Pass-Through Entities Considering Conservation Easements—Beware!

Syndicated conservation easements (SCEs) have been on the IRS's annual Dirty Dozen list multiple times. For over five years, the IRS has tried to implement regulations requiring SCEs to be disclosed as a reportable transaction, and on Oct. 7, 2024, the IRS issued Treasury Regulation § 1.6011-9 "Syndicated Conservation Easement Listed Transactions" which imposes heightened reporting obligations for such transactions on both the taxpayer and advisors.

What is a Syndicated Conservation Easement?

Generally, an SCE is a transaction in which investors first acquire an interest in a pass-through entity that owns or acquires land, subsequently the pass-through entity donates a conservation easement encumbering the land in perpetuity for a charitable deduction, and then each of the pass-through entity's investors claim a proportionate corresponding charitable contribution deduction which exceeds 2.5 times the investor's basis.