Syndicated Conservation Easement Transactions

irs auditsThis notice describes certain transactions in which some promoters are syndicating conservation easement transactions that purport to give investors the opportunity to obtain charitable contribution deductions in amounts that significantly exceed the amount invested.

The promoters identify a pass-through entity that owns real property, or form a pass-through entity to acquire real property.  Additional tiers of pass-through entities may be formed. The promoters then syndicate ownership interests in the pass-through entity or tiered entities that owns the real property, suggesting to prospective investors that they may be entitled to a share of a charitable contribution deduction that equals or exceeds two and one-half times the amount of the investor’s investment.

The promoters obtain an inflated appraisal of the conservation easement based on unreasonable conclusions about the development potential of the real property.  The entity then donates a conservation easement encumbering the property to a tax-exempt entity.

Investors then claim a charitable contribution relying upon the pass-through entity’s holding period.

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