the statements, 

make the returns, and comply with the 

rules and regulations that the Secretary 

deems necessary to demonstrate tax 

liability and prescribes, either by notice 

served or by regulations. 

Section 6011 of the Code provides an 

express delegation of authority to the 

Secretary, requiring every taxpayer to 

‘‘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.’’ 

In addition, section 6707A(c)(1) of the 

Code, in defining the term ‘‘reportable 

transaction’’ relating to the imposition 

of penalties under section 6707A(a) on 

‘‘[a]ny person who fails to include on 

any return or statement any information 

with respect to a reportable transaction 

which is required under section 6011 to 

be included with such return or 

statement,’’ provides an express 

delegation of authority to the Secretary, 

stating that, ‘‘[t]he term ‘reportable 

transaction’ means any transaction with 

respect to which information is required 

to be included with a return or 

statement because, as determined under 

regulations prescribed under section 

6011, such transaction is of a type 

which the Secretary determines as 

having a potential for tax avoidance or 

evasion.’’ Section 6707A(c)(2), in 

defining the term ‘‘listed transaction’’ 

provides an express delegation of 

authority to the Secretary, stating that, 

‘‘[t]he term ‘listed transaction’ means a 

reportable transaction which is the same 

as, or substantially similar to, a 

transaction specifically identified by the 

Secretary as a tax avoidance transaction 

for purposes of section 6011.’’ 

The final regulations are also issued 

under the express delegation of 

authority under section 7805(a) of the 

Code. 

Background 

I. The Proposed Regulations 

On December 8, 2022, the Department 

of the Treasury (Treasury Department) 

and the IRS published a notice of 

proposed rulemaking (REG–106134–22) 

in the Federal Register (87 FR 75185) 

proposing regulations that would 

identify certain syndicated conservation 

easement transactions and substantially 

similar transactions as ‘‘listed 

transactions’’ for purposes of § 1.6011– 

4(b)(2) and sections 6111 and 6112 of 

the Code (proposed regulations). The 

provisions of the proposed regulations 


ddrumheller on DSK120RN23PROD with RULES1
81342 Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Rules and Regulations 

are explained in greater detail in the 

preamble to the proposed regulations. 

The Treasury Department and the IRS 

received 26 comments in response to 

the proposed regulations and notice of 

public hearing that are the subject of 

this final rulemaking. The comments are 

available for public inspection at 

https://www.regulations.gov or upon 

request. A public hearing on the 

proposed regulations was held by 

teleconference on March 1, 2023, at 10 

a.m. Eastern Time, at which five 

speakers provided testimony. 

After full consideration of the 

comments received and the testimony 

provided, these final regulations adopt 

the proposed regulations with certain 

revisions described in the Summary of 

Comments and Explanation of 

Revisions. 

II. Section 605 of the SECURE 2.0 Act 

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 (December 29, 2022), was 

enacted just 15 days after publication of 

the proposed regulations. Section 605(a) 

of the SECURE 2.0 Act added section 

170(h)(7)(A) to the Code, which 

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, as defined in section 

170(h)(7)(B). Section 170(h)(7)(F) states 

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

equally to S corporations and other 

pass-through entities. 

Section 605(a) of the SECURE 2.0 Act 

also added section 170(h)(7)(C) through 

(E) to the Code, which provide three 

exceptions to the general disallowance 

rule in section 170(h)(7)(A). Section 

170(h)(7)(C) creates an exception for 

contributions by a pass-through entity 

that satisfy a three-year holding period; 

section 170(h)(7)(D) creates an 

exception for contributions made by 

family pass-through entities; and section 

170(h)(7)(E) creates an exception for 

contributions made to preserve a 

building that is a certified historic 

structure (as defined in section 

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

Section 605(b) of the SECURE 2.0 Act 

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

creating additional reporting 

requirements for any qualified 

conservation contribution (1) the 

conservation purpose of which is the 

preservation of any building which is a 

certified historic structure (as defined in 

section 170(h)(4)(C)), (2) which is made 

by a partnership (whether directly or as 

a distributive share of a contribution of 

another partnership), and (3) the 

amount of which exceeds 2.5 times the 

sum of each partner’s relevant basis (as 

defined in section 170(h)(7)) in the 

partnership making the contribution. 

Section 170(f)(19)(C) states that, except 

as may be otherwise provided by the 

Secretary, the rules of section 170(f)(19) 

apply to S corporations and other passthrough entities in the same manner as 

such rules apply to partnerships. 

Section 170(f)(19)(A) provides that no 

deduction is allowed for such a 

contribution unless the entity making 

the contribution (1) includes on its 

return for the taxable year in which the 

contribution is made a statement that 

the entity made such a contribution and 

(2) provides such information about the 

contribution as the Secretary may 

require. 

Section 605(c) of the SECURE 2.0 Act 

provides that no inference is intended 

as to the appropriate treatment of 

contributions made in taxable years 

ending on or before the date of the 

SECURE 2.0 Act’s enactment (December 

29, 2022), or as to any contribution for 

which a deduction is not disallowed by 

reason of section 170(h)(7). 

On November 20, 2023, the Treasury 

Department and the IRS published a 

notice of proposed rulemaking (REG– 

112916–23) in the Federal Register (88 

FR 80910) proposing regulations 

concerning the statutory disallowance 

rule enacted by the SECURE 2.0 Act, 

including the calculation of relevant 

basis. On June 28, 2024, the Treasury 

Department and the IRS finalized these 

regulations in TD 9999 (89 FR 54284). 

Summary of Comments and 

Explanation of Revisions 

This Summary of Comments and 

Explanation of Revisions summarizes all 

significant comments addressing the 

proposed regulations, and describes and 

responds to comments concerning: (1) 

the listed transaction system generally; 

(2) conservation easements generally; (3) 

the continued necessity of finalizing 

these regulations following passage of 

section 605 of the SECURE 2.0 Act; (4) 

the elements of the listed transaction 

identified in these final regulations; and 

(5) the role of donee organizations under 

these final regulations. 

Comments outside the scope of this 

rulemaking are not adopted. 

I. Comments Addressing the General 

Rules of the Listed Transaction System 

Many comments addressed rules that 

apply generally to any listed 

transaction. While these comments are 

outside the scope of this rulemaking, the 

Treasury Department and the IRS have 

nonetheless considered these comments 

in finalizing these regulations. 

A. Requirement To Report for Currently 

‘‘Open’’ Periods Upon Identification of 

a Listed Transaction 

Several commenters argued that the 

proposed regulations’ listed transaction 

designation is impermissibly retroactive 

because taxpayers who previously filed 

tax returns (or amended tax returns) 

reflecting their participation in 

syndicated conservation easement 

transactions but that did not disclose 

their participation pursuant to Notice 

2017–10 will be required to disclose 

those transactions once these final 

regulations are published in the Federal 

Register. The commenters opined that 

this so-called retroactive reach of the 

proposed listed transaction designation 

is unfair and likely a violation of law 

under various theories, including that it 

may be a taking under the Fifth 

Amendment or constitute involuntary 

servitude under the Thirteenth 

Amendment, and that it undermines the 

purpose of the Administrative 

Procedure Act’s (APA) notice and 

comment process. Several commenters 

noted that the Tax Court has not 

determined whether a listed transaction 

designation can be applied retroactively; 

thus, their theory has not been resolved 

judicially. 

The reporting rules for listed 

transactions are outside the scope of 

these final regulations, which merely 

identify a listed transaction. The 

reporting rules for listed transactions are 

found in § 1.6011–4, which was issued 

pursuant to notice and comment and 

finalized most recently in TD 9350 (72 

FR 43146), published in 2007 and 

which is not amended by these final 

regulations. Section 1.6011–4(e)(2)(i) 

requires reporting of transactions 

entered into prior to the publication of 

guidance identifying a transaction as a 

listed transaction if the statute of 

limitations for assessment of tax is still 

open when the transaction becomes a 

listed transaction. While the reporting 

mandated by § 1.6011–4 may be with 

respect to prior periods, the disclosure 

obligation is itself not retroactive—it is 

a current reporting obligation. Thus, the 

comments regarding an impermissible 

retroactive burden required by § 1.6011– 

4 are without merit. 

B. Determining an ‘‘Open Year’’ 

Several commenters requested 

additional guidance on what constitutes 

an ‘‘open year’’ for purposes of reporting 

the listed transaction. These 

commenters opined that the final 


ddrumheller on DSK120RN23PROD with RULES1
Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Rules and Regulations 81343 

regulations should not be able to hold 

open (or re-open) a statute of limitations 

for a return that was filed before the 

relevant transaction became a listed 

transaction. One commenter stated that 

such a rule would result in taxpayers 

currently under audit and disputing 

penalties based on an expired statute of 

limitations finding one legal basis of 

their case evaporated, undoing months 

or years of analysis and evaluation. 

Guidance on open years for purposes 

of applying § 1.6011–4 is outside the 

scope of these final regulations, which 

merely identify a listed transaction. 

However, if a taxpayer who is required 

to disclose a listed transaction for a 

taxable year for which the statute of 

limitations has not expired prior to the 

identification of the listed transaction 

fails to do so, then the taxpayer’s statute 

of limitations will continue to stay open 

for that taxable year as provided in 

section 6501(c)(10) of the Code. Section 

6501(c)(10) provides that, if a taxpayer 

fails to include on any return or 

statement for any taxable year any 

information with respect to a listed 

transaction (as defined in section 

6707A(c)(2) of the Code) which is 

required under section 6011 to be 

included with such return or statement, 

the time for assessment of any tax 

imposed by the Code with respect to 

such transaction does not expire before 

the date that is one year after the earlier 

of (1) the date the taxpayer provides the 

required information or (2) the date that 

a material advisor meets the 

requirements of section 6112 with 

respect to a request by the Secretary 

under section 6112(b) relating to such 

transaction with respect to such 

taxpayer. Section 301.6501(c)– 

1(g)(3)(iii) of the Procedure and 

Administration Regulations (26 CFR 

part 301), which was issued pursuant to 

notice and comment and finalized most 

recently in TD 9718 (80 FR 16973), 

published in 2015, and which is not 

amended by these final regulations, 

provides (1) that the taxable years to 

which the failure to disclose relates 

include each taxable year that the 

taxpayer participated (as defined under 

section 6011 and the regulations 

thereunder) in a transaction that was 

identified as a listed transaction and for 

which the taxpayer failed to disclose the 

listed transaction as required under 

section 6011, and (2) if the taxable year 

in which the taxpayer participated in 

the listed transaction is different from 

the taxable year in which the taxpayer 

is required to disclose the listed 

transaction under section 6011, the 

taxable years to which the failure to 

disclose relates include each taxable 

year for which the taxpayer participated 

in the transaction. 

Several commenters asked for 

guidance as to what constitutes an 

‘‘open’’ tax year for taxpayers that took 

the position they were not required to 

file a Form 8886, Reportable 

Transaction Disclosure Statement, 

because Notice 2017–10 was 

invalidated. This requested guidance is 

also outside the scope of these final 

regulations for the reasons discussed in 

the prior paragraph. 

C. Abating Section 6707A Penalties 

One commenter expressed concern 

that there are no adequate procedures or 

policies for abating section 6707A 

penalties with respect to listed 

transactions. This comment is outside 

the scope of these final regulations as 

the regulations merely identify a listed 

transaction. The rules concerning 

section 6707A penalties are found in 

§ 301.6707A–1, which was issued 

pursuant to notice and comment and 

finalized most recently in TD 9853 (84 

FR 11217), published in 2019 and 

which is not amended by these final 

regulations. 

D. Material Advisors 

The proposed regulations provided no 

special rules for material advisors. 

However, the effect of identifying a 

listed transaction is, in part, to require 

certain disclosures from material 

advisors. 

One commenter asked that the final 

regulations provide guidance to 

appraisers on the application of any 

material advisor requirements, and 

suggested that, if an appraiser is 

engaged after an easement is put in 

place, the appraiser should not be 

considered a material advisor. 

The requested guidance is outside the 

scope of these final regulations; 

however, the Treasury Department and 

the IRS note that the definition of 

material advisor is found in § 301.6111– 

3(b), which was issued pursuant to 

notice and comment and finalized in TD 

9351 (72 FR 43157), published in 2007 

and which is not amended by these final 

regulations. A material advisor is a 

person who makes a ‘‘tax statement,’’ as 

defined in § 301.6111–3(b)(2)(ii), and 

derives gross income in excess of the 

‘‘threshold amount,’’ as defined in 

§ 301.6111–3(b)(3) (generally, $10,000 

for listed transactions). Section 

301.6111–3 contains no exception for 

providing advice ‘‘after’’ the transaction 

is entered into. Section 301.6111– 

3(b)(4)(i) provides that a person will be 

treated as becoming a material advisor 

when all of the following events have 

occurred (in no particular order): (1) the 

person provides material aid, assistance, 

or advice as described in § 301.6111– 

3(b)(2); (2) the person directly or 

indirectly derives gross income in 

excess of the threshold amount as 

described in § 301.6111–3(b)(3); and (3) 

the transaction is entered into by the 

taxpayer to whom or for whose benefit 

the person provided the tax statement, 

or in the case of a tax statement 

provided to another material advisor, 

when the transaction is entered into by 

a taxpayer to whom or for whose benefit 

that material advisor provided a tax 

statement. Thus, an appraiser that is 

engaged after an easement is put in 

place can be a material adviser based on 

statements or actions after an easement 

is put in place. 

A few commenters argued that the 

‘‘retroactivity component’’ to material 

advisors (due to required disclosures) is 

impermissible or burdensome. This 

comment is without merit and outside 

the scope of these final regulations; 

however, the Treasury Department and 

the IRS note that § 301.6111–3(b)(4)(iii) 

provides that, if a transaction that was 

not a reportable transaction is identified 

as a listed transaction in published 

guidance after the occurrence of the 

events described in § 301.6111– 

3(b)(4)(i), the person will be treated as 

becoming a material advisor on the date 

the transaction is identified as a listed 

transaction. As the resulting obligations 

imposed are limited to actions the 

person must take thereafter, the 

requirement is not retroactive. 

II. Comments Concerning Conservation 

Easements Generally 

Several commenters addressed 

aspects of conservation easements that 

are outside the scope of these final 

regulations but have nonetheless been 

considered in adopting these final 

regulations. This part II of this Summary 

of Comments and Explanation of 

Revisions describes and responds to 

comments relating to: (1) the 

consistency of these final regulations 

with the congressional intent to 

conserve land; (2) overvaluation abuse 

in abusive syndicated conservation 

easement transactions; (3) whether 

disclosure of the listed transactions is 

needed since taxpayers must file Form 

8283, Noncash Charitable 

Contributions; and (4) requests for 

enforcement data on syndicated 

conservation easement transactions. 

A. Supporting Conservation While 

Combatting Abuse 

One commenter noted that abusive 

syndicated conservation easement 

transactions are antithetical to the 

concept of charity that section 170(h) 


ddrumheller on DSK120RN23PROD with RULES1
81344 Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Rules and Regulations 

was designed to enable. The Treasury 

Department and the IRS agree. 

However, several commenters opined 

that identification of syndicated 

conservation easement transactions as 

listed transactions is inconsistent with 

congressional intent to promote 

conservation. These commenters argued 

that the proposed regulations 

disincentivize conservation by 

increasing the audit risk of taxpayers 

involved in syndicated conservation 

easement transactions and that the 

uncertainty relating to what is 

considered a ‘‘substantially similar’’ 

transaction has a chilling effect. These 

commenters further argued that the 

proposed regulations go beyond the 

scope of section 170(h)(7), violate the 

separation of powers, and are contrary 

to the priorities of the Administration. 

The Treasury Department and the IRS 

do not agree with the comments 

criticizing the identification of 

syndicated conservation easement 

transactions as listed transactions. 

Contrary to the commenters’ assertions, 

Congress has made it clear that it is 

concerned with abusive syndicated 

conservation easement transactions. 

See, e.g., Syndicated ConservationEasement Transactions, S. Prt. 116–44 

(August 2020). The minimal impact on 

taxpayers who claim legitimate 

charitable contribution deductions for 

qualified conservation contributions 

and who may decide to file a protective 

disclosure is far outweighed by the 

benefit of requiring disclosure for the 

identified transactions. In addition, 

combatting abusive tax shelters is a 

priority for the Federal government. 

B. Valuation Abuse 

Several commenters noted that the 

central problem with abusive 

syndicated conservation easements is 

inaccurate, inflated, and flawed 

appraisals and the associated 

overvaluation of conservation 

easements. A few commenters asked 

that these final regulations be replaced 

with ‘‘meaningful guidance’’ on 

valuation or appraisal methodology, 

including modifications to the rules for 

qualified appraisals under § 1.170A–17 

and guidance on how to determine the 

highest and best use of properties for 

purposes of easement valuation. One 

commenter suggested that the IRS 

litigate fraudulent appraisal practices as 

an alternative to ‘‘questioning the longstanding conservation practices of 

donee organizations.’’ One commenter 

suggested establishing an enhanced 

appraisal process similar to the process 

the IRS has established for the art 

community. 

Any guidance on valuation is outside 

the scope of these final regulations, 

which are limited to identifying a listed 

transaction. The purpose of these final 

regulations is to require taxpayers and 

material advisors to report transactions 

for which the claimed value of a 

syndicated conservation easement 

contribution strongly indicates 

overvaluation and thus tax avoidance. 

The Treasury Department and the IRS 

have challenged and will continue to 

challenge abusive appraisal practices 

and overvaluation. 

C. Disclosures 

Some commenters questioned why 

the IRS needs to identify certain 

syndicated conservation easements as a 

listed transaction when contributions of 

conservation easements are already 

disclosed on the Form 8283, which 

contains, among other information, the 

easement’s appraised value, when and 

how the property was acquired, the 

donor’s cost or adjusted basis, the 

amount deducted, and the date of the 

contribution. The commenters noted 

that the Form 8283 must be prepared 

completely and accurately because a 

deduction will be disallowed if any 

information is missing. 

The Form 8283, which is filed as a 

part of a taxpayer’s tax return, does not 

include all the information contained on 

Form 8886. It also does not alert the 

Office of Tax Shelter Analysis to the 

taxpayer’s participation in an abusive 

transaction, nor does it trigger 

disclosure and other obligations of 

material advisors to the transaction. 

Accordingly, these comments are not 

adopted. 

D. Requests for Enforcement Data 

Some commenters, citing to an issue 

in the remand of CIC Services, LLC v. 

IRS, 592 F. Supp. 3d 677 (E.D. Tenn. 

2022), asserted that the proposed 

regulations are arbitrary and capricious 

because, in their opinion, the APA 

requires numerical data on syndicated 

conservation easement transactions as 

part of the rationale for identifying a 

listed transaction. The commenters 

requested the number of past syndicated 

conservation easement transactions, the 

number of syndicated conservation 

easement transactions challenged, the 

status and/or outcome of every current 

syndicated conservation easement 

challenge, the number of syndicated 

conservation easement transactions 

deemed abusive by courts, the dollar 

amounts involved in syndicated 

conservation easement transactions, the 

number of taxpayers affected by 

syndicated conservation easement 

transactions, the nature and amount of 

the contributions involved, the value 

and acreage of the property conserved 

by syndicated conservation easement 

transactions, and the effect of 

syndicated conservation easement 

transactions on nature and wildlife. 

CIC Services and other authorities do 

not require the public release of 

enforcement data, or the other analysis 

commenters requested, as a part of 

rulemaking. Section 6011 and the 

regulations thereunder require that the 

IRS (1) determine that a transaction is a 

tax avoidance transaction and (2) 

identify the transaction as a listed 

transaction by notice, regulation, or 

other form of published guidance. The 

Treasury Department and the IRS have 

consistently maintained, since the 

issuance of Notice 2017–10, that certain 

syndicated conservation easement 

transactions are tax avoidance 

transactions and have identified them as 

such by notice or regulation. An offer to 

potentially be allocated a charitable 

contribution deduction that is at least 

2.5 times one’s investment, likely 

resulting in a positive after-tax financial 

benefit from what is supposed to be a 

charitable contribution, is strongly 

indicative of a tax avoidance transaction 

and has been identified by Congress as 

such. See, e.g., section 170(h)(7). 

Further, the data requested by 

commenters is unrelated to whether the 

identified transactions are tax avoidance 

transactions. 

III. Comments Regarding the Necessity 

of These Final Regulations in Light of 

Section 605 of the SECURE 2.0 Act 

Several commenters questioned the 

need for the proposed regulations to be 

adopted as final regulations, given the 

enactment in December of 2022 of 

section 605 of the SECURE 2.0 Act, 

which added section 170(h)(7) to the 

Code to disallow a deduction for ‘‘the 

vast majority’’ of the abusive syndicated 

conservation easement transactions 

identified in the proposed regulations. 

Commenters asked that, in light of the 

legislation, the proposed regulations 

either be withdrawn or be revised to 

take a ‘‘more surgical approach’’ that is 

in accordance with the new statute (and 

addresses other concerns). 

Some of these commenters opined 

that the proposed regulations were 

overbroad and inconsistent with 

congressional intent, in part because the 

proposed regulations did not include 

the three exceptions to section 

170(h)(7)(A) that Congress included in 

section 170(h)(7)(C) through (E). These 

commenters argued that syndicated 

conservation easement transactions that 

meet an exception to section 

170(h)(7)(A) should also be excepted 


ddrumheller on DSK120RN23PROD with RULES1
Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Rules and Regulations 81345 

from the definition of the listed 

transaction identified in the proposed 

regulations. 

Other commenters supported 

adopting final regulations to help the 

IRS identify promoters, material 

advisors, and donee organizations 

involved in abusive syndicated 

conservation easement transactions. The 

commenters noted that section 605 of 

the SECURE 2.0 Act is prospective only. 

These commenters, however, suggested 

a few modifications to the proposed 

rules, which are discussed later in this 

part III and in part IV of this Summary 

of Comments and Explanation of 

Revisions. 

The Treasury Department and the IRS 

have concluded that it is in the interest 

of sound tax administration to continue 

to identify abusive syndicated 

conservation easement transactions as 

listed transactions, notwithstanding 

passage of section 605 of the SECURE 

2.0 Act. However, in adopting the 

proposed regulations as final 

regulations, the Treasury Department 

and the IRS have made several 

modifications to the proposed rules, as 

described in this Summary of 

Comments and Explanation of 

Revisions. Thus, these final regulations 

are consistent with the commenters’ 

recommendation that the final 

regulations take ‘‘a more surgical 

approach’’ to the definition of the 

syndicated conservation easement listed 

transaction following the enactment of 

section 170(h)(7). 

Specifically, these final regulations 

cover three major classes of abusive 

syndicated conservation easement 

transactions (and substantially similar 

transactions): (1) those that involve 

contributions occurring before 

December 30, 2022; (2) those for which 

a charitable contribution deduction is 

not automatically disallowed by section 

170(h)(7); and (3) those that substitute 

the contribution of a fee simple interest 

in real property for the contribution of 

a conservation easement. 

A. Transactions Occurring Before 

December 30, 2022 

Section 170(h)(7)(A) does not apply to 

contributions made on or before 

December 29, 2022. As a result, these 

final regulations are necessary to obtain 

reporting of transactions that are the 

same as, or substantially similar to, 

syndicated conservation easement 

transactions in cases in which the 

conservation easements were 

contributed before December 30, 2022, 

and the taxpayers did not disclose the 

transaction pursuant to Notice 2017–10. 

Thus, these final regulations impose 

reporting requirements on taxpayers 

who had not previously disclosed their 

participation in transactions that are the 

same as, or substantially similar to, 

syndicated conservation easement 

transactions to the extent that a 

taxpayer’s participation in the 

transaction occurred in one or more 

taxable years as to which the statute of 

limitations had not run as of the date 

these final regulations identify the 

transaction as a listed transaction. 

Some commenters contended that, 

since many taxpayers have already 

reported their transactions under Notice 

2017–10, the IRS already has the 

information reporting targeted by the 

proposed regulations. The Treasury 

Department and the IRS agree that, in 

such cases, duplicative reporting under 

these final regulations is unnecessary. 

Accordingly, these final regulations 

explicitly provide that taxpayers who 

fully disclosed their participation in 

syndicated conservation easement 

transactions pursuant to Notice 2017–10 

do not need to disclose again under 

these final regulations for any taxable 

years covered by the prior disclosure. 

B. Transactions Not Automatically 

Disallowed by Section 170(h)(7) 

The final regulations do not include 

an exception for transactions that are 

excluded from the automatic 

disallowance rule in section 170(h)(7). 

Of note, the SECURE 2.0 Act, which was 

enacted after the proposed regulations 

were issued, does not provide that the 

exceptions to section 170(h)(7)(A) 

contained in section 170(h)(7)(C) 

through (E) are also exceptions for 

purposes of the listed transaction rules. 

To the contrary, section 605(c)(2) of the 

SECURE 2.0 Act explicitly states: ‘‘No 

inference is intended as to the 

appropriate treatment of . . . any 

contribution for which a deduction is 

not disallowed by reason of section 

170(h)(7) of the Internal Revenue Code 

of 1986, as added by this section.’’ Thus, 

Congress has indicated that the fact that 

such transactions are not automatically 

disallowed does not mean that such 

transactions could not be abusive. 

There are at least two types of 

conservation easement transactions for 

which a charitable contribution 

deduction is not automatically 

disallowed by section 170(h)(7) that are 

appropriately considered listed 

transactions. First, transactions 

satisfying any of the three exceptions 

found in section 170(h)(7)(C) through 

(E) that also contain all the elements of 

a transaction identified as a listed 

transaction under these final regulations 

continue to be transactions that the 

Treasury Department and the IRS view 

as likely to be abusive. Thus, the final 

regulations do not include any 

exceptions for transactions described in 

section 170(h)(7)(C) through (E). 

Second, any syndicated conservation 

easement transaction for which a 

charitable contribution deduction is not 

automatically disallowed by section 

170(h)(7) because the amount of the 

partnership’s contribution does not 

exceed 2.5 times the sum of each 

partner’s relevant basis in the 

partnership is nevertheless a listed 

transaction with respect to any partner 

who received promotional materials 

offering the possibility of being 

allocated a share of the contribution that 

equals or exceeds 2.5 times that 

partner’s investment. 

C. Transactions That Involve Other 

Contributions of Real Property 

The preamble to the proposed 

regulations stated that transactions in 

which the contributed property is 

described in section 170(h)(2)(A) or (B), 

or is a fee interest in real property, are 

transactions substantially similar to the 

listed transaction identified in proposed 

§ 1.6011–9(b). Several commenters 

noted that this language appears to 

imply that any transaction that meets 

the elements of the listed transaction 

identified in the proposed regulations, 

but that consists of the contribution of 

real property, is substantially similar to 

the listed transaction identified in the 

proposed regulations. 

One commenter supported the 

inclusion of fee simple contributions in 

the preamble to the proposed 

regulations and asked that fee simple 

transactions be expressly identified in 

the regulatory text of the final 

regulations. Another commenter asked 

that the final regulations ‘‘clarify’’ 

whether fee simple contributions are 

considered substantially similar to 

syndicated conservation easement 

transactions, stating that ‘‘the preamble 

language is not law.’’ However, several 

other commenters questioned why 

contributions of fee simple interests in 

property would be considered 

transactions that are substantially 

similar to the syndicated conservation 

easement transaction identified in the 

proposed regulations. One commenter 

contended that the tax consequences, 

specifically taxpayer contribution base 

limitations and carryover periods, are 

different for fee simple contributions 

and conservation easement 

contributions. 

The Treasury Department and IRS 

continue to believe that a transaction 

that meets the elements of the listed 

transaction identified in these final 

regulations, but consists of the 

contribution of a fee simple interest 


ddrumheller on DSK120RN23PROD with RULES1
81346 Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Rules and Regulations 

rather than of a conservation easement, 

is substantially similar to the listed 

transaction identified in these final 

regulations. The commenters 

questioning the treatment of 

contributions of fee simple interests as 

substantially similar transactions failed 

to address the broad definition of 

substantially similar found in § 1.6011– 

4(c)(4), which was issued after notice 

and comment; that Congress specifically 

adopted the term ‘‘substantially similar’’ 

in its subsequent enactment of section 

6707A(c)(2); and that Congress 

specifically referenced the definition in 

§ 1.6011–4(c)(4) when explaining that 

provision. See Footnote 232 of House 

Report 108–548(I), 108th Cong., 2nd 

Sess. 2004, at 261 (June 16, 2004) 

(House Report) (emphasis added): 

The provision states that, except as 

provided in regulations, a listed transaction 

means a reportable transaction, which is the 

same as, or substantially similar to, a 

transaction specifically identified by the 

Secretary as a tax avoidance transaction for 

purposes of section 6011. For this purpose, 

it is expected that the definition of 

‘‘substantially similar’’ will be the definition 

used in Treas. Reg. sec. 1.6011–4(c)(4). 

However, the Secretary may modify this 

definition (as well as the definitions of 

‘‘listed transaction’’ and ‘‘reportable 

transactions’’) as appropriate. 

In particular, despite the differing 

taxpayer contribution base limitations 

and carryover periods between a fee 

simple donation and a conservation 

easement donation, the transactions can 

result in similar types of tax 

consequences and be either factually 

similar or based on the same or a similar 

tax strategy. 

In sum, the Treasury Department and 

the IRS agree that any contribution of 

real property (including contributions of 

fee simple interests and contributions 

described in section 170(h)(2)(A) or (B)) 

that meets the elements of the listed 

transaction identified in the proposed 

regulations is a transaction that is 

substantially similar to the listed 

transaction identified in the proposed 

regulations. Accordingly, § 1.6011– 

9(c)(7) of these final regulations 

explicitly states that a transaction that 

meets all the elements described in 

§ 1.6011–9(b), except that the 

transaction involves the contribution of 

a fee simple interest or the contribution 

of a real property interest described in 

section 170(h)(2)(A) or (B) instead of a 

conservation easement, is substantially 

similar (within the meaning of § 1.6011– 

4(c)(4)) to the transaction described in 

§ 1.6011–9(b). The final regulations 

contain an example showing a 

transaction involving the contribution of 

a fee simple interest that is substantially 

similar to the transaction described in 

§ 1.6011–9(b). 

D. Other Substantially Similar 

Transactions 

Multiple commenters raised general 

concerns about the potential scope of 

transactions that are ‘‘substantially 

similar’’ to the listed transaction 

identified in the proposed regulations. 

Several of those commenters opined 

that the substantially similar rule is void 

for vagueness or overbroad, and some 

commenters requested that the term be 

made more specific. Several 

commenters asked whether the 2.5 

times rule in proposed § 1.6011–9(b)(1) 

is a bright-line rule; in other words, 

whether transactions for which the 

highest estimate of charitable 

contribution deduction in the 

promotional materials is less than 2.5 

times a taxpayer’s investment could be 

substantially similar to the listed 

transaction identified in these 

regulations. 

As previously discussed, the term 

‘‘substantially similar’’ is part of the 

statutory definition of a listed 

transaction in section 6707A(c)(2); 

furthermore, the regulatory definition 

found in § 1.6011–4(c)(4) was adopted 

after notice and comment and has been 

viewed favorably by Congress. Under 

§ 1.6011–4(c)(4), whether a transaction 

is ‘‘substantially similar’’ to a 

syndicated conservation easement 

transaction depends on the tax 

consequences, the tax strategy, and 

other facts and circumstances related to 

the transaction. Section 1.6011–4(c)(4) 

further provides that the term 

substantially similar must be broadly 

construed in favor of disclosure. 

The ‘‘substantially similar’’ rule 

provides an important backstop against 

advisors’ and promoters’ attempts to 

avoid the reporting requirements. 

Consistent with that objective, these 

final regulations generally do not 

circumscribe the types of transactions 

that may be substantially similar to the 

listed transaction identified in these 

final regulations. Nonetheless, as 

discussed in part IV.A.3. of this 

Summary of Comments and Explanation 

of Revisions, these final regulations do 

provide that the 2.5 times rule is a 

bright-line rule. Thus, transactions in 

which the promotional materials offer 

investors the possibility of being 

allocated a charitable contribution 

deduction of anything less than 2.5 

times a taxpayer’s investment generally 

are not substantially similar to the listed 

transaction identified in these final 

regulations. However, if the taxpayer is 

nonetheless allocated a charitable 

contribution deduction that equals or 

exceeds 2.5 times the taxpayer’s 

investment, the rebuttable presumption 

in § 1.6011–9(d)(3) would apply. 

Several commenters asked whether 

transactions that involve contributions 

other than real property, such as those 

that involve contributions of artwork or 

other non-cash items, are listed 

transactions. The Treasury Department 

and the IRS have determined that such 

transactions are not ‘‘substantially 

similar’’ for purposes of these final 

regulations because this listed 

transaction relates to contributions of 

real property, not of personal property. 

The Treasury Department and the IRS 

will continue to evaluate whether the 

transactions raised by commenters are 

tax avoidance transactions and may 

propose to identify such transactions as 

listed transactions in future guidance. 

A few commenters asked whether 

transactions that do not involve a 

contribution by a pass-through entity 

(such as a transaction involving a 

contribution by an individual or a 

corporation) are ‘‘substantially similar’’ 

transactions. The Treasury Department 

and the IRS have determined that 

transactions that do not involve a 

contribution by a pass-through entity 

are not considered substantially similar 

transactions; however, these 

transactions likewise could be proposed 

to be identified as tax avoidance 

transactions in future guidance. 

One commenter asked whether 

transactions that involve deductions 

other than under section 170 (that is, 

transactions involving the ‘‘use of 

different Code provisions’’), are 

considered ‘‘substantially similar’’ to 

the syndicated conservation easement 

transaction identified in the proposed 

regulations. It is possible that a passthrough entity could use a deduction 

other than allowed under section 170 to 

obtain the same or a similar type of tax 

consequences, and that such transaction 

would either be factually similar or 

based on the same or similar tax strategy 

to the listed transaction identified in 

these final regulations. Therefore, the 

Treasury Department and IRS conclude 

it is possible that a transaction that 

abuses the application of a section of the 

Code other than section 170, for 

example, section 642(c), could be a 

substantially similar transaction. Under 

§ 1.6011–4(f)(1), taxpayers who are 

uncertain whether a particular 

transaction is substantially similar to a 

syndicated conservation easement 

transaction may request a private letter 

ruling from the IRS. 

Several commenters expressed 

concern that, given the uncertainty 

about whether a particular transaction 

would be substantially similar to a 


ddrumheller on DSK120RN23PROD with RULES1
Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Rules and Regulations 81347 

listed transaction, the regulations could 

have a chilling effect on the willingness 

of qualified organizations to accept 

contributions of conservation easements 

if the section 4965 carveout were 

eliminated in the final regulations. As 

described in part V of this Summary of 

Comments and Explanation of 

Revisions, these final regulations 

maintain the section 4965 carveout for 

qualified organizations, which 

addresses those concerns. 

IV. Comments Regarding Elements of 

the Listed Transaction Identified in the 

Proposed Regulations 

Several comments focused on the 

elements of the listed transaction 

identified in the proposed regulations. 

This part IV describes and responds to 

these comments, specifically comments 

regarding (1) the 2.5 times rule; (2) 

application of the 2.5 times rule; (3) 

timing rules; and (4) definitions. 

A. The 2.5 Times Rule 

Commenters addressed the rationale 

for the 2.5 times multiple, interaction 

with the 2.5 times rule in section 

170(h)(7), and whether 2.5 times is a 

bright line. 

1. Rationale for the 2.5 Times Multiple 

Several commenters questioned the 

rationale for the 2.5 times multiple in 

the proposed regulations. Some 

commenters argued that, depending on 

the top marginal tax rate, a 2.5 times 

multiple would result in minimal, if 

any, tax benefit to the investor. One 

commenter opined that, because there is 

no explanation for how the multiple 

was determined, there is no way to 

determine whether this criterion is 

reasonable. 

The Treasury Department and the IRS 

have concluded, consistent with Notice 

2017–10, that once a transaction offers 

the possibility of a charitable 

contribution deduction that equals or 

exceeds an amount that is 2.5 times the 

amount of the taxpayer’s investment, 

the transaction is a tax avoidance 

transaction that justifies a reporting 

obligation. At this 2.5 times threshold, 

a taxpayer in the highest current 

marginal tax bracket claiming a 

charitable contribution deduction for a 

qualified conservation contribution will 

approximately break even before 

considering State tax benefits, and, for 

any amounts above 2.5 times, will have 

an economic gain directly from making 

the charitable contribution deduction. 

This multiple is also aligned with the 

2.5 times threshold established by 

Congress in section 605 of the SECURE 

2.0 Act, which disallows certain 

deductions at the partnership level for 

contributions exceeding 2.5 times the 

sum of each partner’s relevant basis. 

Thus, the Treasury Department and the 

IRS conclude that it is reasonable and in 

the sound interest of tax administration 

to adopt the 2.5 times threshold as 

proposed. 

2. Interaction With the 2.5 Times Rule 

in Section 170(h)(7) 

Several commenters addressed the 

interaction of the 2.5 times rule with 

section 170(h)(7) and asked whether 

only transactions in which the 

charitable contribution deduction 

promised in the promotional materials 

is exactly 2.5 times the investment need 

to be disclosed (because transactions in 

which the deduction amount exceeds 

2.5 times the investment are generally 

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

these final regulations, both transactions 

in which the charitable contribution 

deduction promised in the promotional 

materials is exactly 2.5 times the 

investment and transactions in which 

the charitable contribution deduction 

promised in the promotional materials 

exceeds 2.5 times the investment must 

be disclosed. 

As discussed in part III of this 

Summary of Comments and Explanation 

of Revisions, certain transactions for 

which a deduction is not disallowed by 

section 170(h)(7) are nevertheless 

considered listed transactions. 

3. Whether 2.5 Times Is a Bright Line 

As noted in part III.D. of this 

Summary of Comments and Explanation 

of Revisions, several commenters asked 

whether 2.5 times is a bright line; in 

other words, whether transactions for 

which the highest estimate of charitable 

contribution deduction in the 

promotional materials is less than 2.5 

times a taxpayer’s investment could be 

considered substantially similar 

transactions. One of these commenters 

encouraged the IRS to clarify that the 

2.5 times rule is not intended to create 

or imply a safe harbor for excessive 

valuations below the 2.5 times threshold 

and that the 2.5 times rule does not 

implicitly approve charitable 

contribution deduction amounts less 

than 2.5 times a taxpayer’s investment. 

This commenter noted that, regardless 

of whether a contribution is a listed 

transaction pursuant to § 1.6011–4(b)(2), 

it remains subject to all the relevant 

requirements of law, including those 

regarding valuation and substantiation 

of that valuation by means of a qualified 

appraisal by a qualified appraiser 

pursuant to § 1.170A–17 that is subject 

to review by the IRS for its accuracy. A 

few commenters asked the IRS to pick 

an actual number (for example, 2.0, 

2.25, 2.45, or 2.49 times) at which a 

transaction will incur greater IRS 

scrutiny. 

The Treasury Department and the IRS 

agree that taxpayers need some certainty 

on which transactions need to be 

disclosed to the IRS. The Treasury 

Department and the IRS have 

determined that a transaction in which 

the promotional materials offer the 

taxpayer the possibility of being 

allocated a charitable contribution 

deduction of only an amount less than 

2.5 times the taxpayer’s investment and 

for which the taxpayer is actually 

allocated a charitable contribution 

deduction of an amount less than 2.5 

times the taxpayer’s investment (so that 

the rebuttable presumption in § 1.6011– 

9(d)(3) does not apply) generally is not 

‘‘substantially similar’’ to the listed 

transaction identified in these final 

regulations. This determination takes 

into account both the need for taxpayer 

certainty on reporting obligations and 

the possibility of being allocated a 

charitable contribution deduction the 

amount of which is less than 2.5 times 

the amount of the taxpayer’s investment 

presents less risk of the type of netpositive financial benefit to investors 

that exists at and above the 2.5 times 

threshold. This bright-line rule does not 

imply that valuations giving rise to an 

amount less than 2.5 times a taxpayer’s 

investment are properly valued. The 

Treasury Department and the IRS agree 

with the commenter that, regardless of 

whether a contribution is a reportable 

transaction pursuant to § 1.6011–4, it 

remains subject to all the relevant 

requirements of law. For example, a 

claimed charitable contribution 

deduction amount that is 2.0 times the 

partner’s investment may still be 

overvalued or unsubstantiated, and the 

valuation remains subject to review by 

the IRS for accuracy. 

In view of the foregoing, these final 

regulations add new § 1.6011–9(d)(1) to 

state that the 2.5 times threshold is a 

bright line. However, this new rule also 

provides that, if a pass-through entity 

engages in a series of transactions (for 

example, contribution of an easement 

followed by contribution of a fee simple 

interest) with a principal purpose of 

avoiding the application of this brightline rule, the series of transactions may 

be disregarded, or the arrangement may 

be recharacterized in accordance with 

its substance. Whether a series of 

transactions has a principal purpose of 

avoiding the application of this brightline rule is determined based on all the 

facts and circumstances. 


ddrumheller on DSK120RN23PROD with RULES1
81348 Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Rules and Regulations 

B. Application of the 2.5 Times Rule 

The proposed regulations contained 

three rules to address potential 

avoidance of the 2.5 times rule. 

Taxpayers commented on each of these 

rules. 

1. Multiple Suggested Deduction 

Amounts 

The proposed regulations contained a 

rule that, if the promotional materials 

suggest or imply a range of possible 

charitable contribution deduction 

amounts that may be allocated to the 

taxpayer, the highest suggested or 

implied deduction amount will 

determine whether the 2.5 times rule is 

met. In addition, if one piece of 

promotional materials (for example, an 

appraisal or oral statement) suggests or 

implies a higher charitable contribution 

deduction amount than suggested or 

implied by other promotional materials, 

then the highest suggested charitable 

contribution deduction amount 

determines whether the 2.5 times rule is 

met. As the preamble to the proposed 

regulations explained, this rule is 

intended to prevent promoters from 

circumventing the 2.5 times rule by 

having promotional materials contain 

language that is inconsistent as to the 

amount of the potential charitable 

contribution deduction. 

One commenter stated that the 

proposed rule ‘‘does not apply to 

ambiguities in the taxpayer’s materials, 

it allows the Treasury to create 

ambiguities in the taxpayer’s materials.’’ 

However, another commenter asked 

whether a transaction that meets the 

elements of the listed transaction 

identified in the proposed regulations, 

except that the partnership merely 

promises that the investment will ‘‘grow 

by’’ 2.5 times without mentioning a 

charitable contribution deduction, is 

considered a ‘‘substantially similar’’ 

transaction. The intent of the rule is to 

prevent promoters from circumventing 

the 2.5 times rule by creating ambiguous 

promotional materials, and the 

transaction described in the preceding 

sentence would be a substantially 

similar transaction. Thus, these final 

regulations adopt the rule as proposed. 

2. Rebuttable Presumption 

The proposed regulations included a 

rebuttable presumption deeming the 2.5 

times rule to be met if (1) the passthrough entity donates a conservation 

easement within three years following a 

taxpayer’s investment in the passthrough entity, (2) the pass-through 

entity allocates a charitable contribution 

deduction to the taxpayer the amount of 

which equals or exceeds two and onehalf times the amount of the taxpayer’s 

investment, and (3) the taxpayer claims 

a deduction the amount of which equals 

or exceeds two and one-half times the 

amount of the taxpayer’s investment. 

The proposed regulations provided that 

this presumption may be rebutted if the 

taxpayer establishes to the satisfaction 

of the Commissioner that none of the 

promotional materials contained a 

suggestion or implication that investors 

might be allocated a charitable 

contribution deduction the amount of 

which equals or exceeds an amount that 

is two and one-half times the amount of 

their investment in the pass-through 

entity. 

Several commenters objected to the 

rebuttable presumption rule, stating that 

it is ‘‘arbitrary and capricious;’’ that 

taxpayers cannot prove a negative 

(particularly with respect to oral 

representations); that any attempt to 

prove in court that oral representations 

were not made is hearsay; that the 

regulations do not speak to how a 

taxpayer is able to rebut the 

presumption; that it seems to be 

attempting to switch the penalty burden 

from the IRS to taxpayers; and that the 

IRS has demonstrated to taxpayers that 

it will neither be fair nor listen to 

reasonable evidence in syndicated 

conservation easement tax disputes. 

Commenters asked for guidance on how 

taxpayers may be able to rebut the 

rebuttable presumption. 

The Treasury Department and the IRS 

conclude that the rebuttable 

presumption is reasonable because it is 

unlikely that a taxpayer would claim a 

deduction for 250 percent of their 

investment in a pass-through entity 

within three years of making that 

investment and not have received 

promotional materials offering the 

possibility to do so. This presumption is 

needed to address transactions with 

respect to which taxpayers and 

promoters are not forthcoming about the 

content or receipt of the promotional 

materials. While the Treasury 

Department and the IRS decline to 

provide a specific method to rebut the 

presumption in these final regulations 

because such rebuttal would necessarily 

be dependent on the taxpayer’s specific 

facts and circumstances, the Treasury 

Department and the IRS expect that, in 

appropriate cases, taxpayers will be able 

to establish to the satisfaction of the 

Commissioner that none of the 

promotional materials contained a 

suggestion or implication that investors 

might be allocated a charitable 

contribution deduction the amount of 

which equals or exceeds an amount that 

is two and one-half times the amount of 

their investment in the pass-through 

entity. For example, a taxpayer may be 

able to rebut the presumption by 

establishing that the partnership was 

not open to other investors (and thus the 

only promotional materials were 

documents needed to execute the 

transaction) or that similar properties in 

the same area had increased 

significantly in value in the period 

between the time the taxpayer invested 

in the partnership and the date the 

conservation easement was contributed. 

Contrary to commenters’ assertions, 

nothing in the proposed regulations 

suggested that the Commissioner will 

disregard evidence rebutting the 

presumption. Section 7803(a)(3)(D) and 

(J) of the Code require the Commissioner 

to ensure that employees of the IRS are 

familiar, and act in accordance, with 

taxpayer rights, including the right to 

challenge the position of the IRS, the 

right to be heard, and the right to a fair 

and just tax system. Furthermore, the 

phrase ‘‘to the satisfaction of the 

Commissioner’’ does not preclude 

future judicial review, and the 

Commissioner bears the burden of 

demonstrating that each of the other 

elements of the listed transaction has 

been fulfilled and may have the burden 

of production under section 7491(c) of 

the Code in a court proceeding 

regarding the imposition of a penalty, 

depending on the party against whom it 

is asserted. In the view of the Treasury 

Department and the IRS, evidence 

regarding oral promotional materials 

generally would not constitute 

inadmissible hearsay because the oral 

promotional materials would not be 

offered for the truth of the matters 

asserted therein, but rather as evidence 

of what was stated. See Fed. R. Evid. 

801(c)(2). 

Some commenters asked whether the 

rebuttable presumption implies that 

taxpayers do not need to report if (1) at 

least three years have passed between 

the taxpayer’s investment in the passthrough entity and the pass-through’s 

contribution of a conservation easement 

or (2) if the deduction amount is less 

than 2.5 times the amount of an 

investor’s investment. The rebuttable 

presumption does not carry either of 

these implications. 

The Treasury Department and the IRS 

have decided to retain the rebuttable 

presumption in the final regulations 

because the administrative need for a 

rebuttable presumption outweighs the 

concerns raised by the commenters. 

Taxpayers and promoters are the 

persons with access to and knowledge 

of the promotional materials involved in 

their transactions. Taxpayers should not 

be able to escape the requirements of 

these final regulations because their 


ddrumheller on DSK120RN23PROD with RULES1
Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Rules and Regulations 81349 

syndicators were effective in masking 

their promises. Accordingly, the final 

regulations retain the rebuttable 

presumption rule. 

3. Determining the Amount of a 

Taxpayer’s Investment in the PassThrough Entity 

The proposed regulations contained 

an anti-stuffing rule providing that, for 

purposes of determining whether a 

transaction is a listed transaction, the 

amount of a taxpayer’s investment in 

the pass-through entity is limited to the 

portion of the taxpayer’s investment that 

is attributable to the portion of the real 

property on which a conservation 

easement is placed and that produces 

the charitable contribution deduction. 

A few commenters noted that the term 

‘‘investment’’ in proposed § 1.6011– 

9(b)(1) is not defined, while one 

commenter stated that the anti-stuffing 

rule found in proposed § 1.6011–9(d)(3) 

provides the taxpayer’s investment for 

purposes of the 2.5 times rule. Several 

commenters stated that the anti-stuffing 

rule in the proposed regulations is 

inconsistent with the relevant basis rule 

in section 170(h)(7)(B), and others 

suggested that the anti-stuffing rule in 

the proposed regulations should be 

replaced with the relevant basis rule in 

section 170(h)(7)(B). 

The Treasury Department and the IRS 

note that the term ‘‘investment’’ is not 

generally defined within the Code. 

However, the Treasury Department and 

the IRS agree with the commenter 

stating that the anti-stuffing rule found 

in proposed § 1.6011–9(d)(3) provides 

the taxpayer’s investment for purposes 

of the 2.5 times rule. Further, in 

response to comments that relevant 

basis should also be permitted to be 

used to determine investment, these 

final regulations provide that a taxpayer 

may determine the amount of their 

investment in the pass-through entity 

using one of the methods provided in 

§ 1.6011–9(d)(4), which identifies the 

anti-stuffing method and, for 

contributions occurring on or after 

December 30, 2022, adds the relevant 

basis method in section 170(h)(7)(B) as 

another method to determine the 

amount of the taxpayer’s investment in 

the pass-through entity. No other 

methods may be used. 

In response to commenters asserting 

that relevant basis should replace the 

anti-stuffing rule, the relevant basis 

computations under section 170(h)(7) 

do not apply to all transactions for 

which disclosure is required under 

these final regulations (such as to 

contributions before the effective date of 

section 170(h)(7) in taxable years for 

which the statute of limitations is still 

open); thus, these final regulations 

retain the anti-stuffing method as one 

method to determine investment for 

purposes of the 2.5 times rule. 

i. Anti-Stuffing Method 

As mentioned before in part IV.B.3 of 

this Summary of Comments and 

Explanation of Revisions, several 

commenters addressed the anti-stuffing 

rule found in the proposed regulations, 

which these final regulations rename 

the ‘‘anti-stuffing method’’ to determine 

investment for purposes of the 2.5 times 

rule. For example, one commenter 

requested clarification on how to 

determine the portion of the investment 

that is ‘‘attributable’’ to the real property 

on which the conservation easement is 

placed. Another commenter stated that 

the proposed anti-stuffing rule may give 

rise to constitutional challenges because 

it requires the separation of investment 

assets, creating more cost for investment 

managers and for investors, which they 

contended is a limitation on interstate 

commerce, a power reserved only for 

the legislative branch. One commenter 

opined that the anti-stuffing rule will be 

impossible to apply in practice; the 

commenter noted that the example of 

the anti-stuffing rule in the proposed 

regulations involved marketable 

securities with an identifiable fair 

market value and questioned how to 

apply the anti-stuffing rule if the passthrough entity holds multiple pieces of 

property. Another commenter stated 

that the example in the proposed 

regulations illustrating the anti-stuffing 

rule was merely an example of the basis 

allocation rules under section 755 of the 

Code and that allocation rules under 

section 755 do not require additional 

explanation. 

The Treasury Department and the IRS 

conclude that the anti-stuffing rule 

provides a reasonable method to 

determine the taxpayer’s investment in 

the pass-through entity by looking only 

to amounts attributable to the property 

generating the charitable contribution 

deduction. In response to comments 

requesting additional guidance on the 

determination of the amount of a 

taxpayer’s investment, these final 

regulations provide that, under the antistuffing method, if an investor uses noncash assets to acquire its interest in the 

pass-through entity, then the fair market 

value of such assets, rather than their 

basis, is the relevant measure. In 

particular, under § 1.6011–9(d)(4)(ii) of 

these final regulations, the amount of a 

taxpayer’s investment in the passthrough entity is the portion of the cash 

and fair market value of the assets the 

taxpayer uses to acquire its interest in 

the pass-through entity that is 

attributable to the real property on 

which a conservation easement is 

placed (or the portion thereof, if an 

easement is placed on a portion of the 

real property) and that produces the 

charitable contribution deduction 

described in § 1.6011–9(b)(3). 

The Treasury Department and the IRS 

disagree that the anti-stuffing rule is 

impossible to apply in practice. 

Syndicated conservation easement 

transactions often involve scenarios 

similar to the example provided in the 

proposed regulations, in which the passthrough entity owns only cash and 

marketable securities in addition to its 

real property. Moreover, these 

regulations apply to transactions in 

which the promotional materials offer 

the possibility of charitable contribution 

deductions, and thus the parties 

involved will have necessarily 

considered the possible allocation of 

charitable contribution deductions 

based on the taxpayer’s cost of acquiring 

the interest in the pass-through entity. 

Accordingly, in the view of the Treasury 

Department and the IRS, it is not unduly 

burdensome to require the parties to 

determine the amount of the taxpayer’s 

acquisition cost that is allocable to the 

property giving rise to the charitable 

contribution deduction that is being 

offered. 

ii. Relevant Basis Method 

The Treasury Department and the IRS 

recognize that partnerships and S 

corporations that engage in syndicated 

conservation easement transactions 

occurring on or after December 30, 2022, 

will need to calculate relevant basis for 

purposes of section 170(f)(19), and, in 

addition, each investor will need to 

calculate the amount of the investor’s 

investment for purposes of these listed 

transaction regulations. To mitigate the 

burden of potentially duplicative 

calculations, these final regulations add 

an alternative method to determine the 

amount of a taxpayer’s investment. 

These final regulations provide that, for 

contributions occurring on or after 

December 30, 2022, taxpayers may use 

their relevant basis, as determined 

under section 170(h)(7)(B) and the 

regulations thereunder, as the amount of 

their investment for purposes of 

§ 1.6011–9(b)(1). 

4. Modification of the Determination of 

Investment for Qualified Conservation 

Contributions Protecting Historic 

Structures 

One commenter stated that the 

proposed anti-stuffing rule did not 

adequately consider the difference 

between qualified conservation 

contributions protecting historic 


ddrumheller on DSK120RN23PROD with RULES1
81350 Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Rules and Regulations 

structures and those protecting natural 

open space or settings. This commenter 

stated that, because historic 

preservation projects protect the historic 

character of a building, they often 

require additional investment for 

rehabilitation; however, the proposed 

rule did not consider cash raised for, 

and invested into, the preservation, 

rehabilitation and maintenance of 

certified historic structures in the 

calculation of the investment. The 

commenter further stated that the 

proposed regulations did not account 

for additional monies that need to be 

invested in a project after an easement 

is placed to ensure that the conservation 

purpose is protected in perpetuity. The 

commenter stated that cash, if invested 

in the real property, should be 

considered part of the taxpayer’s 

investment in the real property when 

applying the 2.5 times rule. 

The Treasury Department and the IRS 

conclude that the commenter’s 

proposed changes to the anti-stuffing 

method are not warranted. In general, 

one key element in determining whether 

a transaction constitutes a syndicated 

conservation easement listed transaction 

is the ratio of the amount of the 

charitable contribution deduction 

allocation that an investor is offered to 

the amount the investor pays to obtain 

that charitable contribution deduction 

allocation. To that end, the anti-stuffing 

method measures the amount of the 

taxpayer’s cost of acquiring the interest 

in the pass-through entity that is 

attributable to the real property on 

which a conservation easement is 

placed (or the portion thereof, if an 

easement is placed on a portion of the 

real property) and that gives rise to the 

charitable contribution deduction. 

Charitable contribution deductions are 

based on either the fair market value or 

adjusted basis of the property that is 

contributed as of the time of the 

contribution. See, e.g., section 170(e). 

Therefore, in the view of the Treasury 

Department and the IRS, it is 

inappropriate, in determining the 

amount of a taxpayer’s investment, to 

look to the amounts expended on the 

property after the time of the charitable 

contribution. 

In general, every taxpayer that 

contributes a conservation easement 

will be required to expend some 

amounts on the property after the 

contribution, such as for property taxes. 

However, amounts of cash that are held 

for expenditures after the date the 

conservation easement is contributed, 

whether for property taxes, repairs, or 

anything else related to the property, are 

not as directly related to the resultant 

charitable contribution deduction that a 

taxpayer claims as the expenditures 

related to the property that precede the 

conservation easement contribution. 

The Treasury Department and the IRS 

have concluded that it is appropriate for 

the anti-stuffing method to maintain its 

focus on the amounts invested in the 

property giving rise to the deduction as 

of the time of the charitable 

contribution. In addition, the Treasury 

Department and the IRS have concluded 

that a rule that treats certain cash 

holdings as attributable to the real 

property if they are ‘‘earmarked’’ for 

future expenditures related to the 

property would be difficult to 

administer. Such a rule would require 

factually intensive estimations and 

projections about the amount of future 

expenditures that would be necessary to 

fulfill the purposes of the conservation 

easement (as opposed to merely 

enhancing the value of the building). 

For these reasons, the Treasury 

Department and the IRS have concluded 

that the final regulations should not 

adopt this comment. Therefore, the final 

regulations add a clarification to 

§ 1.6011–9(d)(4)(ii), which states that 

assets retained to pay for costs related 

to the operation and maintenance of the 

real property on which the conservation 

easement is placed, including costs that 

may be incurred in future years, are not 

attributable to the contributed real 

property. 

The Treasury Department and the IRS 

will continue to consider whether any 

additional clarifications or 

modifications to the anti-stuffing 

method or the alternative relevant basis 

method of determining the amount of 

the taxpayer’s investment in the passthrough entity would be beneficial in 

the context of qualified conservation 

contributions protecting historic 

structures. 

C. Timing Rules 

Comments addressed both the timing 

of the pass-through entity’s acquisition 

of the real property and whether 

holding the real property for a period of 

time before the contribution of the 

conservation easement is made should 

result in the transaction being excluded 

from the listed transaction identified in 

these regulations. 

1. Timing of the Pass-Through Entity’s 

Acquisition of the Real Property 

Proposed § 1.6011–9(b)(2) provided 

that one of the steps of a syndicated 

conservation easement is that the 

taxpayer acquires an interest directly, or 

indirectly through one or more tiers of 

pass-through entities, in the passthrough entity that owns real property 

(that is, becomes an investor in the 

entity). A few commenters asked 

whether this step is met with respect to 

investors who acquire an interest in an 

entity that does not hold real estate at 

the time the interest in the pass-through 

entity is acquired. One of these 

commenters requested that the IRS 

clearly state if it intends proposed 

§ 1.6011–9(b)(2) to be met in the case of 

an investor who acquires an interest in 

a pass-through entity that subsequently 

acquires real estate or an interest in a 

pass-through entity holding real estate. 

The commenter also stated that, if the 

real property is purchased after the 

investor invests in the pass-through 

entity, the transaction would fall 

outside of the anti-stuffing rule and 

therefore would be less likely to trigger 

the 2.5 times rule (because the amount 

of the taxpayer’s investment would 

never be reduced by the anti-stuffing 

rule). 

The Treasury Department and the IRS 

note that the proposed regulations 

clearly stated that the transaction falls 

within the definition of a syndicated 

conservation easement transaction 

‘‘regardless of the order’’ in which the 

steps occur; therefore, the proposed 

regulations already encompassed the 

scenario in which a taxpayer acquires 

an interest in the pass-through entity 

before the pass-through entity acquires 

the real property. However, for 

additional clarity, these final regulations 

make that point explicit in § 1.6011– 

9(b)(2). 

The Treasury Department and the IRS 

do not agree with the commenter that, 

if the real property is purchased after 

the investor invests in the pass-through 

entity, the transaction falls outside of 

the reach of the anti-stuffing method. 

The proposed and final regulations 

specifically provide that the order in 

which the four steps of a syndicated 

conservation easement transaction occur 

is not relevant. In response to this 

comment, an example in these final 

regulations illustrates the application of 

the anti-stuffing method if the passthrough entity acquires the real property 

after a taxpayer invests in the passthrough entity. 

2. Holding Periods 

The proposed regulations did not 

contain any exceptions from the 

disclosure requirements for property 

held on a long-term basis. Several 

commenters asked that the final 

regulations include an exception for 

such transactions. One commenter 

questioned why investors who have 

held interests in a pass-through entity 

for over one year would be required to 

report the syndicated conservation 

easement transaction because such 


ddrumheller on DSK120RN23PROD with RULES1
Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Rules and Regulations 81351 

investors would not need to rely on a 

tacked holding period to avoid the 

limitations of section 170(e). One 

commenter contended that 

contributions of land held for less than 

three years will generally not be made. 

Several commenters observed that 

contributions with a long-term holding 

period are excepted from the 

disallowance rule of section 

170(h)(7)(A) pursuant to section 

170(h)(7)(C). One commenter opined 

that a hypothetical transaction in which 

the promotional materials state that the 

property will be worth more than 2.5 

times the taxpayer’s investment in ten 

years should not give rise to a listed 

transaction. This commenter asked that 

the final regulations specify the amount 

of time that must elapse between the 

purchase of the property interest and 

the contribution of the easement for a 

transaction to be listed. Another 

commenter asked about a taxpayer that 

inherited land that is then in his 

possession for over twenty years and 

decides to donate the land for the 

benefit and protection of the 

environment. 

The Treasury Department and the IRS 

conclude that it is not necessary to 

modify the proposed rules to provide an 

exception for property that has been 

held for a period of time. First, tax abuse 

in syndicated conservation easement 

transactions is not limited to 

mismatches between an investor’s 

holding period in its interest in the 

pass-through entity and the passthrough entity’s holding period in the 

real property on which the conservation 

easement is placed. For example, even 

for transactions in which investors may 

otherwise be eligible to claim a 

deduction of the fair market value of the 

conservation easement, the deduction is 

nonetheless abusive if the easement is 

improperly overvalued. 

Second, as discussed in part III.B. of 

this Summary of Comments and 

Explanation of Revisions, the exception 

to the disallowance rule in section 

170(h)(7) for contributions outside of a 

three-year holding period does not 

necessitate a similar exception in these 

final regulations, and these final 

regulations do not provide an exception 

for syndicated conservation easements 

that are described in section 

170(h)(7)(C). 

Third, notwithstanding the commonly 

anticipated appreciation of real property 

values over time, it is not the case that 

property values always increase. The 

period a property is held is one element 

of a fact-intensive inquiry into whether 

the property has been overvalued. 

Attempting to craft an exception based 

on a holding period would result in a 

rule that is over-inclusive and/or underinclusive, depending on the specific 

facts. The proposed hypotheticals for 

property held for ten or twenty years 

seems unlikely to meet all elements of 

the listed transaction identified in these 

regulations (for example, it might not be 

held in a pass-through entity or involve 

promotional materials). Therefore, the 

final regulations do not include an 

exception for long-term holding periods. 

D. Definitions 

Commenters addressed the definitions 

of (1) charitable contribution deduction, 

(2) conservation easement, (3) 

participant, (4) promotional materials, 

and (5) syndicated conservation 

easement transaction. 

1. Charitable Contribution Deduction 

The proposed regulations defined 

‘‘charitable contribution deduction’’ as 

‘‘a deduction under section 170 of the 

Internal Revenue Code (Code), which 

includes a deduction arising from a 

qualified conservation contribution as 

defined in section 170(h)(1).’’ 

One commenter stated that this 

definition is inconsistent with the listed 

transaction identified in the proposed 

regulations, which is limited to 

contributions of conservation 

easements. This commenter suggested 

that the definition should be limited to 

‘‘the deduction arising from a qualified 

conservation contribution as defined in 

section 170(h)(1).’’ 

The Treasury Department and the IRS 

decline to adopt this suggestion, 

because some substantially similar 

transactions will involve real property 

contributions other than qualified 

conservation contributions. 

2. Conservation Easement 

The proposed regulations defined a 

‘‘conservation easement’’ as ‘‘a 

restriction, within the meaning of 

section 170(h)(2)(C), exclusively for 

conservation purposes, within the 

meaning of section 170(h)(1)(C) and 

section 170(h)(4), granted in perpetuity, 

on the use that may be made of the 

specified property.’’ One commenter 

stated that, in all cases that the 

commenter defended, the IRS had taken 

the position that the conservation 

easement did not meet one or more of 

the requirements in this definition. The 

commenter opined that, if an investor 

fails to disclose a syndicated 

conservation easement transaction, the 

pass-through’s return is selected for 

audit, and the IRS determines that the 

donated conservation easement fails to 

meet one or more elements of the 

definition in the proposed regulations, 

then the investor would not have had 

any reporting obligation because the 

investor had not claimed a deduction 

for a ‘‘conservation easement’’ as that 

term was defined in the proposed 

regulations. The commenter added that 

if this was not the intent of the proposed 

regulation, then the final regulation 

should clearly so state. 

The Treasury Department and the IRS 

note that the third element of the listed 

transaction identified in these 

regulations is that ‘‘the pass-through 

entity that owns the real property 

contributes an easement on such real 

property, which it treats as a 

conservation easement, to a qualified 

organization and allocates, directly or 

through one or more tiers of passthrough entities, a charitable 

contribution deduction to the taxpayer’’ 

(emphasis added), and that the fourth 

element of the listed transaction is that 

‘‘the taxpayer claims a charitable 

contribution deduction with respect to 

the contribution of the real property 

interest on the taxpayer’s Federal 

income tax return.’’ In the commenter’s 

hypothetical, the taxpayer’s treatment of 

the contribution as a conservation 

easement and claim of a charitable 

contribution deduction with respect to 

the conservation easement makes the 

transaction a listed transaction. Whether 

the IRS asserts that the conservation 

easement is invalid and whether the 

charitable contribution deduction 

claimed on the taxpayer’s Federal 

income tax return is ultimately allowed 

do not affect this outcome. 

To more clearly track the language in 

section 170(h), the final regulations 

modify the definition of conservation 

easement to provide that it is a 

restriction (granted in perpetuity) on the 

use that may be made of the real 

property, within the meaning of section 

170(h)(2)(C), exclusively for 

conservation purposes, within the 

meaning of section 170(h)(1)(C) and 

(h)(4). 

3. Participant 

The proposed regulations stated that a 

taxpayer participating, within the 

meaning of § 1.6011–4(c)(3)(i)(A), in a 

syndicated conservation easement 

transaction described in proposed 

§ 1.6011–9(b) includes (1) an owner of a 

pass-through entity, (2) a pass-through 

entity (any tier, if multiple tiers are 

involved in the transaction), and (3) any 

other taxpayer whose tax return reflects 

tax consequences or a tax strategy 

arising from the syndicated 

conservation easement transaction 

described in the proposed regulations. 

The proposed regulations provided, 

consistent with Notice 2017–10, that a 

qualified organization to which a 


ddrumheller on DSK120RN23PROD with RULES1
81352 Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Rules and Regulations 

1As noted above, a transactional document such 

as a deed of conveyance is considered to be a 

promotional material. Although the deed by itself, 

typically, would not offer the investor the 

possibility of being allocated a charitable 

contribution deduction that equals or exceeds an 

amount that is two and one-half times the amount 

of the taxpayer’s investment in the pass-through 

entity, whether all of the promotional materials, 

taken as a whole, make such an offer is a factual 

determination. 

syndicated conservation easement 

described in proposed § 1.6011–9(b) is 

donated is not treated as a participant 

under § 1.6011–4(c)(3)(i)(A) with respect 

to the listed transaction. 

One commenter stated that it is 

unclear whether a participant who 

reports the tax consequences of a 

transaction that is substantially similar 

to a syndicated conservation easement 

transaction is a member of the class of 

participants described under proposed 

§ 1.6011–9(e)(2). The commenter opined 

that the plain language of the proposed 

regulation referred only to taxpayers 

who have the tax consequences of a 

syndicated conservation easement 

transaction. To address this comment, 

the final regulations clarify that the 

class of participants includes 

participants in transactions that are the 

same as, or substantially similar to, 

syndicated conservation easement 

transactions. 

One commenter requested additional 

guidance on the meaning of the term 

‘‘arising from’’ in proposed § 1.6011– 

9(e)(2)(iii), stating that it is ambiguous 

whether an IRS attorney that was hired 

to enforce syndicated conservation 

easement transactions would be 

required to report the transaction 

because his or her income ‘‘arose from’’ 

the conservation easement transaction. 

The Treasury Department and the IRS 

conclude that further clarification is not 

needed. 

4. Promotional Materials 

The proposed regulations stated that 

‘‘promotional materials’’ include 

materials described in § 301.6112– 

1(b)(3)(iii)(B) and any other written or 

oral communication regarding the 

transaction provided to investors, such 

as marketing materials, appraisals 

(including preliminary appraisals, draft 

appraisals, and the appraisal that is 

attached to the taxpayer’s return), 

websites, transactional documents such 

as the deed of conveyance, private 

placement memoranda, tax opinions, 

operating agreements, subscription 

agreements, statements of the 

anticipated value of the conservation 

easement, and statements of the 

anticipated amount of the charitable 

contribution deduction. 

One commenter supported this 

definition, but several commenters 

thought it was overbroad, stating that it 

would be effectively impossible for a 

taxpayer to prove that he or she did not 

receive promotional materials. Some 

commenters objected to particular types 

of communication being included 

within the scope of promotional 

materials. Specifically, commenters 

expressed concern regarding oral 

communications, websites, and 

documents required by law. For 

example, one commenter stated that, 

since promotional materials are 

described to include ‘‘websites’’ and 

‘‘oral communication,’’ every taxpayer 

would theoretically have received 

‘‘promotional materials’’ relating to 

conservation easement donations 

because every taxpayer has access to the 

internet. In addition, one commenter 

stated that, under the proposed 

regulations, promotional materials 

would include an oral communication 

made to any other investor. The 

commenter also stated that any one oral 

communication, regardless of accuracy, 

would ‘‘render the deduction 

unavailable’’ to all investors. The 

commenter recommended that the final 

regulations remove all references to oral 

communications. 

In response, the Treasury Department 

and the IRS note that receipt of 

promotional materials by one investor 

does not automatically trigger receipt of 

such materials by other investors 

(although it is circumstantial evidence 

that may be relevant to showing receipt 

of promotional materials by other 

investors). In addition, the broad 

definition of promotional materials does 

not mean that the 2.5 times rule will 

always be met; the quantity of 

promotional materials is not directly 

relevant to whether the promotional 

materials offer the investor the 

possibility of being allocated a 

charitable contribution deduction that 

equals or exceeds an amount that is two 

and one-half times the amount of the 

taxpayer’s investment in the passthrough entity. Moreover, even if the 2.5 

times rule is met, the effect is not to 

render the deduction unavailable to all 

investors but to meet one element of this 

listed transaction. The Treasury 

Department and the IRS conclude that a 

broad definition of promotional 

materials is warranted; otherwise, 

taxpayers may contend that they do not 

meet the elements of the listed 

transaction identified in these final 

regulations because promoters made 

offers via oral communications, 

websites, or other documents. 

Some commenters noted that 

Congress did not mention promotional 

materials in section 170(h)(7) and asked 

that the final regulations explain the 

requirement’s significance in the listed 

transaction. The Treasury Department 

and the IRS conclude that the lack of 

reference to promotional materials in 

section 170(h)(7) is of no significance to 

this listed transaction, given that the 

purpose and scope of section 170(h)(7), 

which is to disallow a deduction, are 

different from those of these regulations, 

which is for the IRS to identify tax 

avoidance transactions. 

One commenter noted that a taxpayer 

can claim a greatly inflated deduction 

regardless of whether the taxpayer 

receives promotional materials and 

stated that the promotional material 

requirement appears to be unnecessary 

and could be removed altogether. The 

Treasury Department and the IRS have 

determined that promotional materials 

are an important attribute of the listed 

transaction identified in these final 

regulations because the existence of 

promotional materials offering investors 

the possibility of a charitable 

contribution deduction that equals or 

exceeds an amount that is 2.5 times the 

amount of the taxpayer’s investment, on 

its own, is an element that illustrates tax 

avoidance. Thus, the final regulations 

adopt the proposed definition of 

promotional materials without changes. 

One commenter stated that the broad 

definition of promotional materials does 

not promote compliance with the law if 

an attorney that created promotional 

materials, such as the deed of 

conveyance, is considered a material 

advisor to the transaction. This 

commenter asked for clarity on how the 

definition of promotional materials in 

the proposed regulations relates to the 

definition of a material advisor. 

As discussed in part I.D. of this 

Summary of Comments and Explanation 

of Revisions, these final regulations do 

not change the description of a material 

advisor provided in § 301.6111–3(b). A 

material advisor is a person who makes 

a tax statement, as defined in § 1.6111– 

3(b)(2)(ii), and derives gross income in 

excess of the threshold amount, as 

defined in § 301.6111–3(b)(3) (generally, 

$10,000 for listed transactions). In 

general, a deed of conveyance would 

not be a ‘‘tax statement’’ under 

§ 301.6111–3(b)(2)(ii) because it is not a 

statement ‘‘that relates to a tax aspect of 

a transaction that causes the transaction 

to be a reportable transaction.’’ In 

addition, in general, the deed does not 

contain any statements related to a tax 

aspect of the transaction that causes the 

transaction to be reportable, such as 

stating that an investor may be eligible 

to claim a deduction amount of 2.5 

times the investor’s investment.1 As a 

result, the final regulations make no 


ddrumheller on DSK120RN23PROD with RULES1
Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Rules and Regulations 81353 

2A donation of a qualified conservation 

contribution must be made to a ‘‘qualified 

organization,’’ generally defined in section 

170(h)(3), which includes donations to 

governmental units, certain public charities, and 

Type I supporting organizations thereto. Under 

section 4965(c), the term ‘‘tax-exempt entity’’ 

includes, among others, entities and governmental 

units described in sections 501(c) and 170(c) (other 

than the United States). Thus, absent the section 

4965 carveout, tax-exempt entities that would be 

affected are donees that are qualified organizations 

described in section 170(h)(3), other than the 

United States, that accept a conservation easement 

as part of the syndicated conservation easement 

transaction described in these regulations. 

modifications to the definition of 

promotional materials in response to the 

comment. 

5. Syndicated Conservation Easement 

Transaction 

One commenter stated that 

‘‘syndication itself is not bad and is 

often encouraged by the government’’ 

(such as in the context of historic tax 

credits, low-income housing tax credits, 

and new market tax credits). The 

commenter opined that the proposed 

regulations sow confusion because the 

focus should be on abuse, not on 

syndication. 

The Treasury Department and the IRS 

agree with the commenter that 

syndication in itself is not necessarily 

abusive. However, the Treasury 

Department and the IRS do not agree 

with the commenter that the definition 

of syndicated conservation easement 

transaction in § 1.6011–9(b) needs to 

explicitly use the word ‘‘abusive.’’ The 

identification of a listed transaction 

occurs only after the Treasury 

Department and the IRS have 

determined that the transaction is a tax 

avoidance transaction. If a syndicated 

conservation easement transaction does 

not meet the elements of the transaction 

defined in § 1.6011–9(b), such as that 

the partnership’s promotional materials 

do not offer investors the possibility of 

being allocated a charitable contribution 

deduction the amount of which equals 

or exceeds an amount that is 2.5 times 

the amount of the taxpayer’s investment 

in the partnership (and the partnership 

does not in fact allocate a charitable 

contribution deduction the amount of 

which equals or exceeds an amount that 

is 2.5 times the amount of the taxpayer’s 

investment in the partnership), then the 

transaction is not a listed transaction. 

V. Comments Addressing the Role of 

Qualified Organizations in the Listed 

Transaction 

Commenters addressed both the 

section 4965 carveout found in the 

proposed regulations and the lack of a 

carveout to the definition of material 

advisor in the proposed regulations for 

qualified organizations. 

A. Section 4965 Carveout 

The proposed regulations included, 

consistent with Notice 2017–10, the 

section 4965 carveout to exclude a 

qualified organization 2 from treatment 

as a party to a syndicated conservation 

easement transaction under section 

4965 but requested comments on 

whether the final regulations should 

eliminate or limit the section 4965 

carveout. 

Several commenters advocated for 

maintaining the section 4965 carveout 

for various reasons, including that 

section 170(h)(7)(A) will disallow 

deductions for most transactions that 

these regulations seek to deter, that 

receipt of a donated conservation 

easement generally would not constitute 

‘‘net income’’ or ‘‘proceeds’’ within the 

meaning of section 4965, and that 

limiting or eliminating the section 4965 

carveout could discourage qualified 

organizations from accepting 

contributions of conservation easements 

(particularly due to uncertainty as to 

what constitutes a ‘‘substantially 

similar’’ transaction). With respect to 

the Treasury Department and the IRS’s 

request for comments on limiting the 

carveout to qualified organizations that 

conduct an adequate amount of due 

diligence (and on what would constitute 

adequate due diligence for this 

purpose), several commenters argued 

that qualified organizations are not 

equipped to exercise the due diligence 

that could be required to qualify for a 

more limited carveout. Several 

commenters also claimed that because 

only a ‘‘small number’’ of qualified 

organizations continue to facilitate 

syndicated conservation easement 

transactions, it would be unfairly 

burdensome to all other qualified 

organizations if the section 4965 

carveout were limited or eliminated. 

Given the addition of section 

170(h)(7) to the Code, which disallows 

charitable contribution deductions for 

some of the most overvalued syndicated 

conservation easements, as well as other 

considerations raised by the 

commenters, the Treasury Department 

and the IRS have concluded that it is 

appropriate to maintain the section 4965 

carveout in these final regulations. 

However, the Treasury Department and 

the IRS will consider proposing to 

eliminate or limit the section 4965 

carveout in future regulations if 

qualified organizations continue to 

facilitate the syndicated conservation 

easement transactions (or substantially 

similar transactions) described in these 

regulations. 

B. Donee Material Advisors 

As discussed in part I.D. of this 

Summary of Comments and Explanation 

of Revisions, the proposed regulations 

provided no special rules for material 

advisors and noted that this differed 

from the approach taken in Notice 

2017–29 (modifying Notice 2017–10), 

which provided that a donee described 

in section 170(c) is not treated as a 

material advisor under section 6111. 

The proposed regulations requested 

comments on whether qualified 

organizations are receiving fees for 

providing material aid, assistance, or 

advice with respect to the syndicated 

conservation easement transactions 

described in the proposed regulations, 

the nature of the services being 

provided, and why a carveout from the 

definition of material advisor for 

qualified organizations is needed. 

Several commenters requested that 

the carveout for qualified organizations 

found in Notice 2017–29 be reinstated, 

claiming that the six-year look back 

period would be burdensome, that the 

IRS is already privy to information 

necessary to identify potentially abusive 

syndicated conservation easement 

transactions via reporting by other 

material advisors, and that eliminating 

the carveout for qualified organizations 

will discourage qualified organizations 

from accepting legitimate syndicated 

conservation easements due to 

confusion and fear of audits, potential 

penalties, and litigation. On the other 

hand, no commenter explained how a 

qualified organization, acting solely in 

its capacity as a qualified organization, 

could be considered a material advisor. 

To the contrary, several commenters 

asserted that donee organizations do not 

fit the definition of ‘‘material advisor.’’ 

A person is a material advisor with 

respect to a transaction if the person: (1) 

provides material aid, assistance, or 

advice with respect to organizing, 

managing, promoting, selling, 

implementing, insuring, or carrying out 

any reportable transaction; and (2) 

directly or indirectly derives gross 

income in excess of the threshold 

amount defined in § 301.6011–3(b)(3) 

for the material aid, assistance, or 

advice. See § 301.6111–3(b)(1). ‘‘Gross 

income’’ includes all fees for a tax 

strategy, for services for advice (whether 

or not tax advice), and for the 

implementation of a reportable 

transaction, but a ‘‘fee’’ does not include 

amounts paid to a person, including an 

advisor, in that person’s capacity as a 

party to the transaction. See § 301.6111– 

3(b)(3)(ii). A person provides material 


ddrumheller on DSK120RN23PROD with RULES1
81354 Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Rules and Regulations 

aid, assistance, or advice if the person 

makes or provides a tax statement to or 

for the benefit of certain taxpayers who 

are required to make a disclosure under 

section 6011 (including for participation 

in a listed transaction) or other material 

advisors. See § 301.6111–3(b)(2)(i). ‘‘Tax 

statement,’’ for these purposes, is any 

statement (including another person’s 

statement), oral or written, that relates 

to a tax aspect of a transaction that 

causes the transaction to be a reportable 

transaction. See § 301.6111– 

3(b)(2)(ii)(A). 

In a typical conservation easement 

transaction, the qualified organization 

signs the Form 8283 (Section B) and 

provides a contemporaneous written 

acknowledgement of the contribution. 

See section 170(f)(8). The qualified 

organization may also receive separate 

cash contributions from the donor to 

monitor and enforce the easement in 

perpetuity. The qualified organization 

might also make representations to the 

donor that it is a qualified organization. 

Signing the Form 8283 and the 

contemporaneous written 

acknowledgement and making 

representations regarding the donee’s 

status as a qualified organization are not 

considered to be making a tax statement 

under § 301.6111–3(b)(2)(ii)(A). 

Therefore, a donee does not provide 

material, aid, assistance, or advice 

under § 301.6111–3 merely by signing 

the Form 8283 (Section B) and the 

contemporaneous written 

acknowledgement. 

The Treasury Department and the IRS 

conclude that a qualified organization 

acting solely in its capacity as a 

qualified organization by, for example, 

accepting a conservation easement and 

separate payments or contributions to 

monitor and enforce that easement, 

provided such payments or 

contributions are in fact used for such 

purpose, would not be considered a 

material advisor. The Treasury 

Department and the IRS further 

conclude that if a qualified organization 

engages in activities that would result in 

the organization meeting the 

requirements to be considered a 

material advisor, then such organization 

should be subject to the material advisor 

rules, including the penalties for failure 

to disclose. Thus, the final regulations 

include no special carveout to material 

advisor status for qualified 

organizations. 

Effect on Other Documents 

Notice 2017–10 is obsoleted for 

transactions occurring after October 8, 

2024. 

Special Analyses 

I. Paperwork Reduction Act 

The collection of information 

contained in these final regulations is 

reflected in the collection of information 

for Forms 8886 and 8918 that have been 

reviewed and approved by the Office of 

Management and Budget (OMB) in 

accordance with the Paperwork 

Reduction Act (44 U.S.C. 3507(c)) under 

control numbers 1545–1800 and 1545– 

0865. 

To the extent there is a change in 

burden as a result of these final 

regulations, the change in burden will 

be reflected in the updated burden 

estimates for the Forms 8886 and 8918. 

The requirement to maintain records to 

substantiate information on Forms 8886 

and 8918 is already contained in the 

burden associated with the control 

number for the forms and remains 

unchanged. 

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 OMB control number. 

II. Regulatory Flexibility Act 

The Regulatory Flexibility Act (RFA) 

(5 U.S.C. chapter 6) requires agencies to 

‘‘prepare and make available for public 

comment an initial regulatory flexibility 

analysis,’’ which will ‘‘describe the 

impact of the rule on small entities.’’ 5 

U.S.C. 603(a). Section 605(b) of the RFA 

allows an agency to certify a rule if the 

rulemaking is not expected to have a 

significant economic impact on a 

substantial number of small entities. 

The Secretary of the Treasury hereby 

certifies that these final regulations will 

not have a significant economic impact 

on a substantial number of small entities 

pursuant to the RFA. As previously 

explained, the basis for these final 

regulations is Notice 2017–10, 2017–4 

I.R.B. 544 (modified by Notice 2017–29, 

2017–20 I.R.B. 1243, and Notice 2017– 

58, 2017–42 I.R.B. 326). The following 

chart sets forth the gross receipts of 

respondents to Notice 2017–10 that 

report Federal tax information using 

Form 1065, U.S. Return of Partnership 

Income, and Form 1120–S, U.S. Income 

Tax Return for an S corporation: 

NOTICE 2017–10 ALL FILINGS 2017 

TO 2021 RESPONDENTS BY SIZE

Receipts Respondents 

(%) 

Filings 

(%) 

Under 5M ...................... 93.3 88.3 

5M to 10M ..................... 3.1 5.2 

10M to 15M ................... 1.2 2.9 

15M to 20M ................... 0.6 0.4 

20M to 25M ................... 0.6 0.7 

NOTICE 2017–10 ALL FILINGS 2017 

TO 2021 RESPONDENTS BY SIZE— 

Continued 

Receipts Respondents 

(%) 

Filings 

(%) 

Over 25M ...................... 1.2 2.5 

This chart shows that the majority of 

respondents to Notice 2017–10 reported 

gross receipts under $5 million. Even 

assuming that these respondents 

constitute a substantial number of small 

entities, the final regulations will not 

have a significant economic impact on 

these entities because the final 

regulations implement sections 6111 

and 6112 and § 1.6011–4 by specifying 

the manner in which and time at which 

an identified transaction must be 

reported. Accordingly, because the final 

regulations are limited in scope to time 

and manner of information reporting 

and definitional information, the 

economic impact of the final regulations 

is expected to be minimal. Further, the 

Treasury Department and the IRS expect 

the reporting burden to be low; the 

information sought is necessary for 

regular annual return preparation and 

ordinary recordkeeping. The estimated 

burden for any taxpayer required to file 

Form 8886 is approximately 10 hours, 

16 minutes for recordkeeping, 4 hours, 

50 minutes for learning about the law or 

the form, and 6 hours, 25 minutes for 

preparing, copying, assembling, and 

sending the form to the IRS. The IRS’s 

Research, Applied Analytics, and 

Statistics division estimates that the 

appropriate wage rate for this set of 

taxpayers is $102.08 (2022 dollars) per 

hour. Thus, it is estimated that a 

respondent will incur costs of 

approximately $2,127.00 per filing. 

Disclosures received to date by the 

Treasury Department and the IRS in 

response to the reporting requirements 

of Notice 2017–10 indicate that this 

small amount will not pose any 

significant economic impact for those 

taxpayers now required to disclose 

under the final regulations. 

Some commenters asserted that the 

hourly rate estimate of $98.87 (2021) in 

the proposed regulations is much lower 

than what professionals charge to 

prepare Form 8886. Given the 

availability of more recent data, the 

hourly rate estimate is revised in the 

final regulations to $102.08 (2022). The 

new number still does not address the 

substantial differences from the 

commenters’ estimates. The differences 

are likely attributable to the different 

methodologies used. The commenters 

likely used the hourly rate that an 

independent professional would charge 


ddrumheller on DSK120RN23PROD with RULES1
Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Rules and Regulations 81355 

a retail customer to prepare a Form 

8886. The Treasury Department and the 

IRS used the hourly cost that a business 

owner would pay to employ such a 

professional. This method was 

determined based on the comments 

received from stakeholders objecting to 

reporting of the retail hourly rate at 

earlier points. 

One commenter asked for the data 

source for the hourly rate estimate. The 

source data used by our data unit comes 

from the Bureau of Labor Statistics. 

Some commenters asserted that the 

estimate of the time to prepare Form 

8886 is too low as provided because (1) 

the estimate ignores the time necessary 

to comply with the reporting 

requirement for the years to which the 

requirement applies retroactively and 

(2) the estimate does not properly 

account for some of the time spent, such 

as learning new topics. At this time, the 

Treasury Department and the IRS did 

not find a practical way to adjust the 

time estimate in response to these 

comments due to (1) the uncertainties 

involved and (2) with respect to the 

prior years, the effect of revealing our 

underreporting estimates on 

enforcement. 

For the reasons stated, a regulatory 

flexibility analysis under the RFA is not 

required. Pursuant to section 7805(f) of 

the Code, the proposed rule preceding 

this rulemaking was submitted to the 

Chief Counsel for the Office of 

Advocacy of the Small Business 

Administration for comment on its 

impact on small business, and no 

comments were received. 

III. Unfunded Mandates Reform Act 

Section 202 of the Unfunded 

Mandates 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). One commenter argued that it 

is at least possible that the UMRA 

trigger of $100 million could be 

triggered because of the potential 

burdens of updating State or local 

regulations concerning the acceptance 

of land donations, harmonizing 

information reporting with the 

requirements of the regulations, and 

cooperation with examination 

proceedings. The Treasury Department 

and the IRS have considered this 

comment and conclude that it is not 

persuasive, particularly in light of the 

continuing carve-out for donees in these 

final regulations. This final rule does 

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. One commenter 

suggested that, if the Treasury 

Department and the IRS decide to 

eliminate the carveout for donees 

described in section 170(c) from being 

treated as a party to the transaction 

under section 4965, then the final 

regulations will have federalism 

implications under Executive Order 

13132. The final regulations maintain 

the section 4965 carveout. This final 

rule does not have federalism 

implications and does not impose 

substantial direct compliance costs on 

State and local governments or preempt 

State law within the meaning of the 

Executive order. 

V. 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(b) of 

Executive Order 12866, as amended. 

Therefore, a regulatory impact 

assessment is not required. 

VI. Congressional Review Act 

Pursuant to the Congressional Review 

Act (5 U.S.C. 801 et seq.), the Office of 

Information and Regulatory Affairs 

designated this rule as not a major rule, 

as defined by 5 U.S.C. 804(2). 

Statement of Availability of IRS 

Documents 

Guidance cited in this preamble is 

published in the Internal Revenue 

Bulletin and is 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 final 

regulations are Joshua S. Klaber and 

Eugene Kirman, Office of Associate 

Chief Counsel (Income Tax & 

Accounting). 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. 

Amendments to the Regulations 

Accordingly, 26 CFR part 1 is 

amended as follows: 

PART 1—INCOME TAXES 

■ Paragraph 1. The authority citation 

for part 1 is amended by adding an entry 

for § 1.6011–9 in numerical order to 

read in part as follows: 

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

* * * * * 

Section 1.6011–9 also issued under 26 

U.S.C. 6001 and 6011. 

* * * * * 

■ Par. 2. Section 1.6011–9 is added to 

read as follows: 

§ 1.6011–9 Syndicated conservation 

easement listed transactions. 

(a) Identification as listed transaction. 

Transactions that are the same as, or 

substantially similar to, a transaction 

described in paragraph (b) of this 

section are identified as listed 

transactions for purposes of § 1.6011– 

4(b)(2). 

(b) Syndicated conservation easement 

transaction. The term syndicated 

conservation easement transaction 

means a transaction in which the 

following steps occur (regardless of the 

order in which they occur)— 

(1) A taxpayer receives promotional 

materials that offer investors in a passthrough entity the possibility of being 

allocated a charitable contribution 

deduction the amount of which equals 

or exceeds an amount that is two and 

one-half times the amount of the 

taxpayer’s investment, as determined in 

paragraph (d)(4) of this section, in the 

pass-through entity, as determined 

under paragraph (d) of this section (2.5 

times rule); 

(2) The taxpayer acquires an interest, 

directly or indirectly through one or 

more tiers of pass-through entities, in 

the pass-through entity that owns or 

acquires real property (that is, becomes 

an investor in the entity); 

(3) The pass-through entity that owns 

the real property contributes an 

easement on such real property, which 

it treats as a conservation easement, to 

a qualified organization and allocates, 

directly or through one or more tiers of 

pass-through entities, a charitable 

contribution deduction to the taxpayer; 

and 

(4) The taxpayer claims a charitable 

contribution deduction with respect to 


ddrumheller on DSK120RN23PROD with RULES1
81356 Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Rules and Regulations 

the contribution of the real property 

interest on the taxpayer’s Federal 

income tax return. 

(c) Definitions. The following 

definitions apply for purposes of this 

section: 

(1) Charitable contribution deduction. 

The term charitable contribution 

deduction means a deduction under 

section 170 of the Internal Revenue 

Code (Code), which includes a 

deduction arising from a qualified 

conservation contribution as defined in 

section 170(h)(1) of the Code. 

(2) Conservation easement. The term 

conservation easement means a 

restriction (granted in perpetuity) on the 

use which may be made of the real 

property, within the meaning of section 

170(h)(2)(C) of the Code, exclusively for 

conservation purposes, within the 

meaning of section 170(h)(1)(C) and 

(h)(4) of the Code. 

(3) Pass-through entity. The term 

pass-through entity means a 

partnership, S corporation, or trust 

(other than a grantor trust within the 

meaning of subchapter J of chapter 1 of 

the Code). 

(4) Promotional materials. The term 

promotional materials includes 

materials described in § 301.6112– 

1(b)(3)(iii)(B) of this chapter and any 

other written or oral communication 

regarding the transaction provided to 

investors, such as marketing materials, 

appraisals (including preliminary 

appraisals, draft appraisals, and the 

appraisal that is attached to the 

taxpayer’s return), websites, 

transactional documents such as deeds 

of conveyance, private placement 

memoranda, tax opinions, operating 

agreements, subscription agreements, 

statements of the anticipated value of 

the conservation easement, and 

statements of the anticipated amount of 

the charitable contribution deduction. 

(5) Qualified organization. The term 

qualified organization means an 

organization described in section 

170(h)(3) of the Code. 

(6) Real property. The term real 

property includes all land, structures, 

and buildings, including a certified 

historic structure defined in section 

170(h)(4)(C) of the Code. 

(7) Substantially similar. The term 

substantially similar is defined in 

§ 1.6011–4(c)(4). For example, 

transactions that meet the elements of 

paragraph (b) of this section, except that 

the pass-through entity contributes a fee 

simple interest in real property or a real 

property interest described in section 

170(h)(2)(A) or (B) of the Code rather 

than a conservation easement, are 

substantially similar to the listed 

transaction identified in this section. 

(d) Application of the 2.5 times rule— 

(1) Bright-line rule. Transactions for 

which the promotional materials offer 

the taxpayer the possibility of being 

allocated a charitable contribution 

deduction of only an amount less than 

2.5 times the taxpayer’s investment and 

for which the taxpayer is actually 

allocated a charitable contribution 

deduction of an amount less than 2.5 

times the taxpayer’s investment (so that 

the rebuttable presumption in paragraph 

(d)(3) of this section does not apply) are 

generally not considered substantially 

similar to the listed transaction 

identified in this section. However, if a 

pass-through entity engages in a series 

of transactions with a principal purpose 

of avoiding the application of the brightline rule in this paragraph (d)(1), the 

series of transactions may be 

disregarded or the arrangement may be 

recharacterized in accordance with its 

substance. Whether a series of 

transactions has a principal purpose of 

avoiding the application of this brightline rule is determined based on all the 

facts and circumstances. 

(2) Multiple suggested contribution 

amounts. If the promotional materials 

suggest or imply a range of possible 

charitable contribution deduction 

amounts that may be allocated to the 

taxpayer, the highest suggested or 

implied contribution amount 

determines whether the 2.5 times rule in 

this paragraph (d) is met. In addition, if 

one piece of promotional materials (for 

example, an appraisal or oral statement) 

states a higher charitable contribution 

deduction amount than stated by other 

promotional materials, then the highest 

stated charitable contribution deduction 

amount determines whether the 2.5 

times rule is met. 

(3) Rebuttable presumption. The 2.5 

times rule in this paragraph (d) is 

deemed to be met if the pass-through 

entity donates a real property interest 

within three years following the 

taxpayer’s investment in the passthrough entity, the pass-through entity 

allocates a charitable contribution 

deduction to the taxpayer the amount of 

which equals or exceeds two and onehalf times the amount of the taxpayer’s 

investment, and the taxpayer claims a 

charitable contribution deduction the 

amount of which equals or exceeds two 

and one-half times the amount of the 

taxpayer’s investment. This 

presumption may be rebutted if the 

taxpayer establishes to the satisfaction 

of the Commissioner that none of the 

promotional materials contained a 

suggestion or implication that investors 

might be allocated a charitable 

contribution deduction that equals or 

exceeds an amount that is two and onehalf times the amount of their 

investment in the pass-through entity. 

(4) Determining the amount of the 

taxpayer’s investment in the passthrough entity—(i) In general. A 

taxpayer may determine the amount of 

the taxpayer’s investment in the passthrough entity for purposes of paragraph 

(b) of this section using either the antistuffing method in paragraph (d)(4)(ii) of 

this section or, for contributions made 

after December 29, 2022, the relevant 

basis method in paragraph (d)(4)(iii) of 

this section. No other methods may be 

used. 

(ii) Anti-stuffing method. Under the 

anti-stuffing method, the amount of a 

taxpayer’s investment in the passthrough entity is the portion of the cash 

or fair market value of the assets the 

taxpayer uses to acquire its interest in 

the pass-through entity that is 

attributable to the real property on 

which a conservation easement is 

placed (or the portion thereof, if an 

easement is placed on a portion of the 

real property) that gives rise to the 

charitable contribution described in 

paragraph (b)(3) of this section. For 

example, if a portion of the taxpayer’s 

cost of acquiring the taxpayer’s interest 

in the pass-through entity is attributable 

to property held directly or indirectly by 

the pass-through entity other than the 

real property on which a conservation 

easement is placed as described in 

paragraph (b)(3) of this section (such 

other property may include other real 

property, cash, cash equivalents, digital 

assets, marketable securities, or other 

tangible or intangible assets), that 

portion of the taxpayer’s acquisition 

cost is not considered part of the 

taxpayer’s investment for purposes of 

this section because it is not attributable 

to the portion of the real property on 

which a conservation easement is 

placed as described in paragraph (b)(3) 

of this section. For purposes of this 

paragraph (d)(4)(ii), assets retained to 

pay for costs related to the operation 

and maintenance of the real property on 

which the conservation easement is 

placed, including costs that may be 

incurred in future years, are not 

attributable to the real property on 

which a conservation easement is 

placed as described in paragraph (b)(3) 

of this section. In the case of a 

substantially similar transaction 

described in paragraph (c)(7) of this 

section, the rules in this paragraph 

(d)(4)(ii) apply except that the relevant 

real property that gives rise to the 

charitable contribution deduction 

described in paragraph (b)(3) of this 

section is the real property donated. 

(iii) Relevant basis method. For 

contributions made after December 29, 


ddrumheller on DSK120RN23PROD with RULES1
Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Rules and Regulations 81357 

2022, taxpayers may use their relevant 

basis, as determined in accordance with 

section 170(h)(7)(B) of the Code and 

§ 1.170A–14(k), as the amount of their 

investment for purposes of paragraph (b) 

of this section. 

(5) Examples. For the examples in this 

paragraph (d)(5), assume that the 

partnerships are respected for Federal 

tax purposes, and that the partnership 

allocations comply with the rules of 

subchapter K of chapter 1 of the Code. 

(i) Example 1—(A) Facts. Individual 

A purchased an interest in P, a 

partnership that owns real property 

with a fair market value of $500,000 and 

marketable securities with a fair market 

value of $500,000. A is one of four equal 

investors in P, each of whom purchased 

its interest in P for $250,000 of cash. 

With respect to an investor’s $250,000 

payment for its interest in P, the 

promotional materials stated that P 

expected to allocate a $500,000 

charitable contribution deduction to the 

investor (that is, a charitable 

contribution deduction that is two times 

the amount an investor paid for its 

interest in P). After all four investors 

have purchased their interests in P, P 

donates a conservation easement on all 

of its real property to a qualified 

organization as defined in section 

170(h)(3) of the Code and reports a 

$2,000,000 charitable contribution on its 

Form 1065, U.S. Return of Partnership 

Income, based on P obtaining an 

appraisal indicating that the value of the 

conservation easement is $2,000,000. 

The Schedule K–1 (Form 1065) that P 

furnishes to A indicates that P allocated 

a charitable contribution deduction to A 

for the taxable year. A claims a 

charitable contribution deduction with 

respect to the charitable contribution on 

A’s Federal income tax return. 

(B) Analysis. A’s cost of acquiring its 

interest in P is $250,000. The real 

property on which a conservation 

easement was placed and that gave rise 

to the charitable contribution deduction 

described in paragraph (b)(3) of this 

section was P’s property valued at 

$500,000. P’s only other asset was 

marketable securities worth $500,000. 

Accordingly, half of A’s share of the 

value of the assets held by P was 

attributable to the real property on 

which P placed a conservation easement 

and that gave rise to the charitable 

contribution deduction described in 

paragraph (b)(3) of this section. 

Therefore, under paragraph (d)(4)(i) of 

this section, for purposes of paragraph 

(b) of this section, the amount of A’s 

investment in P is $125,000 (that is, half 

of A’s $250,000 acquisition cost, which 

is the portion of A’s acquisition cost that 

is attributable to the real property on 

which P placed a conservation easement 

and that gave rise to the charitable 

contribution deduction described in 

paragraph (b)(3) of this section). Because 

A’s investment for purposes of the 2.5 

times rule is $125,000 and A’s expected 

charitable contribution deduction, based 

on the promotional materials, is 

$500,000 (that is, an expected deduction 

that is four times A’s investment), the 

2.5 times rule of paragraph (b)(1) of this 

section is met. The transaction also 

meets the other elements of a syndicated 

conservation easement within the 

meaning of paragraph (b) of this section 

and therefore is a listed transaction for 

purposes of § 1.6011–4(b)(2). 

(ii) Example 2—(A) Facts. Individual 

B acquires a ten percent interest in 

InvestCo, a partnership, by making a 

$250,000 cash contribution. 

Immediately after B’s acquisition, 

InvestCo’s only asset is $2,500,000 of 

cash. The promotional materials state 

that InvestCo expects to allocate a 

$500,000 charitable contribution 

deduction to B with respect to B’s 

partnership interest. InvestCo pays 

$600,000 to purchase marketable 

securities. InvestCo also purchases an 

interest in another partnership, PropCo, 

for $1,900,000 from one of PropCo’s 

partners. At the same time as the 

purchase, InvestCo also contributes 

$100,000 of its marketable securities to 

PropCo. Immediately after InvestCo’s 

purchase and contribution, PropCo’s 

only assets are real property worth 

$2,400,000 and the marketable 

securities worth $100,000. PropCo 

donates its entire interest in the real 

property (a fee simple interest) to a 

qualified organization as defined in 

section 170(h)(3) of the Code and 

reports a $6,250,000 charitable 

contribution on its Form 1065, U.S. 

Return of Partnership Income, based on 

PropCo obtaining an appraisal 

indicating that the value of the real 

property is $6,250,000. PropCo allocates 

a portion of the charitable contribution 

deduction to InvestCo. The Schedule K– 

1 (Form 1065) that InvestCo furnishes to 

B indicates that InvestCo allocated a 

charitable contribution deduction to B 

for the taxable year. B claims a 

charitable contribution deduction with 

respect to the contribution on B’s 

Federal income tax return. 

(B) Analysis. Immediately after 

InvestCo’s acquisition of its interest in 

PropCo, InvestCo’s only assets were its 

interest in PropCo and $500,000 in 

marketable securities. Accordingly, 

eighty percent of InvestCo’s funds 

($2,000,000/$2,500,000) were used to 

acquire its interest in PropCo. B’s 

investment in InvestCo is $250,000; 

therefore, eighty percent of that amount, 

$200,000, is attributable to InvestCo’s 

interest in PropCo. Immediately after 

InvestCo’s acquisition of its interest in 

PropCo, PropCo had real property worth 

$2,400,000 and marketable securities 

worth $100,000. As such, ninety-six 

percent ($2,400,000/$2,500,000) of 

PropCo’s assets were the real property 

that was subsequently donated. 

Therefore, under paragraph (d)(4)(i) of 

this section, for purposes of paragraph 

(b) of this section, the amount of B’s 

investment in InvestCo that is 

attributable to the donated real property 

that gave rise to the charitable 

contribution deduction described in 

paragraph (b)(3) of this section is 

$200,000 multiplied by ninety-six 

percent, or $192,000. Because B’s 

investment for purposes of the 2.5 times 

rule is $192,000 and B’s expected 

charitable contribution deduction, based 

on the promotional materials, is 

$500,000 (that is, an expected deduction 

that is at least 2.5 times B’s investment), 

the 2.5 times rule of paragraph (b)(1) of 

this section is met. The transaction also 

meets the other elements of a syndicated 

conservation easement within the 

meaning of paragraph (b) of this section, 

except that PropCo contributed a fee 

simple interest in real property rather 

than a conservation easement. Under 

paragraph (c)(7) of this section, the 

transaction is substantially similar to 

the listed transaction described in 

paragraph (b) of this section and, 

therefore, under paragraph (a) of this 

section, the transaction in this example 

is a listed transaction for purposes of 

§ 1.6011–4(b)(2). 

(e) Participation in a syndicated 

conservation easement transaction—(1) 

In general. Whether a taxpayer has 

participated in a syndicated 

conservation easement transaction 

described in paragraph (b) of this 

section is determined under § 1.6011– 

4(c)(3)(i)(A). 

(2) Class of participants. For purposes 

of § 1.6011–4(c)(3)(i)(A), participants in 

a transaction that is the same as, or 

substantially similar to, a syndicated 

conservation easement transaction 

described in paragraph (b) of this 

section include— 

(i) An owner of a pass-through entity; 

(ii) A pass-through entity; and 

(iii) Any other taxpayer whose 

Federal income tax return reflects tax 

consequences or a tax strategy arising 

from a transaction that is the same as, 

or substantially similar to, the 

transaction described in paragraph (b) of 

this section. 

(3) Exclusion. A qualified 

organization to which the conservation 

easement is donated is not treated as a 

participant under § 1.6011–4(c)(3)(i)(A) 


ddrumheller on DSK120RN23PROD with RULES1
81358 Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Rules and Regulations 

in a syndicated conservation easement 

transaction described in paragraph (b) of 

this section. 

(f) Application of section 4965. A 

qualified organization to which the real 

property interest is donated is not 

treated under section 4965 of the Code 

as a party to the transaction described 

in paragraph (b) of this section. 

(g) Disclosures under Notice 2017–10. 

A taxpayer who disclosed their 

participation in a transaction pursuant 

to Notice 2017–10 and in accordance 

with § 1.6011–4 before October 8, 2024, 

is treated as having made the disclosure 

required under this section and 

§ 1.6011–4, for the years covered by that 

disclosure, as of the date of the 

disclosure under Notice 2017–10. 

(h) Applicability date—(1) In general. 

This section’s identification of 

transactions that are the same as, or 

substantially similar to, the transactions 

described in paragraph (b) of this 

section as listed transactions for 

purposes of § 1.6011–4(b)(2) and 

sections 6111 and 6112 of the Code is 

effective October 8, 2024. 

(2) Applicability date for material 

advisors. Notwithstanding § 301.6111– 

3(b)(4)(i) and (iii) of this chapter, 

material advisors are required to 

disclose only if they have made a tax 

statement on or after October 8, 2018. 

Douglas W. O’Donnell, 

Deputy Commissioner. 

Approved: September 16, 2024 

Aviva R. Aron-Dine, 

Deputy Assistant Secretary of the Treasury 

(Tax Policy). 

[FR Doc. 2024–22963 Filed 10–7–24; 8:45 am] 

BILLING CODE 4830–01–P 

DEPARTMENT OF THE TREASURY 

Office of Foreign Assets Control 

31 CFR Part 501 

Reporting, Procedures and Penalties 

Regulations 

AGENCY: Office of Foreign Assets 

Control, Treasury. 

ACTION: Final rule. 

SUMMARY: The Department of the 

Treasury’s Office of Foreign Assets 

Control (OFAC) is issuing this final rule 

to amend the Reporting, Procedures and 

Penalties Regulations (the 

‘‘Regulations’’). OFAC published an 

interim final rule with a request for 

comments on May 10, 2024 (‘‘May 2024 

Interim Final Rule’’). In this final rule, 

OFAC responds to public comments 

submitted in response to the May 2024 

Interim Final Rule and amends the 

Regulations to add three exceptions to 

the reporting requirement for any 

blocked property that is unblocked or 

transferred. 

DATES: This final rule is effective 

November 7, 2024. 

FOR FURTHER INFORMATION CONTACT: 

Assistant Director for Licensing, 202– 

622–2480; Assistant Director for 

Regulatory Affairs, 202–622–4855; 

Assistant Director for Compliance, 202– 

622–2490. 

SUPPLEMENTARY INFORMATION: 

Background 

The Regulations (31 CFR part 501), 

originally issued August 25, 1997 (62 FR 

45098), set forth standard reporting and 

recordkeeping requirements, license 

application procedures, and other 

procedures relevant to the economic 

sanctions programs administered by 

OFAC. On May 10, 2024 (89 FR 40372), 

OFAC published an interim final rule, 

effective on August 8, 2024, amending 

the Regulations with a request for 

comment. Public comments on the 

interim final rule were due by June 10, 

2024. 

In the May 2024 Interim Final Rule, 

OFAC amended the Regulations to 

require electronic filing of certain 

submissions to OFAC and to describe 

and modify certain reporting 

requirements related to blocked 

property and rejected transactions. In 

particular, the rule required the use of 

the electronic OFAC Reporting System 

(ORS) for submission of reports related 

to blocked property and rejected 

transactions, removed the mail option 

for certain other types of OFAC 

submissions, described reports OFAC 

may require from financial institutions 

for transactions that meet specified 

criteria, and added a reporting 

requirement for any blocked property 

that is unblocked or transferred. 

Additionally, OFAC clarified the scope 

of the reporting requirement for rejected 

transactions, in part to respond to 

comments received on an interim final 

rule OFAC published on June 21, 2019 

(84 FR 29055), to amend the 

Regulations. 

Among other changes, the May 2024 

Interim Final Rule modified the 

procedures for requests relating to 

property that is blocked in error, 

updated the Regulations with respect to 

the availability of information under the 

Freedom of Information Act (FOIA) for 

certain categories of records, and 

clarified that persons may submit a 

petition for administrative 

reconsideration to seek removal of a 

person or property from the List of 

Specially Designated Nationals and 

Blocked Persons (‘‘SDN List’’) or any 

other list of sanctioned persons 

maintained by OFAC. OFAC also added 

a description of reports OFAC may 

require financial institutions to provide 

about transactions that meet specified 

criteria to aid in the identification of 

blocked property. Finally, OFAC made 

several technical and conforming edits. 

As described further below, OFAC is 

responding to comments received on 

five sections of the Regulations: 

§§ 501.601, 501.602, 501.603, 501.604, 

and 501.806. 

Overview of Comments on the Interim 

Final Rule 

During the public comment period, 

OFAC received written submissions on 

the interim final rule. All comments 

received by the end of the comment 

period are available on the public 

rulemaking docket at https://

www.regulations.gov. 

OFAC considered each relevant 

comment submitted on the May 2024 

Interim Final Rule and made certain 

revisions in this rule in response to the 

comments. Some of the comments were 

general in nature, for example, 

supporting OFAC’s efforts and approach 

with respect to aspects of the May 2024 

Interim Final Rule. In contrast, another 

commentor suggested that OFAC retract 

the interim final rule altogether either to 

give time to incorporate the comments 

received or to give financial institutions 

more time to incorporate the changes 

into their sanctions-related programs, 

systems, and policies and procedures. 

Some comments requested clarification 

of specific provisions, deadlines for 

certain OFAC determinations, 

modifications to reporting requirements, 

and a delay for the general requirements 

to use the ORS. One commenter 

questioned whether OFAC has the 

authority to require persons that 

submitted an erroneous blocking report 

to request OFAC’s permission to release 

funds that never should have been 

blocked (e.g., if a financial institution 

mistakenly blocked the funds of a U.S. 

person based on a ‘‘false hit’’ name 

match with a name that appears on the 

SDN List). 

Summary of Comments and Changes 

From the Interim Final Rule 

Reports of Unblocked or Transferred 

Blocked Property 

In the May 2024 Interim Final Rule, 

OFAC revised § 501.603(b)(3)(i) to 

require reports within 10 business days 

of when blocked property is unblocked 

or transferred, including pursuant to a 

valid order issued by a U.S. Government 


ddrumheller on DSK120RN23PROD with RULES1