IRS Safe Harbor Notice for the original grantors of an easement: If you have taken a tax deduction against income based on the donation of a conservation easement for tax years after 2016, or you may take a deduction in the future regarding your conserved property against income or from your estate, then you should immediately contact your tax advisor or attorney to review the specific verbiage in your conservation easement to determine if it would be appropriate for you to restate one of two specific clauses in your easement. Ask your tax advisor or attorney to review IRS Notice 23-30.
The two clauses are technical clauses that relate to (a) allocation of proceeds in the event some portion of the property is condemned or the easement is extinguished in a judicial action and (b) any clause that would allow the exclusion of a portion of the property from the terms of the conservation easement. Many easements granted prior to 2017 included then-standard allocation-of-proceeds verbiage to which the IRS has since objected. LPT is not aware that any of its conservation easements allow property to be excluded from the terms of the conservation easement.
The opportunity to restate these clauses is available only through July 24, 2023, and if your tax advisor and your attorney determine you should restate your easement, they must prepare and record an amendment to restate these clauses before July 24, 2023. The restatement must be signed by:
The original grantor(s) of the conservation easement
LPT and any co-holder of the conservation easement
The current owner of the conserved property, if you are no longer the owner of the conserved property
Any lender that holds a lien against the property
If your tax advisor and your attorney determine that you should restate one or both of these clauses in your conservation easement, they should contact LPT immediately to discuss the documentation necessary to effect the restatements.
Safe Harbor Restatement Verbiage:
Donor and Donee agree that the donation of the perpetual conservation restriction gives rise to a property right, immediately vested in Donee, with a fair market value that is at least equal to the proportionate value that the perpetual conservation restriction, at the time of the gift, bears to the fair market value of the property as a whole at that time. The proportionate value of Donee’s property rights remains constant such that if a subsequent sale, exchange, or involuntary conversion of the subject property occurs, Donee is entitled to a portion of the proceeds at least equal to that proportionate value of the perpetual conservation restriction, unless state law provides that the donor is entitled to the full proceeds from the conversion without regard to the terms of the prior perpetual conservation restriction.
Donor and Donee agree that boundary line adjustments to the real property subject to the restrictions may be made only pursuant to a judicial proceeding to resolve a bona fide dispute regarding a boundary line’s location.
This information does not constitute tax or legal advice: you must discuss the IRS Safe Harbor opportunity with your tax and legal advisors.