Notice 2017-10 — Internal Revenue Bulletin 2024-43

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% Over 25M 1.2% 2.5%

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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 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 require

ments 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).

Bulletin No. 2024–43 997 October 21, 2024

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 transac- tion . 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 con- servation 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 passthrough 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 the contribution of the real property interest on the taxpayer’s Federal income tax return.

(1) Charitable contribution deduction . The term charitable contribution deduc- tion 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 prop- erty 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 sub- stantially similar is defined in §1.60114(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 sub- stantially 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 bright-line 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

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series of transactions has a principal purpose of avoiding the application of this bright-line 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 pass-through entity, the pass-through entity allocates a charitable contribution deduction to the taxpayer the amount of which equals or exceeds two and one-half 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 one-half times the amount of their investment in the pass-through entity.

(4) Determining the amount of the tax- payer’s investment in the pass-through entity —(i) In general . A taxpayer may determine the amount of the taxpayer’s investment in the pass-through entity for purposes of paragraph (b) of this section using either the anti-stuffing 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 tax

payer’s investment in the pass-through 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, 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

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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 con- servation 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) 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 .

Approved : September 16, 2024

Aviva R. Aron-Dine, Deputy Assistant Secretary of the Trea-

sury (Tax Policy).

(Filed by the Office of the Federal Register October 07, 2024, 8:45 a.m., and published in the issue of the Federal Register for October 08, 2024, 89 FR 81341)

Douglas W. O’Donnell,

Deputy Commissioner.

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