Syndicated Conservation Easements Update

• Published date: 01 December 2020
• Date: 01 December 2020
• DOI: http://doi.org/10.1002/npc.30800

Bruce R. Hopkins’ NONPROFIT COUNSEL

December 2020 5

THE LAW OF TAX-EXEMP T ORGANIZATIONS MONTHLY

Bruce R. Hopkins’ Nonpr ofit Counsel DOI:10.10 02/n pc

incorporation and the Securities and Exchange Com-

mission, demonstrate that it is operating pursuant to a

higher standard than that imposed by the federal tax

law. To which the IRS retorted: “[B]eing ethical in your

practice is not the issue at hand; rather, your qualifica-

tion for exemption under IRC [§] Section 501(c)(3) is the

issue.” [4.5(a), 4.9(g)] ◆

FOUNDATION GIVEN

ADDITIONAL FIVE YEARS

TO SIDESTEP HOLDINGS

PENALTIES

The IRS ruled that a private foundation is entitled to an

extension of an additional five-year period for disposing

of excess business holdings (IRC § 4943(c)(7)), due to dil-

igent, albeit unsuccessful, efforts to sell the property and

development of a recapitalization plan that can reasona-

bly be expected to be carried out before the close of the

extension period (if needed) (Priv. Ltr. Rul. 202040002).

The founder of this private foundation contributed

stock, with an estimated value of over twice the value of

the foundation’s total assets at the time, to the founda-

tion, causing an excess business holding. The foundation

retained the services of a financial advisor during the

initial five-year period. Efforts to sell the company failed.

The company’s revenues have declined, as has been the

case in the entire industry. The size and complexity of the

company is also impeding its sale.

The foundation’s plan of disposition involves con-

tinuing efforts to sell the company, or at least the

foundation’s interest in it. There is no guarantee that

the company’s value will materially increase during the

extension period. The foundation represented to the IRS

that if sale of the stock during the first four years of the

period does not occur, the company will be recapitalized

so that the foundation’s holdings of the company’s vot-

ing stock will be reduced to no more than 20 percent

of the company’s total voting stock. The board of direc-

tors of the company has approved this approach, if it

becomes necessary. [12.4(c)] ◆

SYNDICATED CONSERVATION

EASEMENTS UPDATE

By letters dated September 17, the IRS commissioner

provided updated statistics on the syndicated conserva-

tion easement listed transaction to the leadership of the

Senate Finance Committee. Much of this data is derived

from filed reportable transaction disclosure statements

(Form 8886). Here are some of these statistics:

• The IRS received 39,619 Forms 8886 in calendar year

2017, 15,499 forms in 2018, and 17,182 forms in

2019.

• The partnerships making the contributions (top-tier

partnerships) number 169 for tax year 2015, 249 for

2016, 244 for 2017, and 296 for 2018.

• The reported fair market value of the charitable

contribution deductions for the top-tier partnerships

involved in these promotions is approximately $6

billion for tax year 2016, $6.8 billion for 2017, and

$9.2 billion for 2018.

• There were 22,675 investors in tax year 2016, approxi-

mately 21,000 in 2017, and 32,465 investors in 2018.

• The appraisers involved numbered 13 in 2015, 23 in

2016, 29 in 2017, and 34 in 2018.

• The material advisors involved numbered 6,501 in

2017, 2,308 in 2018, and 2,582 in 2019 (filers of

Form 8918).

• As to the deduction-to-investment ratio (the Notice

2017-10 base being 2.5), for calendar year 2018, the

ratio may be as high as 4.92, and for 2019 may be

as high as 5.06.

• The top 10 percent of ratios for disclosures contain-

ing investment and deduction amounts for calendar

year 2018 had an average return-to-investment ratio

of 9.45 times the investment; this ratio for 2019 was

11.72 (see the Quote of the Month).

The IRS, on October 1, provided guidance about the

settlement option offered by the Office of Chief Counsel in

connection with certain syndicated conservation easement

cases pending before the US Tax Court (Chief Counsel Notice

2021-001). (This settlement initiative was announced last

June and reiterated in July, as discussed in the September

2020 issue.) This guidance principally focuses on the details

of the settlement terms. [8.15(b), (c)] ◆

FINAL ABLE PROGRAMS

REGULATIONS ISSUED

The Department of the Treasury and the IRS, on

October 1, issued final regulations providing guidance

regarding programs under the Stephen Beck Jr. Achiev-

ing a Better Life Experience Act of 2014 (ABLE Act) (T.D.

9923). A qualified ABLE program is a tax-exempt organi-

zation (IRC § 529A(a); Reg. § 1.529A-1(a)). It is subject to

tax on any unrelated business taxable income, although

certain administrative and other fees do not constitute

unrelated business income (Reg. § 1.511-2(e)).

Background

The ABLE Act provides rules pursuant to which states

or state agencies or instrumentalities may establish and

maintain a federal tax-favored savings program for eligi-

ble individuals with a disability who are the owners and