[Federal Register Volume 88, Number 222 (Monday, November 20, 2023)]
[Proposed Rules]
[Pages 80910-80945]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-25423]
[[Page 80909]]
Vol. 88
Monday,
No. 222
November 20, 2023
Part III
Department of the Treasury
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Internal Revenue Service
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26 CFR Part 1
Statutory Disallowance of Deductions for Certain Qualified Conservation
Contributions Made by Partnerships and S Corporations; Proposed Rule
Federal Register / Vol. 88 , No. 222 / Monday, November 20, 2023 /
Proposed Rules
[[Page 80910]]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-112916-23]
RIN 1545-BQ90
Statutory Disallowance of Deductions for Certain Qualified
Conservation Contributions Made by Partnerships and S Corporations
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking and notice of public hearing.
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SUMMARY: This document contains proposed regulations concerning the
statutory disallowance rule enacted by the SECURE 2.0 Act of 2022 to
disallow a Federal income tax deduction for a qualified conservation
contribution made by a partnership or an S corporation after December
29, 2022, if the amount of the contribution exceeds 2.5 times the sum
of each partner's or S corporation shareholder's relevant basis. The
proposed regulations would provide guidance regarding this statutory
disallowance rule, including definitions, appropriate methods to
calculate the relevant basis of a partner or an S corporation
shareholder, the three statutory exceptions to the statutory
disallowance rule, and related reporting requirements. In addition, the
proposed regulations would provide reporting requirements for partners
and S corporation shareholders that receive a distributive share or pro
rata share of any noncash charitable contribution made by a partnership
or S corporation, regardless of whether the contribution is a qualified
conservation contribution (and regardless of whether the contribution
is of real property or other noncash property). These proposed
regulations would affect partnerships and S corporations that claim
qualified conservation contributions, and partners and S corporation
shareholders that receive a distributive share or pro rata share, as
applicable, of a noncash charitable contribution. This document also
provides a notice of public hearing on these proposed regulations.
DATES: Written or electronic comments must be received by December 20,
2023. The public hearing on these proposed regulations is scheduled to
be held on January 3, 2024, at 10 a.m. ET. Requests to speak and
outlines of topics to be discussed at the public hearing must be
received by December 20, 2023. If no outlines are received by December
20, 2023, the public hearing will be cancelled. Requests to attend the
public hearing must be received by 5 p.m. on December 29, 2023. The
public hearing will be made accessible to people with disabilities.
Requests for special assistance during the hearing must be received by
5 p.m. on December 28, 2023.
ADDRESSES: Commenters are strongly encouraged to submit public comments
electronically. Submit electronic submissions via the Federal
eRulemaking Portal at https://www.regulations.gov (indicate IRS and
REG-112916-23) by following the online instructions for submitting
comments. Once submitted to the Federal eRulemaking Portal, comments
cannot be edited or withdrawn. The Department of Treasury (Treasury
Department) and the IRS will publish for public availability any
comments submitted, whether electronically or on paper, to the IRS's
public docket. Requests for a public hearing must be submitted as
prescribed in the ``Comments and Public Hearing'' section.
Send paper submissions to: CC:PA:01:PR (REG-112916-23), Room 5203,
Internal Revenue Service, P.O. Box 7604, Ben Franklin Station,
Washington, DC 20044.
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations
under Sec. Sec. 1.170A-14, 1.706-3, and 1.706-4, contact Benjamin
Weaver at (202) 317-6850 (not a toll-free number); concerning the
proposed regulations under Sec. 1.170A-16 and issues regarding section
170 other than section 170(h)(7), contact Elizabeth Boone at (202) 317-
5100 and Hannah Kim at (202) 317-7003 (not toll-free numbers); and
concerning submissions of comments and requests for a public hearing,
contact Vivian Hayes at (202) 317-6901 (not a toll-free number) or by
email to [email protected] (preferred).
SUPPLEMENTARY INFORMATION:
Background
I. Overview
This document contains proposed regulations that would amend the
Income Tax Regulations (26 CFR part 1) under sections 170 and 706 of
the Internal Revenue Code (Code) to implement the provisions of section
605(a) and (b) of the SECURE 2.0 Act of 2022 (SECURE 2.0 Act), enacted
as Division T of the Consolidated Appropriations Act, 2023, Public Law
117-328, 136 Stat. 4459, 5393 (December 29, 2022), which apply to
contributions of property made after December 29, 2022.
II. Charitable Contribution Deductions
Section 170(a) provides, subject to certain limitations and
requirements, a deduction for any charitable contribution, as defined
in section 170(c), of cash or other property the payment of which is
made within the taxable year. Section 170(f) disallows charitable
contribution deductions in certain cases and provides special rules.
Section 170(f)(3)(A) provides that, in the case of a contribution (not
made by a transfer in trust) of an interest in property that consists
of less than the taxpayer's entire interest in such property, a
deduction will be allowed only to the extent that the value of the
interest contributed would be allowable as a deduction under section
170 if such interest had been transferred in trust. Section
170(f)(3)(B)(iii) provides that section 170(f)(3)(A) does not apply to
a qualified conservation contribution (discussed in part III of this
Background section).
Section 170(f)(11) requires a qualified appraisal and other
documentation for a charitable contribution deduction to be allowed
with respect to certain contributions of property. Section 170(f)(11)
also includes special rules for contributions of property other than
cash (noncash charitable contributions) of more than $5,000 and for
noncash charitable contributions of more than $500,000. In addition,
section 170(f)(11)(H) provides that the Secretary of the Treasury or
her delegate (Secretary) may prescribe such regulations as may be
necessary or appropriate to carry out the purposes of section
170(f)(11). Section 6001 provides that every person liable for any tax
imposed by title 26, United States Code (title 26) must keep such
records, render such statements, make such returns, and comply with
such rules and regulations as the Secretary may from time to time
prescribe. In addition, section 6011 provides, in part, that, whenever
required by regulations prescribed by the Secretary, any person made
liable for any tax imposed by title 26 must make a return or statement
according to the forms and regulations prescribed by the Secretary and
include therein the information required by such forms or regulations.
Under the authority of sections 170(f)(11)(H), 6001, and 6011, existing
regulations under Sec. 1.170A-16 provide substantiation and reporting
requirements that must be satisfied for a deduction to be allowed under
section 170 with respect to noncash charitable contributions.
[[Page 80911]]
III. Qualified Conservation Contributions
Section 170(h)(1) provides that, in general, for purposes of
section 170(f)(3)(B)(iii), the term ``qualified conservation
contribution'' means a contribution (1) of a qualified real property
interest, (2) to a qualified organization, (3) exclusively for
conservation purposes. Section 170(h)(2) defines the term ``qualified
real property interest,'' section 170(h)(3) defines the term
``qualified organization,'' section 170(h)(4) defines the term
``conservation purpose,'' and section 170(h)(5) defines the term
``exclusively for conservation purposes.'' In general, a qualified
conservation contribution may include a contribution of a conservation
easement.
The existing regulations under Sec. 1.170A-14 provide rules for
qualified conservation contributions described in section 170(h).
Consistent with section 170(f)(3), Sec. 1.170A-14(a) provides that a
deduction under section 170 generally is not allowed for a charitable
contribution of any interest in property that consists of less than the
donor's entire interest in the property other than certain transfers in
trust. However, by reason of section 170(f)(3)(B)(iii), a deduction may
be allowed for the value of a qualified conservation contribution if
the requirements of Sec. 1.170A-14 are met. To be eligible for a
deduction under Sec. 1.170A-14, the conservation purpose of the
contribution must be protected in perpetuity. See Sec. 1.170A-14(a)
and (g).
IV. Syndicated Conservation Easement Transactions
On December 23, 2016, the Treasury Department and the IRS released
Notice 2017-10, 2017-4 I.R.B. 544, which identified transactions that
are the same as or substantially similar to certain syndicated
conservation easement transactions as ``listed transactions'' under
Sec. 1.6011-4 subject to certain disclosure and list maintenance
requirements. Notice 2017-10 explains that the Treasury Department and
the IRS are aware that 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 amounts invested. In addition, Notice 2017-10 provides that
a transaction is a listed transaction if (1) an investor receives
promotional materials that offer a prospective investor in a pass-
through entity the possibility of a charitable contribution deduction
that equals or exceeds an amount that is 2.5 times the amount of the
investor's investment, (2) the investor purchases an interest directly
or indirectly (through one or more tiers of pass-through entities) in
the pass-through entity that holds real property, (3) the pass-through
entity contributes a conservation easement and allocates, directly or
through one or more tiers of pass-through entities, a charitable
contribution to the investor, and (4) the investor reports on the
investor's Federal income tax return a charitable contribution
deduction with respect to the conservation easement.
Congress continued to be concerned about abusive syndicated
conservation easement transactions even after Notice 2017-10 was
issued, and the transactions were the subject of an investigation by
the U.S. Senate Committee on Finance, which issued a report on August
25, 2020. S. Committee on Finance, Comm. Print 116-44, Syndicated
Conservation-Easement Transactions, 116th Cong., 2nd Sess. (2020)
(Committee Report). The Committee Report found that the syndicated
conservation easement transactions examined were nothing more than
retail tax shelters allowing taxpayers to buy tax deductions at the end
of any given tax year. Id. at 3. The Committee Report further stated
that these tax deductions could be purchased with no economic risk. Id.
As such, the Finance Committee concluded that further action was
necessary to preserve the integrity of the conservation easement tax
deduction despite ongoing efforts to combat this abuse such as the
issuance of Notice 2017-10 and IRS enforcement action. Id. at 4.
In a separate report accompanying an earlier proposal for amending
section 170(h), in legislation proposed as the ``Enhancing American
Retirement Now Act,'' the Committee on Finance recognized charitable
deductions for the donation of conservation easements as an important
tool and incentive to protect the environment and historic structures.
S. Rep. No. 117-142 on S. 4808, at 218, 117th Cong., 2nd Sess. (2022).
Citing its findings from the 2020 Committee Report, the Committee
noted, however, that abusive tax shelter transactions put the
conservation easement tax deduction at risk. The Committee ultimately
found it appropriate to take legislative action to protect the
integrity of the conservation easement tax deduction for easement
donations with a legitimate conservation purpose. Id.
On December 8, 2022, the Treasury Department and the IRS published
in the Federal Register (87 FR 75185) a notice of proposed rulemaking
(REG-106134-22) identifying syndicated conservation easement
transactions and substantially similar transactions as listed
transactions (listing NPRM). The definition of a syndicated
conservation easement transaction in proposed Sec. 1.6011-9 of the
listing NPRM is similar to the definition in Notice 2017-10. The
purpose of the listing NPRM was to eliminate any confusion and ensure
consistent enforcement of Federal tax laws throughout the nation in
light of certain judicial decisions holding that, under the
Administrative Procedure Act, 5 U.S.C. chapter 5, subchapter II, listed
transactions may be identified only after following notice and comment
procedures. See, e.g., Mann Construction, Inc. v. United States, 27
F.4th 1138 (6th Cir. 2022), and Green Valley Investors, LLC, et al. v.
Commissioner, 159 T.C. No. 5 (2022). The Treasury Department and the
IRS are in the process of considering the comments received and
finalizing the listing NPRM.
V. Section 605 of the SECURE 2.0 Act
Section 170(h)(7) was added to the Code by section 605(a)(1) of the
SECURE 2.0 Act. Section 170(h)(7)(A) states that a contribution by a
partnership (whether directly or as a distributive share of a
contribution of another partnership) is not treated as a qualified
conservation contribution for purposes of section 170 if the amount of
such contribution exceeds 2.5 times the sum of each partner's relevant
basis in such partnership (Disallowance Rule). Thus, a contribution of
a qualified real property interest to a qualified organization
exclusively for conservation purposes is not a qualified conservation
contribution if the Disallowance Rule applies. Section 170(h)(7)(F)
provides that the rules of section 170(h)(7) ``apply to S corporations
and other pass-through entities in the same manner as such rules apply
to partnerships'' except as the Secretary may otherwise provide.
Section 170(h)(7)(B) defines the terms ``relevant basis'' and
``modified basis,'' section 170(h)(7)(C), (D), and (E) provide three
exceptions to the Disallowance Rule, and section 170(h)(7)(G) provides
a specific grant of regulatory authority to the Secretary to issue
regulations or other guidance as the Secretary determines are necessary
or appropriate to carry out the purposes of the Disallowance Rule,
including reporting requirements and rules to prevent the avoidance of
the Disallowance Rule.
Section 605(a)(2) of the SECURE 2.0 Act modifies certain penalty
provisions in sections 6662, 6664, and 6751 of the Code to provide
special rules for
[[Page 80912]]
charitable contribution deductions disallowed by section 170(h)(7).
Section 605(a)(3) of the SECURE 2.0 Act provides that any charitable
contribution for which a deduction was disallowed under section
170(h)(7) is treated, for purposes of the period of limitations on
assessment and collection of tax in section 6501 of the Code and the
period of limitations on making adjustments in section 6235 of the
Code, as a transaction specifically identified by the Secretary as a
tax-avoidance transaction.
Section 605(b) of the SECURE 2.0 Act added section 170(f)(19) to
the Code, which provides that, in the case of a partnership or S
corporation claiming a qualified conservation contribution for the
preservation of a building that is a certified historic structure (as
defined in section 170(h)(4)(C)) in an amount that exceeds 2.5 times
the sum of each partner's or S corporation shareholder's relevant basis
(as defined in section 170(h)(7)), no deduction under section 170 is
allowed unless, as provided in section 170(f)(19)(A)(i) and (ii), the
partnership or S corporation includes on its return for the taxable
year a statement that such contribution was made and any other
information as the Secretary may require. A contribution to preserve a
certified historic structure is one of the three exceptions to the
Disallowance Rule.
Section 605(c) of the SECURE 2.0 Act provides that the amendments
made by section 605 of the SECURE 2.0 Act apply to contributions made
after December 29, 2022, and that no inference is intended as to the
appropriate treatment of contributions made in taxable years ending on
or before that date, or as to any contribution for which a deduction is
not disallowed by reason of section 170(h)(7).
VI. Overview of the Disallowance Rule
The Disallowance Rule provides that a contribution by a partnership
(whether directly or as a distributive share of a contribution of
another partnership) is not treated as a qualified conservation
contribution for purposes of section 170 if the amount of such
contribution exceeds 2.5 times the sum of each partner's relevant basis
in such partnership. If such a contribution is not treated as a
qualified conservation contribution, then the general rule under
section 170(f)(3)(A) disallowing a charitable contribution deduction
under section 170 for a contribution of a partial interest in property
applies. Thus, if the Disallowance Rule applies, any amount of
deduction under section 170 for a qualified conservation contribution
is disallowed.
Section 170(h)(7)(B)(i) provides that, for purposes of section
170(h)(7), the term ``relevant basis'' means, with respect to any
partner, the portion of such partner's modified basis in the
partnership that is allocable (under rules similar to the rules of
section 755 of the Code for allocating certain special basis
adjustments to partnership property) to the portion of the real
property with respect to which the contribution described in section
170(h)(7)(A) is made. Section 170(h)(7)(B)(ii) provides that, for
purposes of section 170(h)(7), the term ``modified basis'' means, with
respect to any partner, such partner's adjusted basis in the
partnership as determined (1) immediately before the contribution
described in section 170(h)(7)(A), (2) without regard to the treatment
of partnership liabilities in section 752, and (3) by the partnership
after taking into account these first two adjustments and such other
adjustments as the Secretary may provide.
Section 170(h)(7) contains three exceptions to the Disallowance
Rule. First, section 170(h)(7)(C) provides that the Disallowance Rule
does not apply to any contribution made at least three years after the
latest of (1) the last date on which the partnership that made such
contribution acquired any portion of the real property with respect to
which such contribution is made, (2) the last date on which any partner
in the partnership that made such contribution acquired any interest in
such partnership, and (3) if the interest in the partnership that made
such contribution is held through one or more partnerships, the last
date on which any such partnership acquired any interest in any other
such partnership, and the last date on which any partner in any such
partnership acquired any interest in such partnership.
Second, section 170(h)(7)(D)(i) provides that the Disallowance Rule
does not apply to any contribution made by any partnership if
substantially all of the partnership interests in such partnership are
held, directly or indirectly, by an individual and members of the
family of such individual. Section 170(h)(7)(D)(ii) provides that, for
purposes of section 170(h)(7)(D), the term ``members of the family''
means, with respect to any individual (I) the spouse of such
individual, and (II) any individual who bears a relationship to such
individual that is described in section 152(d)(2)(A) through (G) of the
Code for purposes of determining whether an individual is a qualifying
relative.
Third, section 170(h)(7)(E) provides that the Disallowance Rule
does not apply to any qualified conservation contribution the
conservation purpose of which is the preservation of any building that
is a certified historic structure (as defined in section 170(h)(4)(C)).
Section 170(h)(7)(F) provides that, except as may be otherwise
provided by the Secretary, the rules of section 170(h)(7) apply to S
corporations and other pass-through entities in the same manner as such
rules apply to partnerships.
Section 170(h)(7)(G) authorizes the Secretary to prescribe such
regulations or other guidance as may be necessary or appropriate to
carry out the purposes of section 170(h)(7), including regulations or
other guidance (1) to require reporting, including reporting related to
tiered partnerships and the modified basis of partners, and (2) to
prevent the avoidance of the purposes of section 170(h)(7).
Explanation of Provisions
I. Overview
These proposed regulations would address several requirements added
by section 605 of the SECURE 2.0 Act and make several related
clarifying changes to the existing regulations applicable to qualified
charitable contributions. First, these proposed regulations would make
changes to existing Sec. 1.170A-14, including modifying paragraph (a)
to reference the Disallowance Rule and adding new paragraphs (j)
through (n) to Sec. 1.170A-14 to provide guidance on the application
of the Disallowance Rule to partnerships and S corporations, the
computation of relevant basis and modified basis, including in tiered
structures, and the three statutory exceptions to the Disallowance
Rule.
These proposed regulations would provide specific rules for
partnerships and S corporations, but do not specifically address other
types of pass-through entities. The Treasury Department and the IRS
continue to study whether specific rules are needed for other types of
pass-through entities and request comments on the application of
section 170(f)(19) and (h)(7) to pass-through entities other than
partnerships and S corporations. The Treasury Department and the IRS
intend to issue future guidance on other issues relating to section 605
of SECURE 2.0 Act, including additional guidance relating to the three
statutory exceptions to the Disallowance Rule.
Second, these proposed regulations would make changes to the
reporting requirements in Sec. 1.170A-16 to address
[[Page 80913]]
substantiation of charitable contribution deductions as well as to
implement section 170(f)(19)(A)(i). The Treasury Department and the IRS
intend to issue future guidance addressing section 170(f)(19)(A)(ii).
Finally, these proposed regulations propose new language in
Sec. Sec. 1.706-3 and 1.706-4 to facilitate the operation of the
Disallowance Rule in the case of a qualified conservation contribution
made by a partnership.
II. Clarifying Change to Sec. 1.170A-14(a)
The second sentence of existing Sec. 1.170A-14(a) provides that a
deduction may be allowed under section 170(f)(3)(B)(iii) for the value
of a qualified conservation contribution if the requirements of Sec.
1.170A-14 are met. Because the Disallowance Rule provided in section
170(h)(7) is proposed to be contained in Sec. 1.170A-14(j) through
(n), proposed Sec. 1.170A-14(a) would amend this sentence to provide
that a deduction may be allowed under section 170(f)(3)(B)(iii) for the
value of a qualified conservation contribution if the requirements of
Sec. 1.170A-14 are met and the contribution is not a disallowed
qualified conservation contribution within the meaning of proposed
Sec. 1.170A-14(j).
III. Disallowance Rule and Its Exceptions
Proposed Sec. 1.170A-14(j) would provide guidance on the general
applicability of the Disallowance Rule to partnerships and S
corporations. Proposed Sec. 1.170A-14(j)(3) would provide definitions.
Consistent with section 170(h)(7)(B), proposed Sec. 1.170A-14(k) would
provide that the term ``relevant basis'' means, with respect to any
ultimate member (as defined in proposed Sec. 1.170A-14(j)(3)(x)), the
portion of such ultimate member's modified basis (as determined under
proposed Sec. 1.170A-14(l)) that is allocable (under the rules of
proposed Sec. 1.170A-14(m)) to the portion of the real property with
respect to which the qualified conservation contribution is made.
Proposed Sec. 1.170A-14(l) would provide guidance on the determination
of modified basis. Proposed Sec. 1.170A-14(m) would provide guidance
on the allocation of modified basis to the portion of the real property
with respect to which the qualified conservation contribution was made.
Proposed Sec. 1.170A-14(m)(6) would impose recordkeeping requirements
for substantiating the computation of each ultimate member's adjusted
basis, modified basis, and relevant basis by the due date, including
extensions, of the partnership's or S corporation's Federal income tax
return. Proposed Sec. 1.170A-14(n) would provide guidance on the three
statutory exceptions to the Disallowance Rule.
A. General Disallowance Rule for Partnerships and S Corporations
Consistent with section 170(h)(7)(A), proposed Sec. 1.170A-
14(j)(1) would provide that proposed Sec. 1.170A-14(j) applies the
rules of section 170(h)(7), which disallow a deduction under the Code
and Sec. 1.170A-14 for certain qualified conservation contributions,
as defined in section 170(h)(1) and Sec. 1.170A-14, made by, or
allocated to, partnerships or S corporations if the amount of the
qualified conservation contribution exceeds 2.5 times the sum of the
relevant bases, as determined by proposed Sec. 1.170A-14(j) through
(m). Proposed Sec. 1.170A-14(j)(3)(vii) would define a contribution
for which a deduction is disallowed by Sec. 1.170A-14(j) as a
``disallowed qualified conservation contribution.'' Proposed Sec.
1.170A-14(j)(2)(i) would provide that, except as provided in proposed
Sec. 1.170A-14(n), a qualified conservation contribution by a
contributing partnership or a contributing S corporation is a
disallowed qualified conservation contribution if the amount of the
qualified conservation contribution exceeds 2.5 times the sum of each
of the contributing partnership's or contributing S corporation's
ultimate member's relevant basis as determined under proposed Sec.
1.170A-14(j) through (m).
Proposed Sec. 1.170A-14(j)(2)(ii) would provide that, except as
provided in proposed Sec. 1.170A-14(n), an allocated portion of a
contribution received by an upper-tier partnership or upper-tier S
corporation is a disallowed qualified conservation contribution if
either the contribution is a disallowed qualified conservation
contribution with respect to the partnership that allocated the
allocated portion to the upper-tier partnership or upper-tier S
corporation, or such allocated portion exceeds 2.5 times the sum of
each of that upper-tier partnership's or upper-tier S corporation's
ultimate member's relevant basis as determined under proposed Sec.
1.170A-14(j) through (m). Thus, if a contribution is a disallowed
qualified conservation contribution with respect to a partnership, then
the contribution is a disallowed qualified conservation contribution
with respect to any upper-tier partnership or upper-tier S corporation
owning a direct or indirect interest in that partnership. On the other
hand, if a contribution is not a disallowed qualified conservation
contribution with respect to a partnership, then the rules of proposed
Sec. 1.170A-14(j) through (m) must be applied to the next tier of
upper-tier partnerships and upper-tier S corporations (which own a
direct interest in the partnership) to determine if the Disallowance
Rule applies to those upper-tier partnerships and upper-tier S
corporations. In other words, the test of Sec. 1.170A-14(j) through
(m) must be applied at each tier unless and until the test is failed at
one tier, in which case that portion of the contribution will be a
disallowed qualified conservation contribution to that tier and any
subsequent tiers.
B. Definitions
Proposed Sec. 1.170A-14(j)(3) would contain definitions, including
definitions of terms, including ``contributing partnership,''
``contributing S corporation,'' ``ultimate member,'' ``allocated
portion,'' ``upper-tier partnership,'' and ``upper-tier S
corporation.''
1. Allocated Portion
Proposed Sec. 1.170A-14(j)(3)(i) would provide that, in the case
of an upper-tier partnership or upper-tier S corporation that receives,
directly or indirectly, a distributive share of a qualified
conservation contribution, the phrase ``allocated portion'' means the
amount of such distributive share.
2. Amount of Qualified Conservation Contribution
Proposed Sec. 1.170A-14(j)(3)(ii) would provide that the amount of
a contributing partnership's or contributing S corporation's qualified
conservation contribution is the amount claimed as a qualified
conservation contribution on the return of the contributing partnership
or contributing S corporation for the taxable year in which the
contribution is made. It would also provide that, if the contributing
partnership or contributing S corporation files an amended return or
administrative adjustment request under section 6227 of the Code
claiming a different amount with respect to the qualified conservation
contribution, the rules of Sec. 1.170A-14 must be re-applied with
respect to such different amount to determine the application of
section 170(h)(7) and Sec. 1.170A-14.
3. Contributing Partnership
The Disallowance Rule applies to a partnership or S corporation
that makes a qualified conservation contribution, as well as a
partnership or S corporation that is allocated a distributive share of
a qualified conservation contribution of
[[Page 80914]]
another partnership. For clarity, proposed Sec. 1.170A-14(j)(3)(iii)
would provide that the term ``contributing partnership'' means a
partnership that makes a qualified conservation contribution.
4. Contributing S Corporation
Proposed Sec. 1.170A-14(j)(3)(iv) would provide that the term
``contributing S corporation'' means an S corporation that makes a
qualified conservation contribution.
5. Direct Interest
Proposed Sec. 1.170A-14(j)(3)(v) would provide that the term
``direct interest'' refers to an ownership interest in a contributing
partnership, upper-tier partnership, contributing S corporation, or
upper-tier S corporation that is held directly, or through an entity
disregarded as separate from its owner for Federal income tax purposes,
a qualified subchapter S subsidiary as defined in section 1361(b)(3) of
the Code, or through a grantor trust (under subpart E of part 1 of
subchapter J of chapter 1 of the Code). In the case of a partner that
is a C corporation, non-grantor trust, or an estate, or an S
corporation shareholder that is a non-grantor trust or an estate, the
direct interest in the partnership or S corporation, as applicable,
would be considered to be held by the C corporation, non-grantor trust,
or estate; the C corporation's shareholders, trust beneficiaries, and
estate beneficiaries would not be considered to hold any interest in
the partnership or S corporation, as applicable, for purposes of
proposed Sec. 1.170A-14(j) through (n).
6. Directly
Proposed Sec. 1.170A-14(j)(3)(vi) would provide that an ownership
interest is held ``directly'' if it is not held through one or more
upper-tier partnerships or upper-tier S corporations. Similarly, a
distributive share or pro rata share of a qualified conservation
contribution would be received ``directly'' if it does not pass through
one or more upper-tier partnerships or upper-tier S corporations.
7. Disallowed Qualified Conservation Contribution
Proposed Sec. 1.170A-14(j)(3)(vii) would provide that the term
``disallowed qualified conservation contribution'' means a qualified
conservation contribution or allocated portion for which no deduction
is allowed pursuant to section 170(h)(7) and proposed Sec. 1.170A-
14(j).
8. Indirect Interest
Proposed Sec. 1.170A-14(j)(3)(viii) would provide that the term
``indirect interest'' refers to an ownership interest in a contributing
partnership, contributing S corporation, upper-tier partnership, or
upper-tier S corporation held through an upper-tier S corporation or
one or more upper-tier partnerships.
9. Indirectly
Proposed Sec. 1.170A-14(j)(3)(ix) would provide that an ownership
interest is held ``indirectly'' if it is held through one or more
upper-tier partnerships or upper-tier S corporations. Similarly, a
distributive share or pro rata share of a qualified conservation
contribution would be received ``indirectly'' if it passes through one
or more upper-tier partnerships or upper-tier S corporations.
10. Ultimate Member
Proposed Sec. 1.170A-14(j)(3)(x) would provide that the term
``ultimate member'' means, with respect to any partnership or S
corporation, any partner (that is not itself a partnership or S
corporation) or S corporation shareholder that receives a distributive
share or pro rata share, directly or indirectly, of a qualified
conservation contribution. Thus, ultimate members would either be
partners holding a direct interest in a partnership, which may be the
contributing partnership or an upper-tier partnership, or shareholders
holding a direct interest in an S corporation, which may be the
contributing S corporation or an upper-tier S corporation. Proposed
Sec. 1.170A-14(j)(3)(x) would provide that upper-tier S corporations
and upper-tier partnerships themselves are not considered ultimate
members.
Several considerations played a role in the decision of the
Treasury Department and the IRS to propose this rule that looks to the
relevant basis of the ultimate members for determining whether a
qualified conservation contribution will be disallowed. Although
section 170(h)(7)(A) provides that the Disallowance Rule applies in
tiered structures, the statutory language does not explicitly explain
whether the determination of relevant basis is made with respect to
partners (who may themselves be pass-through entities) and S
corporation shareholders holding a direct interest in the contributing
partnership or contributing S corporation, or whether the determination
of relevant basis is made with respect to the ultimate members. The
Disallowance Rule is meant to compare the amount of a claimed qualified
conservation contribution with the equity investment made by those
persons expected to claim a deduction with respect to such
contribution. Because it is the ultimate members, such as individuals,
estates, and C corporations (that is, non-pass-through entities), who
ultimately claim a deduction for a qualified conservation contribution,
the proposed regulations would require that the determination of
relevant basis be made with respect to those ultimate partners and S
corporation shareholders. For example, assume a contributing
partnership has two partners: (1) an upper-tier S corporation, which
has two individual shareholders, and (2) an upper-tier partnership,
which has three partners--a C corporation, an estate, and an
individual. Under these proposed regulations, relevant basis would be
computed with respect to the three individuals, C corporation, and
estate, and not with respect to the upper-tier S corporation or upper-
tier partnership. The proposed regulations would refer to these persons
as the ``ultimate members.'' In the case of a tiered arrangement, the
use of the term ``partner'' to refer to such ultimate members might be
confusing or inaccurate because such persons may not be partners of the
contributing partnership, and in fact, may not be partners at all, if
they are shareholders of an upper-tier S corporation that is itself a
partner in the contributing partnership. As such, the proposed
regulations use the term ``member.''
The Treasury Department and the IRS considered alternatives to the
ultimate member rule. One possible approach would be to determine the
application of the Disallowance Rule with respect to the contributing
partnership by looking only to the relevant bases of the contributing
partnership's direct partners. In the example in which a contributing
partnership has two partners, an upper-tier S corporation and an upper-
tier partnership, the direct partners would be the upper-tier S
corporation and the upper-tier partnership. The modified basis (and
thus, relevant basis) of the upper-tier S corporation or upper-tier
partnership could include basis attributable to shareholders or
partners of the upper-tier entity that will not be expected to claim
the deduction. For example, this might be the case because the
contributing partnership allocates all of the qualified conservation
contribution to the upper-tier S corporation. Because the Disallowance
Rule is meant to compare the amount of a claimed
[[Page 80915]]
qualified conservation contribution with the equity investment made by
those persons expected to claim a deduction with respect to such
contribution, it is more consistent with the purposes of the
Disallowance Rule to compute relevant basis only using the basis of
those persons who are expected to claim a deduction with respect to the
contribution.
Additionally, in the example earlier, if the contributing
partnership's qualified conservation contribution was not disallowed by
the Disallowance Rule, the upper-tier S corporation and the upper-tier
partnership would each be required to determine the application of the
Disallowance Rule by looking to their direct owners. Because section
170(h)(7)(B)(i) requires that relevant basis be traced to the portion
of the real property with respect to which the contribution is made,
the upper-tier S corporation's and upper-tier partnership's
determinations would necessarily involve computations by both the
upper-tier entity and the contributing partnership. Thus, in many
cases, computing relevant basis only with respect to direct partners
would not simplify the computations required to apply the Disallowance
Rule, because it would still be necessary to carry the computations
through each tier.
These proposed regulations would provide numerous examples to
determine who is an ultimate member. Comments are requested on the
definition of ultimate member, and whether additional examples for
specific situations would be helpful.
11. Upper-Tier Partnership
Proposed Sec. 1.170A-14(j)(3)(xi) would provide that the term
``upper-tier partnership'' means a partnership that receives an
allocated portion.
Where appropriate, the proposed regulations would provide separate
rules for contributing partnerships, contributing S corporations,
upper-tier partnerships, and upper-tier S corporations. The Treasury
Department and the IRS are aware that sometimes different naming
conventions are used to refer to tiered partnership arrangements. For
example, some may refer to the contributing partnership as the
``property partnership'' or ``top-tier partnership,'' and in fact the
IRS has used that naming convention in some correspondence. That naming
convention is not inherently wrong, as different practitioners refer to
the ``bottom'' and ``top'' of a tiered structure differently. However,
the regulations under subchapter K of chapter 1 of the Code generally
would refer to the contributing partnership as the lower-tier
partnership, and to a partnership that owns an interest in the
contributing partnership (either directly or indirectly) as an upper-
tier partnership. Accordingly, in a tiered partnership ownership
structure, these proposed regulations reflect a naming convention under
which the contributing partnership would be the ``lower-tier
partnership,'' and a partnership receiving a distributive share of a
qualified conservation contribution from the contributing partnership
would be an ``upper-tier partnership.''
12. Upper-Tier S Corporation
Proposed Sec. 1.170A-14(j)(3)(xii) would provide that the term
``upper-tier S corporation'' means an S corporation that receives an
allocated portion.
C. Effect of the Disallowance Rule
As noted previously, section 170(h)(7)(A) applies the Disallowance
Rule to both contributing partnerships and upper-tier partnerships.
Section 170(h)(7) does not explicitly address what effect the
application of the Disallowance Rule to one partnership or S
corporation in a tiered structure has on the other partnerships or S
corporations in the tiered structure. These proposed regulations would
provide that if the Disallowance Rule applies to a partnership or S
corporation, then the qualified conservation contribution is a
disallowed qualified conservation contribution to that entity as well
as to any person receiving a distributive share or pro rata share,
directly or indirectly, of that entity's disallowed qualified
conservation contribution; however, the disallowance would not affect
the qualified conservation contribution with respect to any lower-tier
entities. In other words, if the application of the Disallowance Rule
with respect to an upper-tier partnership or upper-tier S corporation
results in a disallowed qualified conservation contribution, that would
affect Federal income tax consequences up the chain of tiers, but not
down the chain of tiers, so, for example, the contributing partnership
would not be affected.
The Treasury Department and the IRS considered other approaches,
such as always re-testing the application of the Disallowance Rule to
an upper-tier partnership's or upper-tier S corporation's allocated
portion, even when the contribution is a disallowed qualified
conservation contribution with respect to the lower-tier partnership.
Under this approach, if the allocated portion does not exceed 2.5 times
the sum of each of the upper-tier partnership's or upper-tier S
corporation's ultimate member's relevant basis, the allocated portion
would be a qualified conservation contribution and not disallowed to
the upper-tier partnership's non-pass-through partners or the upper-
tier S corporation's shareholders, even though the contribution was a
disallowed qualified conservation contribution to the non-pass-through
partners of the lower-tier partnership. Allowing re-testing of
contributions that have already failed the Disallowance Rule would be
inconsistent with the purposes of the Disallowance Rule because it
would inappropriately encourage the creation of tiered structures to
allow some ultimate members to avoid the Disallowance Rule. These
proposed regulations are intended to prevent avoidance of the purposes
of section 170(h)(7) and ensure disallowance of deductions attributable
to disallowed qualified conservation contributions. The Treasury
Department and the IRS request comments on the application of the
Disallowance Rule in tiered structures.
Under the authority of section 170(h)(7)(G)(ii) to issue
regulations or other guidance to prevent the avoidance of the purposes
of section 170(h)(7), proposed Sec. 1.170A-14(j)(4)(i) would provide
that, if a contributing partnership's or contributing S corporation's
qualified conservation contribution is a disallowed qualified
conservation contribution, then: (1) any upper-tier partnership's or
upper-tier S corporation's allocated portion of such contribution is a
disallowed qualified conservation contribution, regardless of whether
such allocated portion exceeds 2.5 times the sum of each of the upper-
tier partnership's or upper-tier S corporation's ultimate member's
relevant basis; and (2) no person (whether holding a direct or indirect
interest in such contributing partnership or contributing S
corporation) may claim a deduction under any provision of the Code with
respect to any amount of such disallowed qualified conservation
contribution, regardless of whether that person's distributive share or
pro rata share of the disallowed qualified conservation contribution
exceeds 2.5 times its relevant basis. The reference to ``any provision
of the Code'' is necessary to prevent taxpayer attempts to avoid the
Disallowance Rule by claiming a deduction with respect to any amount of
a qualified conservation contribution under a provision of the Code
other than section 170 in cases in which no deduction is allowable
under section 170 by reason of section 170(h)(7). For example, this
proposed
[[Page 80916]]
rule would disallow a deduction under section 642(c) of the Code for a
trust that is a partner in a partnership with respect to a distributive
share of a disallowed qualified conservation contribution from the
partnership.
Proposed Sec. 1.170A-14(j)(4)(ii) would provide that if a
contributing partnership's or contributing S corporation's qualified
conservation contribution is not a disallowed qualified conservation
contribution, then: (1) the distributive share or pro rata share of any
ultimate member holding a direct interest in the contributing
partnership or contributing S corporation is not a disallowed qualified
conservation contribution; and (2) any upper-tier partnership or upper-
tier S corporation that receives an allocated portion of such qualified
conservation contribution must separately apply the rules of section
170(h)(7) and proposed Sec. 1.170A-14(j) through (m) to determine
whether that upper-tier partnership's or upper-tier S corporation's
allocated portion is a disallowed qualified conservation contribution.
Proposed Sec. 1.170A-14(j)(4)(iii) would provide that, if an
upper-tier partnership's or upper-tier S corporation's allocated
portion is a disallowed qualified conservation contribution, then: (1)
any subsequent upper-tier partnership's or upper-tier S corporation's
allocated portion of such allocated portion would be a disallowed
qualified conservation contribution, regardless of whether the
subsequent upper-tier partnership's or upper-tier S corporation's
allocated portion exceeds 2.5 times the sum of each of the subsequent
upper-tier partnership's or upper-tier S corporation's ultimate
member's relevant basis; and (2) no person (whether holding a direct or
indirect interest in that upper-tier partnership or upper-tier S
corporation) would be able to claim a deduction under any provision of
the Code with respect to any amount of that upper-tier partnership's or
upper-tier S corporation's allocated portion, regardless of whether
that person's distributive share or pro rata share of the allocated
portion exceeds 2.5 times its relevant basis. Similar to proposed Sec.
1.170A-14(j)(4)(i), proposed Sec. 1.170A-14(j)(4)(iii) would be issued
under the authority of section 170(h)(7)(G)(ii) to issue regulations or
other guidance to prevent the avoidance of the purposes of section
170(h)(7). However, this proposed rule would not affect the application
of proposed Sec. 1.170A-14(j) through (m) to another partner of the
contributing partnership; for example, if the qualified conservation
contribution is not a disallowed qualified conservation contribution
with respect to the contributing partnership, then the distributive
share of such contribution of an ultimate member holding a direct
interest in the contributing partnership is not a disallowed qualified
conservation contribution, notwithstanding that the qualified
conservation contribution is a disallowed qualified conservation
contribution with respect to one or more upper-tier partnerships or
upper-tier S corporations.
Proposed Sec. 1.170A-14(j)(4)(iv) would provide that, if an upper-
tier partnership's or upper-tier S corporation's allocated portion is
not a disallowed qualified conservation contribution, then: (1) the
distributive share or pro rata share of such allocated portion of any
ultimate member holding a direct interest in the upper-tier partnership
or upper-tier S corporation is not a disallowed qualified conservation
contribution; and (2) any subsequent upper-tier partnership or upper-
tier S corporation that receives an allocated portion of such allocated
portion must separately apply the rules of section 170(h)(7) and
proposed Sec. 1.170A-14(j) through (m) to determine whether that
subsequent upper-tier partnership's or upper-tier S corporation's
allocated portion is treated as a disallowed qualified conservation
contribution.
The proposed regulations contain examples illustrating the rules
with respect to tiers of entities. The Treasury Department and the IRS
request comments on whether additional examples would be helpful.
D. No Inference
The Treasury Department and the IRS are aware that, even though
section 605(c)(2) of the SECURE 2.0 Act plainly states that no
inference is intended as to any contribution for which a deduction is
not disallowed by reason of section 170(h)(7), some practitioners have
taken the position that section 170(h)(7) operates as a ``safe
harbor.'' According to these practitioners, a qualified conservation
contribution that is not disallowed by the Disallowance Rule is somehow
immune to a challenge on other grounds, including failure to comply
with other rules under section 170 and overvaluation of the
contribution. Such a position is baseless and contradicted by the
statutory language.
To clarify this issue, proposed Sec. 1.170A-14(j)(5) would provide
that there is no presumption that a qualified conservation contribution
that is not a disallowed qualified conservation contribution is
compliant with section 170, any other section of the Code, the
regulations, or any other guidance thereunder. It would also provide
that compliance with section 170(h)(7) and proposed Sec. 1.170A-14(j)
through (n) is not a safe harbor for purposes of any other provision of
law, including the other requirements of section 170 and the value of
the contribution. Such transactions are subject to adjustment or
disallowance for any other reason, including failure to satisfy the
requirements of section 170 and the overvaluation of the contribution;
for example, failure to properly execute Form 8283, Noncash Charitable
Contributions, violation of the partnership anti-abuse rule of Sec.
1.701-2, lack of economic substance, or other rules or judicial
doctrines. In addition, compliance with proposed Sec. 1.170A-14(j)
through (n) would not preclude the application of any penalty,
including penalties for valuation misstatement, negligence, and fraud.
Proposed Sec. 1.170A-14(j)(5) would also provide that taxpayers who
engage in such transactions may be required to disclose under Sec.
1.6011-4 the transactions as listed transactions.
E. Determination of Relevant Basis
Consistent with section 170(h)(7)(B)(i), proposed Sec. 1.170A-
14(k) would provide that, for purposes of Sec. 1.170A-14, the term
``relevant basis'' means, with respect to any ultimate member, the
portion of such ultimate member's modified basis (as defined in
proposed Sec. 1.170A-14(l)) that is allocable (under the rules of
proposed Sec. 1.170A-14(m)) to the portion of the real property with
respect to which the qualified conservation contribution is made.
1. Modified Basis
Proposed Sec. 1.170A-14(l)(1) would provide that, in the case of
an ultimate member holding a direct interest in a partnership, the
ultimate member's modified basis is determined by such partnership
immediately before the qualified conservation contribution is made in
the manner described in Sec. 1.170A-14(l)(2). In the case of an
ultimate member holding a direct interest in an S corporation, the
ultimate member's modified basis would be determined by such S
corporation in the manner described in Sec. 1.170A-14(l)(3).
a. Modified Basis of Ultimate Members That Are Partners
Consistent with section 170(h)(7)(B)(ii), the proposed regulations
would provide rules that are designed to determine a partner's
[[Page 80917]]
modified basis immediately prior to the qualified conservation
contribution. Without additional guidance under section 706, there may
be situations in which the contribution is allocated to partners that
did not hold an interest at the time of the qualified conservation
contribution. Such partners would not have any bases in their
partnership interests immediately before the contribution, and thus,
without additional rules, their modified bases and relevant bases would
be zero. As discussed later in this preamble, these proposed
regulations would contain rules under section 706 that would treat a
qualified conservation contribution as an extraordinary item under
Sec. 1.706-4(e) that must be allocated only to partners holding an
interest in the partnership at the time of the contribution. Proposed
rules under Sec. 1.706-3 would ensure that only partners holding an
interest in an upper-tier partnership at the time of the contribution
would receive a distributive share of an allocated portion. Thus, all
ultimate members who are partners would be partners at the time of day
the contribution is made. In other words, for a partner to be an
ultimate member, the partner must have been a partner at the time of
day the contribution is made and must have been allocated a
distributive share of that contribution. These proposed rules are
intended to facilitate the computation of modified basis immediately
before the contribution, consistent with section 170(h)(7)(B)(ii)(I).
The proposed regulations would provide a process for determining a
partner's modified basis. Proposed Sec. 1.170A-14(l)(2)(i) would
provide that, for purposes of Sec. 1.170A-14, the term ``modified
basis'' means, with respect to any ultimate member that is a direct
partner in either a contributing partnership or an upper-tier
partnership, such ultimate member's adjusted basis in its interest in
the partnership in which the ultimate member holds a direct interest as
of the beginning of the first day of the partnership's taxable year in
which the qualified conservation contribution is made with adjustments
as determined under proposed Sec. 1.170A-14(l)(2)(ii) through (v).
However, if the ultimate member was not a partner as of the beginning
of the first day of the partnership's taxable year, then the term
``modified basis'' would mean such ultimate member's adjusted basis in
its interest in the partnership immediately after the transaction that
resulted in the ultimate member becoming a partner with adjustments as
determined under proposed Sec. 1.170A-14(l)(2)(ii) through (v). The
Treasury Department and the IRS considered alternatives to this rule,
including simply requiring that ``adjusted basis'' be computed
immediately prior to the contribution. However, adjusted basis is
typically computed as of the beginning of a taxable year, and it may be
unclear to taxpayers how to compute adjusted basis as of another time
during the year. Current regulations generally do not require partners
to compute their adjusted bases in their partnership interests as of
the time events, such as the making of a qualified conservation
contribution, occur. Accordingly, these proposed regulations would
start with a calculation of adjusted basis that partners are familiar
with computing, and then make adjustments to arrive at an amount that
reflects the partner's modified basis immediately before the
contribution.
Proposed Sec. 1.170A-14(l)(2)(ii) through (v) would provide four
adjustments that must be made to a partner's adjusted basis to arrive
at modified basis. These adjustments would be required to be made in
the order in which they are listed. First, proposed Sec. 1.170A-
14(l)(2)(ii) would provide that the computation of modified basis must
start with the ultimate member's adjusted basis under proposed Sec.
1.170A-14(l)(2)(i) and then reflect an increase for any contributions
made by the ultimate member to the partnership during the portion of
the year commencing with the beginning of the taxable year of the
partnership and ending immediately prior to the time of day at which
the qualified conservation contribution is made as provided in section
722 of the Code.
Second, proposed Sec. 1.170A-14(l)(2)(iii) would provide that the
amount determined under proposed Sec. 1.170A-14(l)(2)(ii) must be
adjusted, as provided in section 705 of the Code, by the ultimate
member's hypothetical distributive share of partnership items
attributable to the portion of the year commencing with the beginning
of the taxable year of the partnership and ending immediately prior to
the time of day at which the qualified conservation contribution is
made. For example, if a calendar-year partnership makes a qualified
conservation contribution at 9:17 a.m. on November 19 of Year 1, then
the hypothetical distributive share would be required to be made based
on the partnership items attributable to the period between the
beginning of the day on January 1 Year 1 and 9:16 a.m. on November 19
Year 1. In making this determination, the partnership would be required
to apply the rules of Sec. 1.706-4 and apply a hypothetical interim
closing method to allocate the partnership's items attributable to the
portion of the year commencing with the beginning of the taxable year
of the partnership and ending immediately prior to the time of day at
which the qualified conservation contribution is made. Proposed Sec.
1.170A-14(l)(2)(iii) would provide that the partnership cannot apply
any convention in Sec. 1.706-4(c) to the hypothetical determination of
the partners' distributive shares, but rather must perform the
calculation as though the determination occurred immediately prior to
the time of day at which the qualified conservation contribution is
made. Proposed Sec. 1.170A-14(l)(2)(iii) would clarify that this
hypothetical determination of the partners' distributive shares is only
for purposes of calculating modified basis. Proposed Sec. 1.170A-
14(l)(2)(iii) would also make clear that proposed Sec. 1.170A-14(l)
does not require the partnership to use the interim closing method with
respect to the determination of its partners' actual distributive
shares for the taxable year in which the qualified conservation
contribution is made or otherwise. See section 706(d) and the
regulations thereunder for the permissible methods that may be used in
the determination of the partners' distributive shares for a
partnership taxable year in which there is a variation in a partner's
interest in the partnership. As described later this preamble, proposed
Sec. Sec. 1.706-3(a) and 1.706-4(e)(2)(ix) would provide special rules
for the allocation of qualified conservation contributions.
The Treasury Department and the IRS considered using the partners'
actual distributive shares, determined as of the time of the
contribution. In the case of a partnership using the proration method,
however, such an approach would result in the partners' modified bases
reflecting a portion of partnership items earned or incurred by the
partnership after the time of the contribution, and thus would be
inconsistent with the requirement in section 170(h)(7)(B)(ii)(I) that
partners' modified bases be determined immediately before the
contribution. The Treasury Department and the IRS request comments on
the approach taken in the proposed regulations to determine the
partners' distributive shares of partnership items attributable to the
portion of the year commencing with the beginning of the taxable year
of the partnership and ending immediately prior to the time of day at
which the
[[Page 80918]]
qualified conservation contribution is made.
Third, proposed Sec. 1.170A-14(l)(2)(iv) would provide that the
amount determined under proposed Sec. 1.170A-14(l)(2)(iii) must be
reduced (but not below zero) by any distributions made by the
partnership to the ultimate member during the portion of the year
commencing with the beginning of the taxable year of the partnership
and ending immediately prior to the time of day at which the qualified
conservation contribution is made as provided in section 733 of the
Code.
Fourth, consistent with section 170(h)(7)(B)(ii)(II), proposed
Sec. 1.170A-14(l)(2)(v) would provide that the amount determined under
proposed Sec. 1.170A-14(l)(2)(iv) must be reduced by the full amount
of the ultimate member's share of Sec. 1.752-1 liabilities of any
partnership (including a lower-tier partnership). The remaining amount
would be such ultimate member's modified basis. Thus, under the
proposed regulations, an ultimate member's modified basis may be less
than zero. Under the formulas for the determination of relevant basis
discussed later in this preamble, a negative modified basis will result
in a negative relevant basis. Because the application of the
Disallowance Rule is based on the sum of each ultimate member's
relevant basis, if one ultimate member's relevant basis is negative, it
will be added to all other ultimate members' relevant bases, and the
sum may be a positive or negative number.
b. Modified Basis of Ultimate Members That Are Shareholders in an S
Corporation
Unlike the rules for partnerships discussed previously, S
corporations do not have extraordinary items that must be allocated
only to shareholders as of the time of day the item occurs. Instead,
section 1377 of the Code and existing Sec. 1.1377-1 generally require
pro rata allocations. Section 1.1377-1(a) provides that each
shareholder's pro rata share of any S corporation item described in
section 1366(a) of the Code for any taxable year is the sum of the
amounts determined with respect to the shareholder by assigning an
equal portion of the item to each day of the S corporation's taxable
year, and then dividing that portion pro rata among the shares
outstanding on that day. If a shareholder disposes of its entire
interest in an S corporation, Sec. 1.1377-1(b) allows the S
corporation to make a terminating election, under which the S
corporation will determine the terminating shareholder's share as
though the S corporation's taxable year closed on the day of the
termination. However, there is no extraordinary item rule for S
corporations similar to Sec. 1.706-4(e). As such, it may be the case
that an S corporation allocates a portion of a qualified conservation
contribution to someone that was not a shareholder at the time of the
contribution, but that shareholder would still be treated as an
ultimate member because the shareholder received a pro rata share of
the qualified conservation contribution.
As described previously, the rules for determining a partner's
modified basis start with the partner's adjusted basis at the start of
the partnership's taxable year and work forward to determine modified
basis immediately before the contribution. However, the Treasury
Department and the IRS are concerned that such an approach is not
appropriate for S corporation shareholders, as it could be
unnecessarily burdensome and, in some cases, impossible to determine
each shareholder's modified basis immediately prior to the qualified
conservation contribution (because some ultimate members may not be
shareholders at the time of the contribution). To provide an
administrable standard consistent with the purposes of section
170(h)(7), these proposed regulations would require the computation of
an S corporation shareholder's modified basis under an approach that is
similar in purpose to the approach for partners but different in
application.
Proposed Sec. 1.170A-14(l)(3)(i) would provide that, for purposes
of Sec. 1.170A-14, the term ``modified basis'' means, with respect to
any ultimate member that is a shareholder of either a contributing S
corporation or an upper-tier S corporation, such ultimate member's
adjusted basis in its shares in the S corporation as of the end of the
S corporation's taxable year in which the qualified conservation
contribution is made with adjustments as determined under proposed
Sec. 1.170A-14(l)(3)(ii) and (iii). However, if the ultimate member
was not a shareholder at the end of the S corporation's taxable year in
which the qualified conservation contribution is made, then the term
``modified basis'' would mean such ultimate member's adjusted basis in
its shares in the S corporation immediately prior to the transaction
that terminated its interest in the S corporation with adjustments as
determined under proposed Sec. 1.170A-14(l)(3)(ii) and (iii).
The Treasury Department and the IRS considered several alternatives
to this rule. One method would be to require a determination of a
portion of modified basis for every day during the S corporation's
taxable year, because S corporations generally allocate the
contribution on a pro rata basis among the shareholders on each day of
the taxable year. These proposed regulations do not take that approach
because the Treasury Department and the IRS are concerned that such an
approach, although technically accurate and consistent with the
purposes of section 170(h)(7), would be too burdensome for taxpayers
and difficult for the IRS to administer. The Treasury Department and
the IRS also considered using the shareholders' adjusted bases as of
the beginning of the S corporation's taxable year (rather than as of
the end of the year). However, because qualified conservation
contributions are typically made in the second half of the year,
especially in syndicated transactions, the Treasury Department and the
IRS determined that such an approach would be less accurate than using
the shareholders' adjusted bases as of the end of the year (or a
shareholder's adjusted basis immediately prior to the transaction that
terminated their interest in the S corporation).
Proposed Sec. 1.170A-14(l)(3)(i) would also clarify that modified
basis does not include the ultimate member's adjusted basis of any
indebtedness of the S corporation to the ultimate member.\1\
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\1\ As described previously, section 170(h)(7)(B)(ii)(II)
provides that the determination of modified basis is to be made
without regard to section 752. However, the Code does not contain a
rule substantially similar to section 752 for S corporations. Unlike
a partner's basis in the partner's interest in the partnership, an S
corporation shareholder's basis in stock of the S corporation does
not include any share of the S corporation's liabilities. Under
section 1367(b)(2)(A) of the Code and Sec. 1.1367-2(b), if an S
corporation shareholder's pro rata share of the S corporation's
losses, deductions, noncapital, nondeductible expenses, and certain
oil and gas depletion deductions exceed the shareholder's stock
basis, then these items may reduce the shareholder's basis in
indebtedness owed to them by the S corporation (but not below zero).
Under section 1367(b)(2)(B) and Sec. 1.1367-2(c), if the basis in
indebtedness has been so reduced, then any future net increase must
be applied to restore such reduction in indebtedness basis before
any of it may be used to increase the shareholder's basis in its
stock of the S corporation.
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Proposed Sec. 1.170A-14(l)(3)(ii) and (iii) would provide two
adjustments that must be made to arrive at modified basis. These
adjustments would be required to be made in the order in which they are
listed. First, proposed Sec. 1.170A-14(l)(3)(ii) would provide that
the computation of modified basis must start with the ultimate member's
adjusted basis under proposed Sec. 1.170A-14(l)(3)(i) and then must
reflect an increase for the extent to which the adjusted basis reflects
a reduction as a result of the qualified
[[Page 80919]]
conservation contribution. Thus, the ultimate member's modified basis
with respect to a qualified conservation contribution would not reflect
any reduction for the ultimate member's pro rata share of the S
corporation's basis in the conservation easement or other property
contributed in the qualified conservation contribution. This adjustment
in proposed Sec. 1.170A-14(l)(3)(ii) would be made because it would
not be appropriate or consistent with section 170(h)(7)(B)(ii)(I) for
modified basis, and thus relevant basis, to reflect a reduction for the
very contribution that is being analyzed under the Disallowance Rule as
such an approach might result in deductions being inappropriately
disallowed by the Disallowance Rule.
Second, proposed Sec. 1.170A-14(l)(3)(iii) would provide that the
amount determined under proposed Sec. 1.170A-14(l)(3)(ii) must be
multiplied by the number of days during the S corporation's taxable
year in which the ultimate member was a shareholder and divided by the
total number of days during the S corporation's taxable year. The
resulting amount would be such ultimate member's modified basis.
Inappropriate double counting of relevant basis might occur unless the
proposed regulations provide this rule. For example, assume individual
A owns a portion of the outstanding shares of an S corporation. In
early July, A sells all its shares to B. In December, the S corporation
makes a qualified conservation contribution. Absent a terminating
election under Sec. 1.1377-1(b), the S corporation would allocate some
of the qualified conservation contribution to each of A and B. Unless
A's and B's modified bases (and thus, their relevant bases) are
adjusted to reflect that each was a shareholder for approximately half
of the year, the S corporation's computation of the sum of each of its
ultimate member's relevant basis would be inappropriately overstated.
The Treasury Department and the IRS request comments on whether there
are certain situations in which the divisor should be less than the
full number of days in the S corporation's taxable year. In particular,
the Treasury Department and the IRS request comments on whether, and
how, elections under Sec. Sec. 1.1368-1(g)(2) and 1.1377-1(b) should
result in the divisor being less than the full number of days in the S
corporation's taxable year. It would be particularly helpful for
commenters to address situations in which elections under Sec. Sec.
1.1368-1(g)(2) and 1.1377-1(b) affect some, but not all, of the
shareholders.
Section 170(h)(7)(B)(ii)(III) provides authority for the Secretary
to provide for other adjustments in the computation of modified basis.
The Treasury Department and the IRS request comments on whether any
additional adjustments to arrive at modified basis would be
appropriate.
The proposed regulations also contain examples illustrating the
determination of modified basis. Comments are requested on whether it
would be helpful to add examples with other factual scenarios.
2. Allocation of Modified Basis and Determination of Relevant Basis
Proposed Sec. 1.170A-14(m) would provide rules for determining the
portion of an ultimate member's modified basis that is allocable to the
portion of the real property with respect to which the contribution is
made, which is the final step in the determination of relevant basis.
Section 170(h)(7)(B)(i) provides that the allocation is made under
rules similar to the rules of section 755. Section 755 provides rules
for allocating special basis adjustments to partnership property
resulting from partnership distributions or transfers of partnership
interests, such as adjustments under section 734(b) of the Code and
adjustments under section 743(b) of the Code.
Section 755(a) generally provides that any increase or decrease in
the adjusted basis of partnership property under section 734(b)
(relating to the optional adjustment to the basis of undistributed
partnership property) or section 743(b) (relating to the optional
adjustment to the basis of partnership property in the case of a
transfer of an interest in a partnership) is allocated (1) in a manner
that reduces the difference between the fair market value and the
adjusted basis of partnership properties, or (2) in any other manner
permitted by regulations. The regulations under section 755 provide
rules for performing these allocations. Those rules can be complex and
involve several different methods for allocating basis adjustments
among the partnership's properties, including:
(1) Allocating in a manner that reduces the difference between the
fair market value and the adjusted basis of partnership properties. See
Sec. 1.755-1(b)(2)(i) and (b)(3).
(2) Allocating in proportion to the transferee's share of the
amount that would be realized by the partnership upon the hypothetical
sale of each property. See Sec. 1.755-1(b)(5)(iii)(A).
(3) Allocating in proportion to the fair market values of the
partnership's properties. See Sec. 1.755-1(c)(2)(i).
(4) Allocating in proportion to the partnership's adjusted bases in
its properties. See Sec. 1.755-1(c)(2)(ii).
(5) Allocating in proportion to the partner's share of the adjusted
bases in the partnership's properties. See Sec. 1.755-1(b)(5)(iii)(B).
In considering which of these allocation rules would be most
appropriate to determine relevant basis, the Treasury Department and
the IRS considered the special basis adjustment and loss limitation
rules for charitable contributions. Those rules look to a partner's or
shareholder's share of the partnership's or S corporation's basis in
the contributed property.
Generally, section 705(a)(2) provides that the adjusted basis of a
partner's interest in a partnership is decreased (but not below zero)
by distributions by the partnership and by the sum of the partner's
distributive share for the taxable year and prior taxable years of (1)
losses of the partnership, and (2) expenditures of the partnership not
deductible in computing its taxable income and not properly chargeable
to capital account. Generally, when a partnership makes a charitable
contribution, the partners are not required to reduce their adjusted
bases in their partnership interests by the fair market value of the
contribution. Instead, Revenue Ruling 96-11, 1996-1 C.B. 140, provides
that after a partnership makes a charitable contribution of property,
the basis of each partner's interest in the partnership is decreased
(but not below zero) by the partner's share of the partnership's basis
in the property contributed. Revenue Ruling 96-11 explains that
reducing the partners' bases in their partnership interests by their
respective shares of the permanent decrease in the partnership's basis
in its properties preserves the intended benefit of providing a
deduction (in circumstances not under section 170(e)) for the fair
market value of appreciated property without recognition of the
appreciation. In contrast, reducing the partners' bases in their
partnership interests by the fair market value of the contributed
property would subsequently cause the partners to recognize gain (or a
reduced loss), for example, upon a disposition of their partnership
interests, attributable to the unrecognized appreciation in the
contributed property at the time of the contribution.
The partnership loss limitation rules in section 704(d) of the Code
have a similar rule for charitable contributions. Generally, section
704(d)(1) provides that a partner's distributive share of partnership
loss is allowed only to the
[[Page 80920]]
extent such partner's adjusted basis in its partnership interest at the
end of the partnership year in which such loss occurred. Section
704(d)(3)(A) provides, in part, that in determining the amount of any
loss under section 704(d)(1), the partner's distributive share of
charitable contributions as defined in section 170(c) must be taken
into account. However, section 704(d)(3)(B) provides that, in the case
of a charitable contribution of property whose fair market value
exceeds its adjusted basis, section 704(d)(3)(A) does not apply to the
extent of the partner's distributive share of such excess.
The rules for S corporations also look to the shareholder's share
of the S corporation's basis in the contributed property. Section
1367(a)(2)(B) of the Code provides that the basis of each shareholder's
stock is reduced by the items of loss and deduction described in
section 1366(a)(1)(A). However, the second sentence of section
1367(a)(2) provides that the decrease in basis under section
1367(a)(2)(B) by reason of a charitable contribution (as defined in
section 170(c)) of property is the amount equal to the shareholder's
pro rata share of the adjusted basis of such property.\2\
---------------------------------------------------------------------------
\2\ Whether a qualified conservation contribution is a
disallowed qualified conservation contribution has no effect on the
application of sections 705 and 1367 to the contribution. These
basis reductions remain required regardless of whether a qualified
conservation contribution is a disallowed qualified conservation
contribution.
---------------------------------------------------------------------------
Generally, section 1366(d)(1) provides that the aggregate amount of
losses and deductions taken into account by a shareholder under section
1366(a) for any taxable year cannot exceed the sum of (1) the adjusted
basis of the shareholder's stock in the S corporation, and (2) the
shareholder's adjusted basis of any indebtedness of the S corporation
to the shareholder. However, section 1366(d)(4) provides that, in the
case of any charitable contribution of property to which the second
sentence of section 1367(a)(2) applies, section 1366(d)(1) does not
apply to the extent of the excess (if any) of (1) the shareholder's pro
rata share of such contribution, over (2) the shareholder's pro rata
share of the adjusted basis of such property. See also Rev. Rul. 2008-
16, 2008-1 C.B. 585.
Therefore, generally partnerships and S corporations making
charitable contributions are already required to track each partner's
and shareholder's share of the entity's basis in the contributed
property. And as noted previously, in certain circumstances the rules
under section 755 also look to the partner's share of the partnership's
basis in its properties. Accordingly, as described in this section of
the preamble, these proposed regulations would require the allocation
of an ultimate member's modified basis to the portion of the real
property with respect to which the qualified conservation contribution
is made to be based on the ultimate member's share of the entity's
bases in its properties. This provides an administrable standard
consistent with the purposes of section 170(h)(7).
The Treasury Department and the IRS considered alternatives to this
rule. In particular, the Treasury Department and the IRS considered
simply cross-referencing the rules under section 755. Under that
alternative approach, the amount of each partner's modified basis would
be treated for purposes of the computation of relevant basis as a
special basis adjustment under section 734(b) or section 743(b);
relevant basis would be the portion of modified basis that would be
allocated under the rules of section 755 to the portion of the real
property with respect to which the contribution was made. Such an
approach would be less consistent with the purposes of the Disallowance
Rule. As noted previously, basis allocations under section 755 are
sometimes made in a way to reduce or eliminate built-in gain or loss in
partnership property. The relevant basis rule of section 170(h)(7) is
designed to determine the portion of a partner's modified basis that is
allocable to the portion of the real property with respect to which the
contribution is made, which is a broader and, generally, different
concept than determining the partner's share of built-in gain or loss
in that property. The approach in the proposed regulations is similar
to the rules of section 755 and consistent with the rule of section
170(h)(7)(B)(i). The Treasury Department and the IRS request comments
on whether another acceptable allocation approach would be easier or
more administrable.
Proposed Sec. 1.170A-14(m)(1) would provide that the allocation of
an ultimate member's modified basis to the portion of the real property
with respect to which the qualified conservation contribution is made
must be made in accordance with proposed Sec. 1.170A-14(m). Rules for
allocating an ultimate member's modified basis in a contributing
partnership would be provided in proposed Sec. 1.170A-14(m)(2). Rules
for allocating an ultimate member's modified basis in a contributing S
corporation would be provided in proposed Sec. 1.170A-14(m)(3). Rules
for allocating an ultimate member's modified basis in an upper-tier
partnership would be provided in proposed Sec. 1.170A-14(m)(4). Rules
for allocating an ultimate member's modified basis in an upper-tier S
corporation would be provided in proposed Sec. 1.170A-14(m)(5).
Records would be required to be kept in accordance with proposed Sec.
1.170A-14(m)(6).
a. Determination of Relevant Basis for an Ultimate Member Holding a
Direct Interest in a Contributing Partnership
Proposed Sec. 1.170A-14(m)(2)(i) through (iii) would provide a
narrative rule applicable in the case of an ultimate member holding a
direct interest in a contributing partnership and would provide that a
contributing partnership must determine each such ultimate member's
relevant basis as provided therein. Relevant basis would equal each
ultimate member's modified basis as determined under proposed Sec.
1.170A-14(l)(2) multiplied by a fraction (1) the numerator of which is
the ultimate member's share of the contributing partnership's adjusted
basis in the portion of the real property with respect to which the
qualified conservation contribution is made as determined under
proposed Sec. 1.170A-14(m)(2)(ii); and (2) the denominator of which is
the ultimate member's portion of the adjusted basis in all the
contributing partnership's properties as determined under proposed
Sec. 1.170A-14(m)(2)(iii).
The Treasury Department and the IRS note that this numerator
determines the ultimate member's share of the contributing
partnership's adjusted basis in the portion of the real property with
respect to which the qualified conservation contribution is made, which
is what is required by the statute, but may be different than the
ultimate member's share of the contributing partnership's adjusted
basis in the contributed property. As noted previously, section 704(d)
and Revenue Ruling 96-11 require a partner's basis in its interest in
the partnership to be decreased (but not below zero) by the partner's
share of the partnership's basis in the contributed property. For
example, assume a partnership owns 100 acres of real property, and
grants a conservation easement that is a qualified conservation
contribution on 60 of those acres. Assume the partnership's adjusted
basis in the 100 acres is $100,000, its adjusted basis in the 60 acres
is $60,000, and its adjusted basis in the conservation easement itself
is $45,000. Section 705(a)(2)(B) and Revenue Ruling 96-11 would require
each partner's basis in its interest in the partnership to be decreased
(but not below zero) by the partner's share of the partnership's
$45,000 basis in the easement. On the other hand, the
[[Page 80921]]
computation of each ultimate member's relevant basis would look to the
ultimate member's share of the partnership's $60,000 basis in the 60
acres (the portion of the real property with respect to which the
qualified conservation contribution was made). As described in the
following paragraphs, these proposed regulations would provide
computational rules for determining an ultimate member's share of the
contributing partnership's adjusted basis in the portion of the real
property with respect to which the qualified conservation contribution
is made. The Treasury Department and the IRS request comments on
whether these computations generally align with the methods used by
partnerships to determine each partner's share of the partnership's
basis in the contributed property for purposes of sections 704(d) and
705(a)(2)(B) and Revenue Ruling 96-11. In terms of the example in this
paragraph, the Treasury Department and the IRS request comments on
whether the rules in the proposed regulations for determining each
ultimate member's share of the partnership's $60,000 basis in the 60
acres align with the way in which the partnership would determine each
partner's share of the partnership's $45,000 basis in the conservation
easement for purposes of applying sections 704(d) and 705(a)(2)(B) and
Revenue Ruling 96-11.
Proposed Sec. 1.170A-14(m)(2)(ii) would provide that, for purposes
of proposed Sec. 1.170A-14(m), an ultimate member's share of the
contributing partnership's adjusted basis in the portion of the real
property with respect to which the qualified conservation contribution
is made equals the contributing partnership's adjusted basis in the
portion of the real property with respect to which the qualified
conservation contribution is made multiplied by a fraction (1) the
numerator of which is the ultimate member's distributive share of the
qualified conservation contribution; and (2) the denominator of which
is the total amount of the contributing partnership's qualified
conservation contribution.
The Treasury Department and the IRS considered several alternatives
to this rule, including determining the ultimate member's share of the
contributing partnership's adjusted basis in the property based on the
ultimate member's share of gain, loss, and cash distributions
attributable to the property. However, there may be situations in which
the allocation of a qualified conservation contribution does not match
the partners' shares of gain, loss, or cash distributions with respect
to the property. Accordingly, the Treasury Department and the IRS
determined that such an approach would be less accurate. In addition,
the proposed rule would be less burdensome for taxpayers and more
easily administrable for the IRS because it would be based on the
partnership's actual allocation of the contribution, rather than on a
hypothetical sale of the property.
Proposed Sec. 1.170A-14(m)(2)(iii) would provide that, for
purposes of proposed Sec. 1.170A-14(m), an ultimate member's portion
of the adjusted basis in all the contributing partnership's properties
is equal to the sum of: (1) the ultimate member's share of the
contributing partnership's adjusted basis in the portion of the real
property with respect to which the qualified conservation contribution
is made as determined under proposed Sec. 1.170A-14(m)(2)(ii), plus
(2) the ultimate member's portion of the adjusted basis in all the
contributing partnership's properties other than the portion of the
real property with respect to which the qualified conservation
contribution is made. Proposed Sec. 1.170A-14(m)(2)(iii) would provide
that, to determine the ultimate member's share of the adjusted basis in
all the contributing partnership's properties, the contributing
partnership must apportion among its partners in accordance with their
interests in the partnership under section 704(b) its adjusted basis in
each of its properties (except the portion of the real property with
respect to which the qualified conservation contribution is made),
using the adjusted bases immediately before the qualified conservation
contribution, without duplication or omission of any property, and by
treating the adjusted basis in each property as not less than zero.
The Treasury Department and the IRS considered alternatives to this
rule, including determining the ultimate member's portion of the
partnership's adjusted basis in all its properties in accordance with
Sec. 1.743-1(d), which provides for the determination of a transferee
partner's share of the partnership's adjusted basis of its property for
purposes of computing special basis adjustments under section 743(b).
The Treasury Department and the IRS also considered determining the
ultimate member's portion of the partnership's adjusted basis in all
its properties in proportion to the ultimate member's share of the
built-in gain in each of the partnership's properties. The Treasury
Department and the IRS determined that these approaches would be more
complex and could reach results that are less accurate for purposes of
the Disallowance Rule. In particular, as previously mentioned, the
partnership's allocation of the qualified conservation contribution
might differ from the way that the partnership would allocate gain and
loss and make cash distributions with respect to the contributed
property. Moreover, these approaches would require the partnership to
obtain a valuation of each of its properties at the time of the
qualified conservation contribution. The Treasury Department and the
IRS also considered an approach under which each ultimate member's
portion of the partnership's adjusted basis in all its properties would
be determined in proportion to the ultimate member's share of the
qualified conservation contribution. Although such an approach would be
simpler than using the partners' interests in the partnership, it would
be less accurate. The Treasury Department and the IRS also considered
an approach based on section 704(b) capital accounts. However, not all
partnerships use the section 704(b) capital account safe harbor, and
such an approach would also require a revaluation of partnership
properties as of the time of the contribution. The Treasury Department
and the IRS also considered a rule based on how the partnership would
allocate depreciation from the properties, similar to the rule in Sec.
1.199A-2(a)(3)(ii). However, such a rule would not address property
that is not depreciable. The Treasury Department and the IRS request
comments on these proposed rules and alternatives.
Proposed Sec. 1.170A-14(m)(2)(iv) would provide a formulaic
version of the narrative rules in proposed Sec. 1.170A-14(m)(2)(i)
through (iii).
b. Determination of Relevant Basis for an Ultimate Member Holding a
Direct Interest in a Contributing S Corporation
Proposed Sec. 1.170A-14(m)(3)(i) would provide a narrative rule
for the determination of relevant basis for an ultimate member holding
a direct interest in a contributing S corporation. It would provide
that a contributing S corporation must determine each such ultimate
member's relevant basis as provided therein. Relevant basis would equal
each ultimate member's modified basis as determined under proposed
Sec. 1.170A-14(l)(3) multiplied by a fraction (1) the numerator of
which is the ultimate member's pro rata portion of the contributing S
corporation's adjusted basis in the portion of the real property with
respect to which the qualified conservation contribution is made; and
(2) the denominator of which is the ultimate member's pro rata portion
of the adjusted basis in all the
[[Page 80922]]
contributing S corporation's properties (including the portion of the
real property with respect to which the qualified conservation
contribution is made). The Treasury Department and the IRS request
comments on whether this rule is sufficiently clear, and whether
additional rules are needed regarding the time at which the pro rata
portions of bases are determined. For example, the regulations could
provide that these determinations are made as of the time of the
qualified conservation contribution; however, in the event that an
ultimate member is not a shareholder at that time, it would be unclear
when the determination is to be made.
Proposed Sec. 1.170A-14(m)(3)(ii) would provide a formulaic
version of the narrative rules in proposed Sec. 1.170A-14(m)(3)(i).
c. Determination of Relevant Basis for an Ultimate Member Holding a
Direct Interest in an Upper-Tier Partnership
Proposed Sec. 1.170A-14(m)(4) would provide rules for determining
the relevant basis of an ultimate member holding a direct interest in
an upper-tier partnership. Proposed Sec. 1.170A-14(m)(4)(i) would
provide that each such ultimate member's modified basis must be traced
through all upper-tier partnerships to the contributing partnership,
and the contributing partnership must determine the relevant basis.
This would involve a multi-step process under which, beginning with the
upper-tier partnership in which the ultimate member holds a direct
interest, each upper-tier partnership would be required to perform
calculations, and then finally the contributing partnership would be
required to use those calculations to compute the ultimate member's
relevant basis. For simplicity, proposed Sec. 1.170A-14(m)(4) would
describe a situation in which there are two tiers of partnerships--a
contributing partnership and an upper-tier partnership. Proposed Sec.
1.170A-14(m)(4)(i) would provide that, in a situation involving more
tiers, each partnership must apply the rules and principles of proposed
Sec. 1.170A-14(m)(4) iteratively to determine relevant basis. In a
tiered structure, the determination of relevant basis should reflect
the basis of the ultimate members that intend to claim a portion of the
deduction and thus, cannot be done without computations at the level of
each entity. The Treasury Department and the IRS request comments on
whether, and how, these rules can be simplified, and whether any
additional rules are necessary to prevent the avoidance of the
Disallowance Rule in tiered structures.
Proposed Sec. 1.170A-14(m)(4)(ii)(A) would provide a narrative
rule for the upper-tier partnership. It would provide that the upper-
tier partnership must determine the portion of each ultimate member's
modified basis that is allocable to the upper-tier partnership's
interest in the partnership in which it holds a direct interest (in a
situation involving only two tiers of partnerships, that would be the
contributing partnership). This proposed regulation would require this
determination to be made in accordance with the principles of proposed
Sec. 1.170A-14(m)(2), and the formula provided in proposed Sec.
1.170A-14(m)(4)(ii)(B). In other words, the formula provided in
proposed Sec. 1.170A-14(m)(4)(ii)(B) would be similar to the formula
provided in proposed Sec. 1.170A-14(m)(2)(iv), except that, instead of
determining the portion of modified basis that is allocable to the
portion of the real property with respect to which the qualified
conservation contribution is made, the formula in proposed Sec.
1.170A-14(m)(4)(ii)(B) would determine the portion of modified basis
that is allocable to the upper-tier partnership's interest in the next
lower-tier partnership. As explained in proposed Sec. 1.170A-
14(m)(4)(iii), the contributing partnership then would be required to
use the amount determined as the result of the formula in proposed
Sec. 1.170A-14(m)(4)(ii)(B) in another set of computations that would
determine the portion of modified basis that is allocable to the
portion of the real property with respect to which the qualified
conservation contribution is made.
Proposed Sec. 1.170A-14(m)(4)(ii)(B) would provide that the rule
of proposed Sec. 1.170A-14(m)(4)(ii) is also expressed in the
following formula: \3\
---------------------------------------------------------------------------
\3\ Under the order of operations for mathematical computations,
operations contained in parenthesis (such as the addition of J and
U) are performed before the rest of the equation.
---------------------------------------------------------------------------
G = M x (U / (J + U))
Where:
G = The portion of the ultimate member's modified basis that is
allocable to the upper-tier partnership's interest in the
contributing partnership.
M = Modified basis as determined under proposed Sec. 1.170A-14(l).
J = Ultimate member's portion of the adjusted basis in all the
upper-tier partnership's properties (other than the upper-tier
partnership's interest in the contributing partnership), determined
by apportioning among the partners of the upper-tier partnership in
accordance with their interests in the partnership under section
704(b) its adjusted basis in each of its properties (other than the
upper-tier partnership's interest in the contributing partnership),
using the adjusted bases immediately before the qualified
conservation contribution, without duplication or omission of any
property, and by treating the adjusted basis in each property as not
less than zero.
U = Ultimate member's share of the upper-tier partnership's adjusted
basis in its interest in the contributing partnership, determined
according to the following formula: H x (B / K).
H = Upper-tier partnership's adjusted basis in its interest in the
contributing partnership.
B = Ultimate member's distributive share of the qualified
conservation contribution.
K = Upper-tier partnership's allocated portion of the qualified
conservation contribution.
After this formula is computed, then the contributing partnership
must perform computations using the amount determined for item ``G'' to
determine relevant basis. Proposed Sec. 1.170A-14(m)(4)(iii)(A) would
provide a narrative rule for the contributing partnership to complete
this second step. It would provide that the contributing partnership
must determine the portion of the amount determined under proposed
Sec. 1.170A-14(m)(4)(ii) with respect to each ultimate member that is
allocable to the portion of the real property with respect to which the
qualified conservation contribution is made. The proposed regulations
would require this determination to be made in accordance with the
principles of proposed Sec. 1.170A-14(m)(2), and the formula provided
in proposed Sec. 1.170A-14(m)(4)(iii)(B).
Proposed Sec. 1.170A-14(m)(4)(iii)(B) would provide that the rule
of proposed Sec. 1.170A-14(m)(4)(iii) is also expressed in the
following formula:
R = G x (V / (L + V))
Where:
R = Relevant basis.
G = Amount determined with respect to item G as described previously
under proposed Sec. 1.170A-14(m)(4)(ii)(B).
L = Upper-tier partnership's portion of adjusted basis in all the
contributing partnership's properties (other than the portion of the
real property with respect to which the qualified conservation
contribution is made), determined by apportioning among the partners
of the contributing partnership in accordance with their interests
in the partnership under section 704(b) its adjusted basis in each
of its properties (except the portion of the real property with
respect to which the qualified conservation contribution is made),
using the adjusted bases immediately before the qualified
conservation contribution, without duplication or omission of any
property, and by treating the adjusted basis in each property as not
less than zero.
[[Page 80923]]
V = Upper-tier partnership's share of the contributing partnership's
adjusted basis in the portion of the real property with respect to
which the qualified conservation contribution is made, determined
according to the following formula: A x (K / C).
A = Contributing partnership's adjusted basis in the portion of the
real property with respect to which the qualified conservation
contribution is made.
K = Upper-tier partnership's allocated portion of the qualified
conservation contribution.
C = Total amount of the contributing partnership's qualified
conservation contribution.
d. Determination of Relevant Basis for an Ultimate Member Holding a
Direct Interest in an Upper-Tier S Corporation
Proposed Sec. 1.170A-14(m)(5) would provide rules for determining
relevant basis for an ultimate member holding a direct interest in an
upper-tier S corporation. Proposed Sec. 1.170A-14(m)(5)(i) would
provide that each such ultimate member's modified basis must be traced
through the upper-tier S corporation and any upper-tier partnerships to
the contributing partnership, and the contributing partnership must
determine the relevant basis. This would involve a multi-step process
under which, beginning with the upper-tier S corporation, the upper-
tier S corporation and any upper-tier partnerships would be required to
perform calculations, and then finally the contributing partnership
would be required to use those calculations to compute the ultimate
member's relevant basis. For simplicity, proposed Sec. 1.170A-14(m)(5)
would describe a situation in which there are two tiers--a contributing
partnership and an upper-tier S corporation. Proposed Sec. 1.170A-
14(m)(5)(i) would provide that, in a situation involving more tiers,
each partnership and the upper-tier S corporation must apply the rules
and principles of proposed Sec. 1.170A-14(m) iteratively to determine
relevant basis.
Proposed Sec. 1.170A-14(m)(5)(ii)(A) would provide a narrative
rule for the upper-tier S corporation. It would provide that the upper-
tier S corporation must determine the portion of each ultimate member's
modified basis that is allocable to the upper-tier S corporation's
interest in the partnership in which it holds a direct interest (in a
situation involving only two tiers, that would be the contributing
partnership). The proposed regulations would require this determination
to be made in accordance with the principles of proposed Sec. 1.170A-
14(m)(3), and the formula provided in proposed Sec. 1.170A-
14(m)(5)(ii)(B). In other words, the formula provided in proposed Sec.
1.170A-14(m)(5)(ii)(B) would be similar to the formula provided in
proposed Sec. 1.170A-14(m)(3)(ii), except that, instead of determining
the portion of modified basis that is allocable to the portion of the
real property with respect to which the qualified conservation
contribution is made, the formula in proposed Sec. 1.170A-
14(m)(5)(ii)(B) would determine the portion of modified basis that is
allocable to the upper-tier S corporation's interest in the next lower-
tier partnership. As explained in proposed Sec. 1.170A-14(m)(5)(iii),
the contributing partnership then would be required to use the amount
determined as the result of the formula in proposed Sec. 1.170A-
14(m)(5)(ii)(B) in another set of computations that would determine the
portion of modified basis that is allocable to the portion of the real
property with respect to which the qualified conservation contribution
is made.
Proposed Sec. 1.170A-14(m)(5)(ii)(B) would provide that the rule
of proposed Sec. 1.170A-14(m)(5)(ii) is also expressed in the
following formula:
N = M x (P / Q)
Where:
N = Portion of the ultimate member's modified basis that is
allocable to the upper-tier S corporation's interest in the
contributing partnership.
M = Modified basis as determined under proposed Sec. 1.170A-14(l).
P = Ultimate member's pro rata portion of the upper-tier S
corporation's adjusted basis in its interest in the contributing
partnership.
Q = Ultimate member's pro rata portion of the adjusted basis in all
the upper-tier S corporation's properties (including the upper-tier
S corporation's interest in the contributing partnership).
After this formula is computed, then the contributing partnership
must perform computations using the amount determined for item ``N'' to
determine relevant basis. Proposed Sec. 1.170A-14(m)(5)(iii)(A) would
provide a narrative rule for the contributing partnership to compute
this second step. It would provide that the contributing partnership
must determine the portion of the amount determined under proposed
Sec. 1.170A-14(m)(5)(ii) with respect to each ultimate member that is
allocable to the portion of the real property with respect to which the
qualified conservation contribution is made. The proposed regulations
would require this determination to be made in accordance with the
principles of proposed Sec. 1.170A-14(m)(2), and the formula provided
in proposed Sec. 1.170A-14(m)(5)(iii)(B).
Proposed Sec. 1.170A-14(m)(5)(iii)(B) would provide that the rule
of proposed Sec. 1.170A-14(m)(5)(iii) is also expressed in the
following formula:
R = N x (W / (S + W))
Where:
R = Relevant basis.
N = Amount determined with respect to item N as described previously
under proposed Sec. 1.170A-14(m)(5)(ii)(B).
S = Upper-tier S corporation's portion of the adjusted basis in all
the contributing partnership's properties (other than the portion of
the real property with respect to which the qualified conservation
contribution is made), determined by apportioning among the partners
of the contributing partnership in accordance with their interests
in the partnership under section 704(b) its adjusted basis in each
of its properties (other than the portion of the real property with
respect to which the qualified conservation contribution is made),
using the adjusted bases immediately before the qualified
conservation contribution, without duplication or omission of any
property, and by treating the adjusted basis in each property as not
less than zero.
W = Upper-tier S corporation's share of the contributing
partnership's adjusted basis in the portion of the real property
with respect to which the qualified conservation contribution is
made, determined according to the following formula: A x (Y / C).
A = Contributing partnership's adjusted basis in the portion of the
real property with respect to which the qualified conservation
contribution is made.
Y = Upper-tier S corporation's distributive share of the qualified
conservation contribution.
C = Total amount of the contributing partnership's qualified
conservation contribution.
The proposed regulations would provide examples illustrating these
rules. The Treasury Department and the IRS request comments on the
determination of relevant basis.
3. Recordkeeping Requirements
Proposed Sec. 1.170A-14(m)(6) would provide that contributing
partnerships, contributing S corporations, upper-tier partnerships, and
upper-tier S corporations must each maintain dated, written statements
in their books and records, by the due date, including extensions, of
their Federal income tax returns, substantiating the computation of
each ultimate member's adjusted basis, modified basis, and relevant
basis. It would also provide that these statements need not be
maintained (nor does modified basis or relevant basis need to be
computed) with respect to contributions that meet an exception in
proposed Sec. 1.170A-14(n)(2) (contributions outside a three-year
holding period) or (n)(3) (family pass-
[[Page 80924]]
through entities). However, these statements must be maintained with
respect to contributions that meet the exception in proposed Sec.
1.170A-14(n)(4) for certified historic structures because section
170(f)(19) imposes special reporting requirements for such
contributions if they exceed 2.5 times the sum of relevant basis.
F. Exceptions to the Disallowance Rule
Consistent with section 170(h)(7)(C), (D), and (E), the rules in
proposed Sec. 1.170A-14(n) would provide definitions and additional
guidance relating to the three exceptions to the Disallowance Rule. It
would also provide that there is no presumption that such a
contribution otherwise is compliant with section 170, any other section
of the Code, or the regulations or any other guidance thereunder; being
described in proposed Sec. 1.170A-14(n) is not a safe harbor for
purposes of any other provision of law or with respect to the value of
the contribution; such transactions are subject to adjustment or
disallowance for any other reason, including failure to satisfy the
other requirements of section 170 and overvaluation of the
contribution; and taxpayers who engage in such transactions may be
required to disclose under Sec. 1.6011-4 the transactions as listed
transactions.
1. Exception for Contributions Outside Three-Year Holding Period
Consistent with section 170(h)(7)(C), proposed Sec. 1.170A-
14(n)(2)(i) would provide that Sec. 1.170A-14(j) does not apply to any
qualified conservation contribution by a contributing partnership or
contributing S corporation that is made at least three years after the
latest of (1) the last date on which the contributing partnership or
contributing S corporation acquired any portion of the real property
with respect to which such qualified conservation contribution is made,
(2) the last date on which any partner in the contributing partnership
or shareholder in the contributing S corporation acquired any interest
in such partnership or S corporation, and (3) if the interest in the
contributing partnership is held through one or more upper-tier
partnerships or upper-tier S corporations (A) the last date on which
any such upper-tier partnership or upper-tier S corporation acquired
any interest in the contributing partnership or any other such upper-
tier partnership, and (B) the last date on which any partner or
shareholder in any such upper-tier partnership or upper-tier S
corporation acquired any interest in such upper-tier partnership or
upper-tier S corporation.
Neither section 605 of SECURE 2.0 Act nor section 170 defines the
phrase ``acquired any interest.'' An acquisition of an interest in a
partnership can occur in several ways, including by inheritance,
purchase from an existing partner, in a section 721 exchange with the
partnership, in exchange for the provision of services, or as a
distribution from an upper-tier partnership. An existing partner can
also acquire additional interests in the partnership. In addition, one
partner's complete or partial disposition of an interest in the
partnership can be economically similar to the acquisition of an
interest in the partnership by the remaining partners. For example, if
a partnership makes a distribution that reduces one partner's interest
in the profits or losses of the partnership, the remaining partners'
interests, in the aggregate, may increase in the same manner as if they
had acquired additional interests in the partnership.
The rules under section 706(c) and (d) address partnership
allocations in situations involving variations in partners' interests
attributable to acquisitions and dispositions. Section 1.706-4(a)(1)
provides rules for determining the partners' distributive shares of
partnership items when a partner's interest in a partnership varies
during the taxable year as a result of the disposition of a partial or
entire interest in a partnership as described in Sec. 1.706-1(c)(2)
and (3),\4\ or with respect to a partner whose interest in a
partnership is reduced as described in Sec. 1.706-1(c)(3), including
by the entry of a new partner, collectively referred to as a
``variation.'' Generally, a variation includes any acquisition, partial
disposition, or complete disposition of an interest in the partnership.
However, Sec. 1.706-4(b)(1) provides that the rules in Sec. 1.706-
4(a)(3) do not preclude changes in the allocations of the distributive
share of items described in section 702(a) among contemporaneous
partners, provided that any variation in a partner's interest is not
attributable to a contribution of money or property by a partner to the
partnership or a distribution of money or property by the partnership
to a partner, and the allocations resulting from the modification
satisfy the requirements in section 704(b) and the regulations
thereunder. Generally, partnerships are familiar with the rules under
Sec. 1.706-4 because they must apply such rules in computing
allocations whenever there is an acquisition or disposition of a
partner's interest during the taxable year.
---------------------------------------------------------------------------
\4\ Section 1.706-1(c)(2) provides in part that a partnership
taxable year closes with respect to a partner who sells or exchanges
the partner's entire interest in the partnership, with respect to a
partner whose entire interest in the partnership is liquidated, and
with respect to a partner who dies. Section 1.706-1(c)(3) provides
that if a partner sells or exchanges a part of the partner's
interest in a partnership, or if the interest of a partner is
reduced, the partnership taxable year continues to its normal end.
---------------------------------------------------------------------------
The definition of ``variation'' in Sec. 1.706-4 would provide an
administrable standard consistent with the purposes of section
170(h)(7)(C). Accordingly, proposed Sec. 1.170A-14(n)(2)(ii) would
provide that, for purposes of Sec. 1.170A-14(n)(2), an acquisition of
any interest in a partnership is any ``variation'' within the meaning
of that term in Sec. 1.706-4(a)(1); however, a variation would not
include a change in allocations that satisfies the requirements of
Sec. 1.706-4(b)(1). The Treasury Department and the IRS considered
alternatives to this rule, including defining acquisition as any
acquisition by purchase, contribution, or gift. However, because
certain other transactions such as redemptions and abandonments may
reach results that are substantively similar to an acquisition by
purchase, contribution, or gift, the Treasury Department and the IRS
determined that the variation rules of Sec. 1.706-4 would be more
appropriate in this context.
Proposed Sec. 1.170A-14(n)(2)(iii) would define an acquisition of
any interest in an S corporation as any transfer, issuance, redemption,
or other disposition of stock in the S corporation; however, an
acquisition would not include any issuance or redemption involving all
shareholders that does not affect the proportionate ownership of any
shareholder (for example, a stock split). The Treasury Department and
the IRS considered alternatives to this rule, including defining
acquisition as any acquisition by purchase, contribution, or gift.
However, because certain other transactions such as redemptions and
abandonments may reach results that are substantively similar to an
acquisition by purchase, contribution, or gift, the Treasury Department
and the IRS determined that the proposed rule would be more appropriate
in this context.
Proposed Sec. 1.170A-14(n)(2)(iv) would provide that, if the
contributing partnership or contributing S corporation does not satisfy
the requirements of proposed Sec. 1.170A-14(n)(2), then proposed Sec.
1.170A-14(n)(2) would not apply to any person who receives a
distributive share or pro rata share of the qualified conservation
[[Page 80925]]
contribution (including an upper-tier partnership or upper-tier S
corporation), regardless of whether the person receiving such
distributive share or pro rata share would have satisfied the
requirements of proposed Sec. 1.170A-14(n)(2) if the person had been
the one to make the qualified conservation contribution. The Treasury
Department and the IRS considered alternatives to this rule, such as
allowing upper-tier partnerships and upper-tier S corporations to apply
the three-year-holding-period exception even if the contributing
partnership failed to satisfy the exception. Such an approach, however,
would be inconsistent with section 170(h)(7)(C), which explicitly
applies the holding period requirements to the contributing
partnership.
The proposed regulations contain two examples illustrating these
rules. The Treasury Department and the IRS request comments on whether
any additional rules or examples should be provided for the three-year
holding period exception.
2. Exception for Family Pass-Through Entities
As mentioned earlier, section 170(h)(7)(D)(i) provides the
Disallowance Rule does not apply to any contribution made by any
partnership if substantially all of the partnership interests in such
partnership are held, directly or indirectly, by an individual and
members of the family of such individual. The Treasury Department and
the IRS are aware that the meaning of the term ``substantially all'' in
section 170(h)(7)(D)(i) may not be clear and that such ambiguity could
impair taxpayers' ability to determine whether they qualify for the
family pass-through entity exception. For purposes of applying
different provisions of the Code that also use that term, various
Income Tax Regulations define the term ``substantially all'' as
comprising different percentages, including: 70 percent (Sec.
1.1400Z2(d)-2(d)(4)); 80 percent (Sec. Sec. 1.41-2(d)(2), 1.41-
4(a)(6)); 85 percent (Sec. Sec. 1.45D-1(c)(5), 1.72(e)-1T, Q&A 3;
1.528-4(b) and (c)); 90 percent (Sec. Sec. 1.103-8(a)(1)(i), 1.103-
16(c), 1.731-2(c)(3)(i); 1.1400Z2(d)-2(d)(3)); and 95 percent
(Sec. Sec. 1.448-1T(e)(4)(i) and (e)(5)(i), 1.460-6(d)(4)(i)(D)(1)).
It is appropriate to select a percentage at the higher end of this
range to carry out the purpose of section 170(h)(7) of preventing
abusive syndications of qualified conservation contributions.
Accordingly, the Treasury Department and the IRS propose to define
``substantially all'' for purposes of section 170(h)(7)(D)(i) and Sec.
1.170A-14(n)(3)(i) as 90 percent of the interests in the contributing
partnership or contributing S corporation that meets the requirements
of proposed Sec. 1.170A-14(n)(3).
Thus, proposed Sec. 1.170A-14(n)(3)(i) would provide that Sec.
1.170A-14(j) does not apply with respect to any qualified conservation
contribution made by a contributing partnership or contributing S
corporation if at least 90 percent of the interests in the contributing
partnership or contributing S corporation are held by an individual and
members of the family of such individual, and the contributing
partnership or contributing S corporation meets the requirements of
proposed Sec. 1.170A-14(n)(3).
The Treasury Department and the IRS are also aware that it may be
unclear what ``interests'' in the contributing partnership or
contributing S corporation are to be taken into account for purposes of
the family pass-through entity exception. Generally, the Code
characterizes interests in a partnership as comprising the ``capital
interests'' in the partnership and the ``profits interests'' in the
partnership. See, for example, section 707(b) of the Code. The Treasury
Department and the IRS propose limiting the family pass-through entity
exception to situations in which an individual and the family members
of such individual own at least 90 percent of both the capital and
profits interests in the contributing partnership. Doing so would help
to ensure that the family pass-through entity exception does not apply
in situations in which persons outside an individual's family own a
substantial economic interest in the partnership. Accordingly, proposed
Sec. 1.170A-14(n)(3)(ii)(A) would provide that, in the case of a
contributing partnership, at least 90 percent of the interests in the
contributing partnership are held by an individual and members of the
family of such individual if, at the time of the qualified conservation
contribution, at least 90 percent of the interests in capital and
profits in such partnership are held, directly or indirectly, by an
individual and members of the family of such individual.
A similar rule is proposed for S corporations. Section
1361(b)(1)(D) requires that an S corporation have only one class of
stock. However, section 1361(c)(4) provides that differences in voting
rights alone do not create a second class of stock. The Treasury
Department and the IRS propose limiting the family pass-through entity
exception in the case of S corporations to situations in which the
individual and the family of such individual own stock in the
contributing S corporation possessing at least 90 percent of the total
voting power and at least 90 percent of the total value of the
outstanding stock of the contributing S corporation. Doing so would
help to ensure that the family pass-through exception does not apply in
situations in which persons outside an individual's family own a
substantial economic interest in the S corporation. Accordingly,
proposed Sec. 1.170A-14(n)(3)(ii)(B) would provide that, in the case
of a contributing S corporation, at least 90 percent of the interests
in the contributing S corporation are held by an individual and members
of the family of such individual if, at the time of the qualified
conservation contribution, at least 90 percent of the total value and
at least 90 percent of the total voting power of the outstanding stock
in such S corporation are held by an individual and members of the
family of such individual.
The Treasury Department and the IRS request comments on whether
these definitions of ``substantially all of the interests'' in the
contributing partnership or contributing S corporation are appropriate
and sufficient to ensure the intended application of the family pass-
through entity exception.
Consistent with section 170(h)(7)(D)(ii), proposed Sec. 1.170A-
14(n)(3)(iii) would provide that, for purposes of Sec. 1.170A-
14(n)(3), the term ``members of the family'' means, with respect to any
individual (1) the spouse of such individual, and (2) any individual
who bears a relationship to such individual that is described in
section 152(d)(2)(A) through (G). Under these proposed regulations,
members of the family would be limited to individuals. The Treasury
Department and the IRS request comments on whether certain estates or
trusts should be treated as members of the family for purposes of this
rule. The Treasury Department and the IRS note that, under existing
Sec. 1.1361-1(e)(3)(ii), certain estates and trusts of deceased
members of the family are treated as members of the family for purposes
of the limitation on the number of shareholders in an S corporation.
As described earlier in this preamble, the Disallowance Rule and
its exceptions in section 170(h)(7) are generally mechanical. However,
Congress recognized that additional guidance may be needed to prevent
situations in which those mechanical rules are used to avoid the
purposes of the Disallowance Rule. As mentioned previously, section
170(h)(7)(G)(ii) provides the Secretary with authority to issue
regulations or other guidance to
[[Page 80926]]
prevent the avoidance of the purposes of section 170(h)(7).
Accordingly, these proposed regulations would provide two anti-abuse
rules designed to ensure that the family pass-through entity exception
in proposed Sec. 1.170A-14(n)(3) is not used inappropriately to
circumvent the Disallowance Rule.
First, the Treasury Department and the IRS propose to limit the
family pass-through entity exception to situations in which an
individual and members of that individual's family have held the
requisite ownership interest in the property for at least one year
prior to the contribution. The need for such a rule is the concern
that, in the absence of a requirement that the members of the family
hold the contributed property for a certain period of time before the
contribution, promoters could structure transactions to inappropriately
take advantage of tacked holding periods under section 1223 of the Code
together with the family pass-through entity exception. Due to the
operation of section 170(e), most contributions that exceed 2.5 times
the sum of relevant basis would be expected to be of long-term capital
gain property because, in those situations, the amount of the
contribution would not be limited to the donor's basis. Transactions in
which a family is relying on a tacked-holding period under section 1223
from another owner outside the family to claim a contribution in excess
of 2.5 times the sum of relevant basis raise serious concerns that the
family pass-through entity exception is being used inappropriately to
circumvent the Disallowance Rule. Accordingly, proposed Sec. 1.170A-
14(n)(3)(iv)(A) would provide that the exception in proposed Sec.
1.170A-14(n)(3) does not apply unless at least 90 percent of the
interests in the property with respect to which the qualified
conservation contribution was made were owned, directly or indirectly,
by one individual and members of the family of that individual for at
least one year prior to the date of the contribution. The proposed
rules would clarify that the members of the family during that year
need not be the same members of the family that own an interest at the
time of the qualified conservation contribution; however, at least one
individual must own an interest for the entire year, and at least 90
percent of the interests in the property must be owned, directly or
indirectly, during that year by that individual and members of the
family with respect to that individual. The proposed regulations
contain an example illustrating the application of this rule.
Second, proposed Sec. 1.170A-14(n)(3)(iv)(B) would provide that
the exception in proposed Sec. 1.170A-14(n)(3) does not apply unless
at least 90 percent of the qualified conservation contribution is
allocated to the individual and all members of the individual's family
who own at least 90 percent of all the interests in the contributing
partnership or contributing S corporation. The Treasury Department and
the IRS are concerned that, without such a rule, contributing
partnerships or contributing S corporations might be structured to meet
the family pass-through exception, but the qualified conservation
contribution would be allocated disproportionately to persons that are
not members of the family.
Proposed Sec. 1.170A-14(n)(3)(v) would provide that, in the case
of tiered pass-through entities, the family pass-through exception is
available only if the contributing partnership or contributing S
corporation satisfies the requirements of Sec. 1.170A-14(n)(3). If the
contributing partnership or contributing S corporation satisfies the
requirements of proposed Sec. 1.170A-14(n)(3), then any upper-tier
partnership or upper-tier S corporation need not apply Sec. 1.170A-
14(j) through (n) to its allocated portion of such contribution. If the
contributing partnership or contributing S corporation does not satisfy
the requirements of proposed Sec. 1.170A-14(n)(3), then the exception
in Sec. 1.170A-14(n)(3) would not apply to any person who receives a
distributive share or pro rata share of the qualified conservation
contribution (including an upper-tier partnership or upper-tier S
corporation), regardless of whether the person receiving such
distributive share or pro rata share would have satisfied the
requirements of proposed Sec. 1.170A-14(n)(3) if the person had been
the one to make the contribution. The Treasury Department and the IRS
considered alternatives to this rule, such as allowing upper-tier
partnerships and upper-tier S corporations to apply the family pass-
through entity exception even if the contributing partnership failed to
satisfy the exception. Such an approach, however, would be inconsistent
with section 170(h)(7)(D), which explicitly applies the substantially-
all requirement to the contributing partnership or contributing S
corporation.
3. Exception for Contributions To Preserve Certified Historic
Structures
Consistent with section 170(h)(7)(E), proposed Sec. 1.170A-
14(n)(4) would provide that proposed Sec. 1.170A-14(j) does not apply
to any qualified conservation contribution the conservation purpose of
which is the preservation of any building that is a certified historic
structure (as defined in section 170(h)(4)(C)). Proposed Sec. 1.170A-
14(n)(4) would also contain a cross-reference to the special reporting
requirements in proposed Sec. 1.170A-16(f)(6) for a contribution that
meets the certified historic structure exception.
IV. Reporting Requirements
Existing Sec. 1.170A-16 imposes substantiation and reporting
requirements for noncash charitable contributions. Subject to certain
exceptions, Sec. 1.170A-16 requires the donor to file Form 8283,
Noncash Charitable Contributions, in the case of a noncash charitable
contribution exceeding $500. Specifically, existing Sec. 1.170A-16(c)
generally requires the donor to complete Form 8283 (Section A) in the
case of a noncash charitable contribution of more than $500 but not
more than $5,000. Existing Sec. 1.170A-16(d) generally requires the
donor to complete Form 8283 (Section A or Section B, or both, as
applicable) in the case of a noncash charitable contribution of more
than $5,000. Existing Sec. 1.170A-16(e) applies to noncash charitable
contributions of more than $500,000 and generally requires the donor to
complete Form 8283 (Section A or Section B, or both, as applicable).
Consistent with section 170(f)(11)(D), Sec. 1.170A-16(e) requires a
donor of a noncash contribution of more than $500,000 to attach an
appraisal to the return on which the deduction is claimed. Existing
Sec. 1.170A-16(f) provides additional substantiation rules, including
rules for donors that are partnerships or S corporations.
A. Requirement That Numbers Be Entered in Sections A and B of Form 8283
Existing Sec. 1.170A-16(c)(3) and (d)(3) define a completed Form
8283 (Section A) and Form 8283 (Section B), respectively. To further
clarify reporting requirements for donated property, proposed Sec.
1.170A-16(c)(3)(v) and (d)(3)(ix) would add a requirement that, if a
box in Section A or Section B of the Form 8283 (respectively) requests
insertion of a number, the taxpayer must include the number in the box
or attach a statement explaining why the taxpayer cannot include the
number in the box. Taxpayers that do not include numbers where required
or engage in a practice to obfuscate or otherwise defeat the
requirement to include a number in the box, could be subject to
heightened scrutiny and a denial of the deduction for failure to
provide the requested information on the Form 8283.
[[Page 80927]]
The Treasury Department and the IRS believe that this rule
regarding specific reporting of numerical amounts is reasonable and
necessary because the IRS has observed a pronounced increase in
taxpayers filing a Form 8283 that does not contain any numbers and
instead refers the IRS to an attachment. Often, the attachment includes
nonresponsive information, such as ``available upon request,'' is
entirely blank, or otherwise does not provide the information required
by Form 8283. Other times, the attachment includes multiple numbers for
different boxes, leaving the IRS to surmise which of the included
numbers is appropriate for a particular box. These actions are to the
detriment of fair and effective tax administration. Accordingly, the
proposed regulations state that Sections A and B of Form 8283,
including any attachments thereto, may not include nonresponsive
information, such as ``available upon request,'' ``provided upon
request,'' or any other nonresponsive information other than the
information requested. Including any nonresponsive language may result
in a presumption that Form 8283 is incomplete.
While many taxpayers understandably want to attach a statement to
the Form 8283 to verify their calculations and provide appropriate
supplemental information, having the numerical information in the
appropriate box on Sections A and B of Form 8283 is critical to the
IRS's ability to ensure the integrity of each filing, as IRS systems
are programmed to match a partner's or shareholder's information to the
appropriate contributing partnership's or contributing S corporation's
information. Moreover, information requested on Sections A and B of
Form 8283 is information that the partnership or S corporation should
already have and is already required to provide to the partner or
shareholder, as appropriate. See Sec. 1.170A-16(f)(4).
B. Clarification of Reporting of Certain Qualified Conservation
Contributions Made by a Partnership or S Corporation
Existing Sec. 1.170A-16(d)(3) defines a completed Form 8283
(Section B) required to substantiate charitable contributions of more
than $5,000. To ensure that taxpayers claiming qualified conservation
contributions properly comply with section 170(f)(19) and (h)(7), which
require a partnership or S corporation to calculate the sum of the
relevant basis of the partnership's or S corporation's partners or
shareholders, the IRS must have relevant basis reporting from both the
contributing partnership or contributing S corporation and each partner
or shareholder receiving an allocation of the contribution (which will
be ultimate members, upper-tier partnerships, or upper-tier S
corporations). Accordingly, these proposed regulations would insert a
new paragraph, proposed Sec. 1.170A-16(d)(3)(viii).\5\
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\5\ The proposed regulations would redesignate existing Sec.
1.170A-16(d)(3)(viii) to Sec. 1.170A-16(d)(3)(x).
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The new paragraph would provide that, for certain qualified
conservation contributions made by a partnership or S corporation, the
sum of each ultimate member's relevant bases, computed in accordance
with Sec. 1.170A-14(j) through (m), must be reported on the Form 8283
(Section B) in order for the Form 8283 (Section B) to be considered
complete.
This new requirement applies to contributions described in section
170(h)(7)(E) and Sec. 1.170A-14(n)(4) (for contributions to preserve
certified historic structures), regardless of whether they are also
described in section 170(h)(7)(C) and Sec. 1.170A-14(n)(2) (for
contributions made outside of the three-year holding period) and/or
section 170(h)(7)(D) and Sec. 1.170A-14(n)(3) (for contributions made
by certain family partnerships or S corporations). While contributions
by partnerships or S corporations to preserve historic structures are
excepted from the Disallowance Rule of section 170(h)(7), they are
potentially subject to section 170(f)(19), which applies when the
amount of the contribution exceeds 2.5 times of the relevant bases. The
Treasury Department and the IRS request comments on whether any
adjustments to relevant basis are warranted in the case of a
contribution to preserve a historic structure.
This new requirement also would apply for any other qualified
conservation contribution by a partnership or S corporation, provided
that the contribution is not described in section 170(h)(7)(C) and
Sec. 1.170A-14(n)(2) (for contributions made outside of the three-year
holding period) and/or section 170(h)(7)(D) and Sec. 1.170A-14(n)(3)
(for contributions made by certain family partnerships or S
corporations). If the contribution is disallowed by section 170(h)(7)
and proposed Sec. 1.170A-14(j), then the Treasury Department and the
IRS expect that the contribution will not be reported to the IRS on
Form 8283 because no deduction can be taken.
C. Clarification of Reporting of Noncash Charitable Contributions Over
$500 Made by a Partnership or S Corporation
Existing Sec. 1.170A-16(d)(6) refers to existing Sec. 1.170A-
16(f) for additional substantiation rules. Existing Sec. 1.170A-
16(f)(4) provides special substantiation rules for partner and S
corporation shareholders.
Existing Sec. 1.170A-16(f)(4)(i) provides that, if the donor is a
partnership or S corporation, the donor must provide a copy of the
completed Form 8283 to every partner or shareholder who receives an
allocation of a charitable contribution under section 170 for the
property described in the Form 8283. Similarly, existing Sec. 1.170A-
16(f)(4)(i) provides that a recipient partner or shareholder that is a
partnership or S corporation must provide a copy of the completed Form
8283 to each of its partners or shareholders who receives an allocation
of a charitable contribution under section 170 for the property
described in Form 8283.
Existing Sec. 1.170A-16(f)(4)(ii) provides that a partner of a
partnership or shareholder of an S corporation who receives an
allocation of a charitable contribution under section 170 for property
to which Sec. 1.170A-16(c), (d), or (e) applies \6\ must attach a copy
of the partnership's or S corporation's completed Form 8283 to the
return on which the deduction is claimed.
---------------------------------------------------------------------------
\6\ In other words, a charitable contribution of more than $500
but not more than $5,000, Sec. 1.170A-16(c), a charitable
contribution of more than $5,000, Sec. 1.170A-16(d), or noncash
charitable contributions of more than $500,000, Sec. 1.170A-16(e).
---------------------------------------------------------------------------
In pass-through and tiered entity structures, the IRS regularly
observes partners and shareholders providing incomplete information to
substantiate their charitable contribution deductions. For example, an
ultimate member might complete a Form 8283 that contains the necessary
information from the Form K-1 received from the contributing
partnership, contributing S corporation, or an upper-tier partnership
or upper-tier S corporation. However, often, the ultimate member fails
to provide a copy of the appropriate partnership's or S corporation's
Form 8283 and the Form K-1. In accordance with the authority granted by
section 170(h)(7)(G) to ``prescribe such regulations or other guidance
as may be necessary or appropriate to carry out the purposes of this
paragraph, including regulations or other guidance . . . to require
reporting, including reporting related to tiered partnerships and the
modified basis of partners,'' these proposed regulations would revise
paragraph Sec. 1.170A-16(f)(4).
[[Page 80928]]
Proposed Sec. 1.170A-16(f)(4)(i) would retain the requirement that
a donor that is a partnership or S corporation provide a copy of the
completed Form 8283 to every partner or shareholder who receives an
allocation. That paragraph also would retain the requirement that a
partnership or corporation that receives an allocation of a charitable
contribution under section 170 must provide a copy of the donor's Form
8283 to its partners or shareholders who receive an allocation of the
deduction, but would clarify that this reporting is required through
any additional tiers.
Proposed Sec. 1.170A-16(f)(4)(ii) would retain the rule that a
partner of a partnership or shareholder of an S corporation who
receives an allocation of a charitable contribution to which Sec.
1.170A-16(c), (d), or (e) applies must attach the donor partnership's
or S corporation's Form 8283 to the return on which the deduction is
claimed. A clarifying requirement is added that the partner or
shareholder must also attach a copy of any additional Forms 8283 that
they must receive as provided in proposed Sec. 1.170A-
16(f)(4)(iii)(A).
Proposed Sec. 1.170A-16(f)(4)(iii)(A) would provide that a partner
of a partnership or shareholder of an S corporation that receives an
allocation of a charitable contribution under section 170 for property
to which Sec. 1.170A-16(c), (d), or (e) applies must complete their
own Form 8283 with any information required by Form 8283 and the
instructions to Form 8283. In addition, a partner that is itself a
partnership or S corporation must complete its own Form 8283 and
provide a copy of that Form 8283 to every partner or shareholder who
receives an allocation of the charitable contribution, and so on
through any additional tiers. The partner or shareholder must attach
its separate Form 8283 to the return on which the contribution is
claimed in addition to the copy of donor's Form 8283 as well as other
Forms 8283 that the partner or shareholder received. This new
requirement would apply to all noncash charitable contributions over
$500 made by a partnership or S corporation, not just those for
conservation easements.
Proposed Sec. 1.170A-16(f)(4)(iii)(B) would provide that, if the
contribution was a qualified conservation contribution, an ultimate
member's separate Form 8283 must include the ultimate member's own
relevant basis. An upper-tier partnership's or upper-tier S
corporation's separate Form 8283 must include the sum of each of its
ultimate member's relevant bases. However, the requirements that an
ultimate member provide their own relevant basis and that an upper-tier
partnership or upper-tier S corporation include the sum of its ultimate
member's relevant bases do not apply to contributions described in
section 170(h)(7)(C) and Sec. 1.170A-14(n)(2) (for contributions made
outside of the three-year holding period) or section 170(h)(7)(D) and
Sec. 1.170A-14(n)(3) (for contributions made by certain family
partnerships or S corporations), provided that they are not also
described in section 170(h)(7)(E) and Sec. 1.170A-14(n)(4) (for
contributions to preserve certified historic structures), in which case
proposed paragraph Sec. 1.170A-16(f)(4)(iii)(B) does apply. The Form
8283 instructions will be revised accordingly.
D. Additional Reporting Required by Section 170(f)(19)
To ensure proper reporting under section 170(f)(19), the proposed
regulations would add new Sec. 1.170A-16(f)(6). Specifically, proposed
Sec. 1.170A-16(f)(6)(i) would provide that, in the case of any
contribution described in section 170(h)(4)(C) and proposed Sec.
1.170A-16(f)(6)(ii) (relating to the preservation of certified historic
structures), pursuant to section 170(f)(19), no deduction is allowed
under section 170 or any other provision of the Code under which
deductions are allowable to pass-through entities with respect to such
contribution unless each partnership or S corporation (1) includes on
its return for the taxable year in which the contribution is made a
statement that it made such a contribution or received such allocated
portion and (2) provides such information about the contribution as the
Secretary may require in guidance, forms, or instructions. The
reference to ``any other provision of the Code under which deductions
are allowable to pass-through entities'' is included under the
authority of section 170(f)(19)(C) to apply these rules to S
corporations and other pass-through entities in the same manner as such
rules apply to partnerships and their partners, and is necessary to
prevent such pass-through entities and their owners from claiming a
deduction under a different provision of the Code other than section
170, such as section 642(c), unless the statutory and regulatory
requirements of section 170(f)(19) are met.
Proposed Sec. 1.170A-16(f)(6)(ii) describes (using terms defined
in proposed Sec. 1.170A-14(j)(3)) the contributions to which proposed
Sec. 1.170A-16(f)(6) would apply, namely any qualified conservation
contribution (as defined in section 170(h)(1) and proposed Sec.
1.170A-14) for which: (1) the conservation purpose of which is
preservation of a building that is a certified historic structure (as
defined in section 170(h)(4)(C)); (2) that is either made by a
contributing partnership or contributing S corporation, or that is an
allocated portion of an upper-tier partnership or upper-tier S
corporation; and (3) the amount of such contribution or such allocated
portion exceeds 2.5 times the sum of each ultimate member's relevant
basis (as defined in proposed Sec. 1.170A-14(j) through (m)).
Proposed Sec. 1.170A-16(f)(6)(iii) would provide that a
partnership or S corporation satisfies the requirement to have made a
statement that it made such a contribution or received such allocated
portion and to provide such information about the contribution as the
Secretary may require by filing Form 8283 (including information about
relevant basis) in accordance with section 170, the regulations under
section 170 (including those proposed in this notice of proposed
rulemaking), and the instructions to Form 8283.
V. Section 706 Regulations
The general mechanism of section 170(h)(7) with respect to
partnerships is to compare the amount of the partnership's contribution
(or its distributive share of a contribution made by another
partnership) to 2.5 times the sum of each of its partner's relevant
basis. Relevant basis is based on modified basis, which is based on the
partner's adjusted basis in its partnership interest immediately before
the contribution. Without additional rules, there may be situations in
which the contribution is allocated to partners that did not hold an
interest at the time of the qualified conservation contribution. Such
partners would not have any adjusted basis in their partnership
interests immediately before the contribution, and thus, without
additional rules, their relevant basis would be zero. Therefore, rules
are needed to align the computation of relevant basis (which is
generally required to be computed immediately before the computation)
with the allocation of the contribution among the partners.
Generally, section 706 and Sec. 1.706-4 of the existing
regulations provide rules for determining a partner's distributive
share of partnership items when a partner's interest in the partnership
varies during the taxable year. For example, assume a partner holding a
25 percent interest in a calendar-year partnership sells its 25 percent
interest on July 1. Under section 706 and
[[Page 80929]]
Sec. 1.706-4, the partnership would not allocate the selling partner
25 percent of all items of income for the year because the selling
partner had no interest in the partnership for the final half of the
year. Instead, the partnership would follow the rules of Sec. 1.706-4
to ensure that the allocations properly reflect the sale of the
partner's interest. Generally, the rules of Sec. 1.706-4 allow
partnerships to use either a proration method or an interim closing of
the books method (interim closing method).\7\ In the example, a
partnership using the proration method generally would allocate the
selling partner 12.5 percent (reflecting the fact that the selling
partner held a 25 percent interest in the partnership for half of the
year) of every item of the partnership for the full year, regardless of
whether the partnership incurred the item in the first or second half
of the year. Alternatively, a partnership using the interim closing
method generally would allocate the selling partner 25 percent of every
item occurring in the first half of the year.
---------------------------------------------------------------------------
\7\ The rules of Sec. 1.706-4 also require the use of
conventions to determine the date on which variations are deemed to
occur. Discussion of these conventions is beyond the scope of this
preamble.
---------------------------------------------------------------------------
Section 1.706-4 provides an exception to these rules for certain
``extraordinary items,'' which must be allocated in accordance with the
partners' interests in the item at the time of day the extraordinary
item occurred. Section 1.706-4(e)(2) provides a list of these
extraordinary items. In particular, Sec. 1.706-4(e)(2)(i) and (ii)
provide that an extraordinary item includes any item from the
disposition or abandonment (other than in the ordinary course of
business) of a capital asset as defined in section 1221 of the Code
(determined without the application of any other rules of law) and any
item from the disposition or abandonment (other than in the ordinary
course of business) of property used in a trade or business as defined
in section 1231(b) of the Code (determined without the application of
any holding period requirement). Section 1.706-4(e)(3) provides a
``small item exception'' under which certain items in the list in Sec.
1.706-4(e)(2) nevertheless are not extraordinary items if they fall
below certain thresholds.
Proposed Sec. 1.706-4(e)(2)(ix) would provide that an
extraordinary item includes any qualified conservation contribution
(without regard to whether such contribution is a disallowed qualified
conservation contribution within the meaning of Sec. 1.170A-
14(j)(3)(vii)). The proposed amendments to existing Sec. 1.706-4(e)(3)
contained in these proposed regulations would provide that the small
item exception does not apply to any qualified conservation
contribution. These rules are designed to ensure that modified basis
can be computed immediately before the contribution, as directed in
section 170(h)(7). The Treasury Department and the IRS considered
alternatives to this rule. However, many, and perhaps most, qualified
conservation contributions are already considered extraordinary items
under existing Sec. 1.706-4(e)(2)(i) or (ii). The proposed rule,
however, provides clarity and uniformity regarding the application of
the extraordinary item rule to qualified conservation contributions and
facilitates the computation of a partner's modified basis immediately
before the contribution as directed by the statute.
Section 706(d)(3) provides rules for an upper-tier partnership's
allocation of items to its partners attributable to an interest in a
lower-tier partnership. It provides that if, during any taxable year of
the upper-tier partnership there is a change in any partner's interest
in the upper-tier partnership, then (except to the extent provided in
regulations) each partner's distributive share of any item of the
upper-tier partnership attributable to the lower-tier partnership must
be determined by assigning the appropriate portion (determined by
applying principles similar to the principles of section 706(d)(2)(C)
and (D)) of each such item to the appropriate days during which the
upper-tier partnership is a partner in the lower-tier partnership and
by allocating the portion assigned to any such day among the partners
in proportion to their interests in the upper-tier partnership at the
close of such day. The Treasury Department and the IRS are concerned
that, even if a lower-tier partnership's qualified conservation
contribution is treated as an extraordinary item with respect to the
lower-tier partnership, an upper-tier partnership might nevertheless
attempt to rely on section 706(d)(3) and allocate its share of the
contribution to partners that were not partners on the date of
contribution. To facilitate the computation of a partner's relevant
basis immediately before the contribution, proposed Sec. 1.706-3(a)
would provide that, for purposes of section 706(d)(3), in the case of a
qualified conservation contribution (without regard to whether such
contribution is a disallowed qualified conservation contribution within
the meaning of Sec. 1.170A-14(j)(3)(vii)) by a partnership that is
allocated to an upper-tier partnership, the upper-tier partnership must
allocate the contribution among its partners in proportion to their
interests in the upper-tier partnership at the time of day at which the
contribution was made, regardless of the method (interim closing or
proration) and convention (daily, semi-monthly, or monthly) otherwise
used by the upper-tier partnership under Sec. 1.706-4. The Treasury
Department and the IRS request comments on whether these rules are
necessary and sufficient to ensure the appropriate operation of the
Disallowance Rule.
Proposed Applicability Dates
Section 605(c) of the SECURE 2.0 Act provides that the amendments
made by section 605 of the SECURE 2.0 Act apply to contributions made
after December 29, 2022. Pursuant to section 7805(b)(2) of the Code,
regulations issued under section 170(f)(19) and (h)(7) within 18 months
of the December 29, 2022, date of enactment of section 605 of the
SECURE 2.0 Act are permitted to apply to periods ending before the
dates provided under section 7805(b)(1). Accordingly, the proposed
regulations under Sec. Sec. 1.170A-14(j) through (n), 1.706-3, and
1.706-4 are proposed to apply to contributions made after December 29,
2022.
To align the reporting requirements under Sec. 1.170A-16 with the
publication of the revised Form 8283 and its instructions, the proposed
regulations under Sec. 1.170A-16 are proposed to apply to
contributions made in taxable years ending on or after November 20,
2023.
Special Analyses
I. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) generally
requires that a Federal agency obtain the approval of the Office of
Management and Budget (OMB) before collecting information from the
public, whether such collection of information is mandatory, voluntary,
or required to obtain or retain a benefit. An agency may not conduct or
sponsor, and a person is not required to respond to, a collection of
information unless the collection of information displays a valid
control number.
The collection of information contained in these proposed
regulations is reflected in the collection of information for Form 8283
and Schedule K-1 for Forms 1065, U.S. Return of Partnership Income, and
1120-S, U.S. Income Tax Return for an S corporation, that have been
reviewed and approved by the Office of Management and Budget in
accordance with the Paperwork Reduction Act (44
[[Page 80930]]
U.S.C. 3507(c)) under control numbers 1545-0074 and 1545-0123. The
estimated burden for taxpayers filing Form 8283 under OMB control
number 1545-0074 is nineteen minutes for recordkeeping, twenty-nine
minutes for learning about the law or the form, one hour and four
minutes for preparing the form, and thirty-four minutes for copying,
assembling, and sending the form to the IRS.
To the extent there is a change in burden as a result of these
regulations, the change in burden will be reflected in the updated
burden estimates for the Form 8283 and Schedule K-1 for Forms 1065 and
1120-S. The requirement to maintain records to substantiate information
on Form 8283 and Schedule K-1 for Forms 1065 and 1120-S is already
contained in the burden associated with the control number for the
forms and remains unchanged.
II. Regulatory Flexibility Act
The Secretary of the Treasury hereby certifies that the proposed
regulations will not have a significant economic impact on a
substantial number of small entities pursuant to the Regulatory
Flexibility Act (5 U.S.C. chapter 6). This rule would affect
partnerships and S corporations that claim qualified conservation
contributions, and partners and S corporation shareholders that receive
a distributive share or pro rata share of a noncash charitable
contribution. Although data is not readily available about the number
of small entities that are potentially affected by this rule, it is
possible that a substantial number of small entities may be affected.
The impact of these proposed regulations can be described in the
following four categories.
First, proposed Sec. 1.170A-14(j) through (n) would provide
guidance in applying section 170(h)(7), including providing
definitions, formulas for the required calculations, and examples to
help ensure the effective application of section 170(h)(7), and
proposed Sec. Sec. 1.706-3 and 1.706-4(e)(2)(ix) would provide special
rules for allocating qualified conservation contributions. Even
assuming that these provisions affect a substantial number of small
entities, they will not have a significant economic impact. Section
170(h)(7) is self-executing and imposes the burden of calculating
relevant basis and applying the Disallowance Rule. Because these
proposed regulations are focused on providing definitional and
computational guidance related to section 170(h)(7), their economic
impact is expected to be minimal.
Second, proposed Sec. 1.170A-16(d)(3)(viii) would require the Form
8283 filed by contributing partnerships and contributing S corporations
to include the sum of each ultimate member's relevant basis. The
existing regulations under Sec. 1.170A-16 already requires these
entities to file Form 8283. Even assuming that this provision affects a
substantial number of small entities, it will not have a significant
economic impact because it simply requires contributing partnerships
and contributing S corporations to put a small amount of additional
information, which section 170(h)(7) and (f)(19) requires them to
determine, on a form they are already required to file.
Third, proposed Sec. 1.170A-16(f)(6) would require a partnership
or S corporation to file a completed Form 8283 to be considered to
satisfy the requirements of section 170(f)(19)(A)(i). Even assuming
that this provision affects a substantial number of small entities, it
will not have a significant economic impact because it simply requires
contributing partnerships and contributing S corporations to put a
small amount of additional information on a form they are already
required to file.
Fourth, proposed Sec. 1.170A-16(f)(4)(iii) would require all
partners and shareholders of S corporations who receive an allocation
of a noncash charitable contribution to file a separate Form 8283. Many
of these partners and shareholders will be individuals, not small
entities. However, even assuming that this provision affects a
substantial number of small entities, it will not have a significant
economic impact. The partnership or S corporation will provide the
partner or shareholder with all, or substantially all, of the
information to be reported on the separate Form 8283; this information
will be contained either on the partnership's or S corporation's Form
8283 or the Schedule K-1 issued to the partner or shareholder.
Accordingly, in most cases partners and shareholders will simply be
transcribing information provided to them onto the separate Form 8283.
For the reasons stated, a regulatory flexibility analysis under the
Regulatory Flexibility Act is not required. The Treasury Department and
the IRS invite comments on the impact of the proposed regulations on
small entities.
Pursuant to section 7805(f), this notice of proposed rulemaking has
been submitted to the Chief Counsel for the Office of Advocacy of the
Small Business Administration for comment on its impact on small
business.
III. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandate 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). These
proposed regulations do 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. These proposed regulations do not
have federalism implications and do not impose substantial, direct
compliance costs on State and local governments or preempt State law
within the meaning of the Executive order.
V. Executive Order 13175: Consultation and Coordination With Indian
Tribal Governments
Executive Order 13175 (Consultation and Coordination With Indian
Tribal Governments) prohibits an agency from publishing any rule that
has Tribal implications if the rule either imposes substantial, direct
compliance costs on Indian Tribal governments, and is not required by
statute, or preempts Tribal law, unless the agency meets the
consultation and funding requirements of section 5 of the Executive
order. This proposed rule does not have substantial direct effects on
one or more federally recognized Indian tribes and does not impose
substantial direct compliance costs on Indian Tribal governments within
the meaning of the Executive order.
VI. 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 of Executive Order 12866, as amended. Therefore, a regulatory
impact assessment is not required.
[[Page 80931]]
Comments and Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to comments that are submitted timely to
the IRS as prescribed in the preamble under the ADDRESSES section. The
Treasury Department and the IRS request comments on all aspects of the
proposed regulations. Any electronic comments submitted, and any paper
comments submitted, will be made available at https://www.regulations.gov or upon request. Once submitted to the Federal
eRulemaking Portal, comments cannot be edited or withdrawn.
Announcement 2023-16, 2023-20 I.R.B. 854 (May 15, 2023), provides
that public hearings will be conducted in person, although the IRS will
continue to provide a telephonic option for individuals who wish to
attend or testify at a hearing by telephone. Any telephonic hearing
will be made accessible to people with disabilities.
A public hearing has been scheduled for January 3, 2024, beginning
at 10 a.m. ET, in the Auditorium at the Internal Revenue Building, 1111
Constitution Avenue NW, Washington, DC, unless no outlines are received
by December 20, 2023. Due to building security procedures, visitors
must enter at the Constitution Avenue entrance. In addition, all
visitors must present photo identification to enter the building.
Because of access restrictions, visitors will not be admitted beyond
the immediate entrance area more than 30 minutes before the hearing
starts. Participants may alternatively attend the public hearing by
telephone.
The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who
wish to comment by telephone at the hearing must submit written or
electronic comments and an outline of the topics to be discussed as
well as the time to be devoted to each topic by December 20, 2023, as
prescribed in the preamble under the ADDRESSES section.
A period of ten minutes will be allocated to each person for making
comments. After the deadline for receiving outlines has passed, the IRS
will prepare an agenda containing the schedule of speakers. If no
outline of the topics to be discussed at the hearing is received by
December 20, 2023, the public hearing will be cancelled. If the public
hearing is cancelled, a notice of cancellation of the public hearing
will be published in the Federal Register. Copies of the agenda will be
available free of charge at the hearing, and via the Federal
eRulemaking Portal (https://www.regulations.gov) under the title of
Supporting & Related Material. Copies of the agenda will also be
available by emailing a request to [email protected]. Please put
``REG-112916-23 Agenda Request'' in the subject line of the email.
Individuals who want to testify in person at the public hearing
must send an email to [email protected] to have your name added to
the building access list. The subject line of the email must contain
the regulation number REG-112916-23 and the language ``TESTIFY In
Person.'' For example, the subject line may say: Request to TESTIFY In
Person at Hearing for REG-112916-23.
Individuals who want to testify by telephone at the public hearing
must send an email to [email protected] to receive the telephone
number and access code for the hearing. The subject line of the email
must contain the regulation number REG-112916-23 and the language
``TESTIFY Telephonically.'' For example, the subject line may say:
Request to TESTIFY Telephonically at Hearing for REG-112916-23.
Individuals who want to attend the public hearing in person without
testifying must also send an email to [email protected] to have
your name added to the building access list. The subject line of the
email must contain the regulation number REG-112916-23 and the language
``ATTEND In Person.'' For example, the subject line may say: Request to
ATTEND Hearing In Person for REG-112916-23. Individuals who want to
attend the public hearing by telephone without testifying must also
send an email to [email protected] to receive the telephone number
and access code for the hearing. The subject line of the email must
contain the regulation number REG-112916-23 and the language ``ATTEND
Hearing Telephonically.'' For example, the subject line may say:
Request to ATTEND Hearing Telephonically for REG-112916-23. Requests to
attend the public hearing must be received by 5 p.m. ET on December 29,
2023.
Hearings will be made accessible to people with disabilities. To
request special assistance during a hearing please contact the
Publications and Regulations Branch of the Office of Associate Chief
Counsel (Procedure and Administration) by sending an email to
[email protected] (preferred) or by telephone at (202) 317-6901
(not a toll-free number) by December 28, 2023.
Statement of Availability of IRS Documents
IRS notices and other guidance cited in this preamble are published
in the Internal Revenue Bulletin (or Cumulative Bulletin) and are
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 proposed are Elizabeth Boone and
Hannah Kim, Office of the Associate Chief Counsel (Income Tax &
Accounting), IRS, and Benjamin Weaver, Office of the Associate Chief
Counsel (Passthroughs & Special Industries), IRS. However, 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.
Proposed Amendments to the Regulations
Accordingly, the Treasury Department and the IRS propose to amend
26 CFR part 1 as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 is amended by:
0
1. Adding an entry for Sec. 1.170A-14 in numerical order;
0
2. Revising the entry for Sec. 1.170A-16;
0
3. Adding an entry for Sec. 1.706-3 in numerical order; and
0
4. Revising the entry for Sec. 1.706-4.
The additions and revisions read as follows:
Authority: 26 U.S.C. 7805 * * *
* * * * *
Section 1.170A-14 also issued under 26 U.S.C. 170(f)(11) and
170(h)(7).
* * * * *
Section 1.170A-16 also issued under 26 U.S.C. 170(f)(11),
170(f)(19), 170(h)(7)(G), 6001, and 6011.
* * * * *
Section 1.706-3 also issued under 26 U.S.C. 170(h)(7)(G).
* * * * *
Section 1.706-4 also issued under 26 U.S.C. 170(h)(7)(G).
* * * * *
0
Par. 2. Section 1.170A-14 is amended by:
0
1. Revising paragraph (a);
0
2. Redesignating paragraph (j) as paragraph (o) and adding new
paragraph (j);
0
3. Adding paragraphs (k) through (n); and
0
4. Revising newly designated paragraph (o).
The additions and revisions read as follows:
[[Page 80932]]
Sec. 1.170A-14 Qualified conservation contributions.
(a) Qualified conservation contributions. A deduction under section
170 of the Internal Revenue Code (Code) is generally not allowed for a
charitable contribution of any interest in property that consists of
less than the donor's entire interest in the property other than
certain transfers in trust (see Sec. 1.170A-6 relating to charitable
contributions in trust and Sec. 1.170A-7 relating to contributions not
in trust of partial interests in property). However, a deduction may be
allowed under section 170(f)(3)(B)(iii) for the value of a qualified
conservation contribution if the requirements of this section are met
and the contribution is not a disallowed qualified conservation
contribution within the meaning of paragraph (j) of this section. A
qualified conservation contribution is the contribution of a qualified
real property interest to a qualified organization exclusively for
conservation purposes. To be eligible for a deduction under section
170(h) and this section, the conservation purpose must be protected in
perpetuity.
* * * * *
(j) Disallowance of certain deductions for contributions by
partnerships and S corporations that exceed 2.5 times the sum of
relevant bases--(1) In general. This paragraph (j) applies the rules of
section 170(h)(7), which disallow a deduction for certain qualified
conservation contributions, as defined in section 170(h)(1) and this
section, made by, or allocated to, partnerships or S corporations (as
defined in section 1361(a)(1) of the Code) if the amount of the
qualified conservation contribution exceeds 2.5 times the sum of the
relevant bases, as determined by this paragraph (j) and paragraphs (k)
through (m) of this section (Disallowance Rule). See paragraph (n) of
this section for certain exceptions. See paragraph (j)(3) of this
section for definitions of terms used in this paragraph (j) and
paragraphs (k) through (n) of this section.
(2) Application--(i) Contributing partnerships and contributing S
corporations. Except as provided in paragraph (n) of this section, a
qualified conservation contribution by a contributing partnership or a
contributing S corporation is a disallowed qualified conservation
contribution if the amount of the qualified conservation contribution
exceeds 2.5 times the sum of each of the contributing partnership's or
contributing S corporation's ultimate member's relevant basis as
determined under this paragraph (j) and paragraphs (k) through (m) of
this section.
(ii) Upper-tier partnerships and upper-tier S corporations. Except
as provided in paragraph (n) of this section, an allocated portion
received by an upper-tier partnership or upper-tier S corporation is a
disallowed qualified conservation contribution if either the
contribution is a disallowed qualified conservation contribution with
respect to the partnership that allocated the allocated portion to the
upper-tier partnership or upper-tier S corporation, or such allocated
portion exceeds 2.5 times the sum of each of that upper-tier
partnership's or upper-tier S corporation's ultimate member's relevant
basis as determined under this paragraph (j) and paragraphs (k) through
(m) of this section.
(3) Definitions. The following definitions apply for purposes of
this paragraph (j) and paragraphs (k) through (n) of this section:
(i) Allocated portion. In the case of an upper-tier partnership or
upper-tier S corporation that receives, directly or indirectly, a
distributive share of a qualified conservation contribution, the phrase
allocated portion means the amount of such distributive share.
(ii) Amount of qualified conservation contribution. The amount of a
contributing partnership's or contributing S corporation's qualified
conservation contribution is the amount claimed as a qualified
conservation contribution on the return of the contributing partnership
or contributing S corporation for the taxable year in which the
contribution is made. If the contributing partnership or contributing S
corporation files an amended return or administrative adjustment
request under section 6227 of the Code claiming a different amount with
respect to the qualified conservation contribution, the rules of this
section must be re-applied with respect to such different amount to
determine the application of section 170(h)(7) and this section.
(iii) Contributing partnership. The term contributing partnership
means a partnership that makes a qualified conservation contribution.
(iv) Contributing S corporation. The term contributing S
corporation means an S corporation that makes a qualified conservation
contribution.
(v) Direct interest. The term direct interest refers to an
ownership interest in a contributing partnership, upper-tier
partnership, contributing S corporation, or upper-tier S corporation
that is held directly, or through an entity disregarded as separate
from its owner for Federal income tax purposes, a qualified subchapter
S subsidiary as defined in section 1361(b)(3), or through a grantor
trust (under subpart E of part 1 of subchapter J of chapter 1 of the
Code). In the case of a partner that is a C corporation (as defined in
section 1361(a)(2)), non-grantor trust, or an estate, or an S
corporation shareholder that is a non-grantor trust or an estate, the
direct interest in the partnership or S corporation, as applicable, is
held by the C corporation, non-grantor trust, or estate; the C
corporation's shareholders, trust beneficiaries, and estate
beneficiaries are not considered to hold any interest in the
partnership or S corporation, as applicable, for purposes of this
paragraph (j) and paragraphs (k) through (n) of this section.
(vi) Directly. An ownership interest is held directly if it is not
held through one or more upper-tier partnerships or upper-tier S
corporations. A distributive share or pro rata share of a qualified
conservation contribution is received directly if it does not pass
through one or more upper-tier partnerships or upper-tier S
corporations.
(vii) Disallowed qualified conservation contribution. The term
disallowed qualified conservation contribution means a qualified
conservation contribution or allocated portion for which no deduction
is allowed pursuant to section 170(h)(7) and this paragraph (j).
(viii) Indirect interest. The term indirect interest refers to an
ownership interest in a contributing partnership, contributing S
corporation, upper-tier partnership, or upper-tier S corporation held
through an upper-tier S corporation or one or more upper-tier
partnerships.
(ix) Indirectly. An ownership interest is held indirectly if it is
held through one or more upper-tier partnerships or upper-tier S
corporations. A distributive share or pro rata share of a qualified
conservation contribution is received indirectly if it passes through
one or more upper-tier partnerships or upper-tier S corporations.
(x) Ultimate member. The term ultimate member means, with respect
to any partnership or S corporation, any partner (that is not itself a
partnership or S corporation) or S corporation shareholder that
receives a distributive share or pro rata share, directly or
indirectly, of a qualified conservation contribution. Thus, ultimate
members will either be partners holding a direct interest in a
partnership, which may be the contributing partnership or an upper-tier
partnership, or shareholders holding a direct interest in an S
corporation, which may be the contributing S corporation or an upper-
tier S corporation. Upper-tier S
[[Page 80933]]
corporations and upper-tier partnerships themselves are not considered
ultimate members.
(xi) Upper-tier partnership. The term upper-tier partnership means
a partnership that receives an allocated portion.
(xii) Upper-tier S corporation. The term upper-tier S corporation
means an S corporation that receives an allocated portion.
(4) Effect of Disallowance Rule--(i) If the Disallowance Rule
applies to a contributing partnership or contributing S corporation. If
a contributing partnership's or contributing S corporation's qualified
conservation contribution is a disallowed qualified conservation
contribution under this paragraph (j), then:
(A) Any upper-tier partnership's or upper-tier S corporation's
allocated portion of such contribution is a disallowed qualified
conservation contribution, regardless of whether such allocated portion
exceeds 2.5 times the sum of each of the upper-tier partnership's or
upper-tier S corporation's ultimate member's relevant basis; and
(B) No person (whether holding a direct or indirect interest in
such contributing partnership or contributing S corporation) may claim
a deduction under any provision of the Code with respect to any amount
of such disallowed qualified conservation contribution, regardless of
whether that person's distributive share or pro rata share of the
disallowed qualified conservation contribution exceeds 2.5 times its
relevant basis.
(ii) If the Disallowance Rule does not apply to a contributing
partnership or contributing S corporation. If a contributing
partnership's or contributing S corporation's qualified conservation
contribution is not a disallowed qualified conservation contribution
under this paragraph (j), then:
(A) The distributive share or pro rata share of any ultimate member
holding a direct interest in the contributing partnership or
contributing S corporation is not a disallowed qualified conservation
contribution; and
(B) Any upper-tier partnership or upper-tier S corporation that
receives an allocated portion of such qualified conservation
contribution must separately apply the rules of section 170(h)(7) and
this paragraph (j) and paragraphs (k) through (m) of this section to
determine whether that upper-tier partnership's or upper-tier S
corporation's allocated portion is a disallowed qualified conservation
contribution.
(iii) If the Disallowance Rule applies to an upper-tier partnership
or an upper-tier S corporation. If an upper-tier partnership's or
upper-tier S corporation's allocated portion is a disallowed qualified
conservation contribution under this paragraph (j), then:
(A) Any subsequent upper-tier partnership's or upper-tier S
corporation's allocated portion of such allocated portion is a
disallowed qualified conservation contribution, regardless of whether
the subsequent upper-tier partnership's or upper-tier S corporation's
allocated portion exceeds 2.5 times the sum of each of subsequent
upper-tier partnership's or upper-tier S corporation's ultimate
member's relevant basis; and
(B) No person holding a direct or indirect interest in that upper-
tier partnership or upper-tier S corporation may claim a deduction
under any provision of the Code with respect to any amount of that
upper-tier partnership's or upper-tier S corporation's allocated
portion, regardless of whether that person's distributive share or pro
rata share of the allocated portion exceeds 2.5 times its relevant
basis. However, this does not affect the application of this paragraph
(j) and paragraphs (k) through (m) of this section to another partner
of the contributing partnership; for example, if the qualified
conservation contribution is not a disallowed qualified conservation
contribution with respect to the contributing partnership, then the
distributive share of such contribution of an ultimate member holding a
direct interest in the contributing partnership is not a disallowed
qualified conservation contribution, notwithstanding that the qualified
conservation contribution is a disallowed qualified conservation
contribution with respect to one or more upper-tier partnerships or
upper-tier S corporations.
(iv) If the Disallowance Rule does not apply to an upper-tier
partnership or upper-tier S corporation. If an upper-tier partnership's
or upper-tier S corporation's allocated portion is not a disallowed
qualified conservation contribution under this paragraph (j), then:
(A) The distributive share or pro rata share of such allocated
portion of any ultimate member holding a direct interest in the upper-
tier partnership or upper-tier S corporation is not a disallowed
qualified conservation contribution; and
(B) Any subsequent upper-tier partnership or upper-tier S
corporation that receives an allocated portion of such allocated
portion must separately apply the rules of section 170(h)(7) and this
paragraph (j) and paragraphs (k) through (m) of this section to
determine whether that subsequent upper-tier partnership's or upper-
tier S corporation's allocated portion is treated as a disallowed
qualified conservation contribution.
(5) No inference. There is no presumption that a qualified
conservation contribution that is not a disallowed qualified
conservation contribution as defined in paragraph (j)(3)(vii) of this
section is compliant with section 170, any other section of the Code,
the regulations, or any other guidance. Compliance with section
170(h)(7) and this paragraph (j) and paragraphs (k) through (n) of this
section is not a safe harbor for purposes of any other provision of law
or with respect to the value of the contribution. Such transactions are
subject to adjustment or disallowance for any other reason, including
failure to satisfy the other requirements of section 170 and
overvaluation of the contribution. In addition, taxpayers who engage in
such transactions may be required to disclose under Sec. 1.6011-4 the
transactions as listed transactions.
(6) Examples. The following examples illustrate the rules of this
paragraph (j). For these three examples in this paragraph (j)(6),
assume that the partnership allocations comply with the rules of
subchapter K of chapter 1 of the Code, and that the exceptions in
paragraph (n) of this section do not apply.
(i) Example 1: Disallowed qualified conservation contribution--(A)
Facts. A, an individual, and B, a C corporation, form AB Partnership, a
partnership for Federal income tax purposes. AB Partnership acquires
real property. Two years later, AB Partnership makes a qualified
conservation contribution with respect to the property and claims a
contribution of $100X on its return. AB Partnership allocates the
contribution equally to A and B. A's relevant basis is $30X, and B's
relevant basis is $8X.
(B) Analysis. A and B are the ultimate members of AB Partnership
because they each receive a distributive share of the qualified
conservation contribution and are not partnerships or S corporations.
The claimed amount of AB Partnership's qualified conservation
contribution is $100X, which exceeds 2.5 times the sum of A's and B's
relevant bases, which is $95X ($95X = 2.5 x (A's $30X relevant basis +
B's $8X relevant basis)). Therefore, AB Partnership's contribution is a
disallowed qualified conservation contribution. No person may claim any
[[Page 80934]]
deduction with respect to this contribution, even though A's $50X
distributive share of the contribution does not exceed 2.5 times A's
$30X relevant basis.
(ii) Example 2: Not a disallowed qualified conservation
contribution--(A) Facts. Individuals C and D form CD Partnership, a
partnership for Federal income tax purposes. CD Partnership acquires
real property. Two years later, CD Partnership makes a qualified
conservation contribution with respect to the property and claims a
contribution of $100X on its return. CD Partnership allocates the
contribution $5X to C and $95X to D. C's relevant basis is $6X, and D's
relevant basis is $34X.
(B) Analysis. C and D are the ultimate members of CD Partnership
because they each receive a distributive share of the qualified
conservation contribution and are not partnerships or S corporations.
The claimed amount of CD Partnership's qualified conservation
contribution is $100X, which does not exceed 2.5 times the sum of C's
and D's relevant bases, which is also $100X ($100X = 2.5 x (C's $6X
relevant basis + D's $34X relevant basis)). Therefore, CD Partnership's
contribution is not a disallowed qualified conservation contribution
(that is, not disallowed by section 170(h)(7) and this paragraph (j))
with respect to CD Partnership, C, or D, even though D's $95X
distributive share of the contribution exceeds 2.5 times D's $34X
relevant basis.
(iii) Example 3: Tiered partnerships--(A) Facts. Individuals E and
F form UTP Partnership, a partnership for Federal income tax purposes.
UTP Partnership and G, a C corporation, form LTP Partnership, a
partnership for Federal income tax purposes. LTP Partnership acquires
real property. Two years later, LTP Partnership makes a qualified
conservation contribution with respect to the property and claims a
contribution of $100X on its return. LTP Partnership allocates the
contribution $5X to G and $95X to UTP Partnership. UTP Partnership
allocates its $95X portion of the contribution $45X to E and $50X to F.
G's relevant basis is $10X, E's relevant basis is $11X, and F's
relevant basis is $21X.
(B) Analysis for LTP Partnership. The ultimate members of LTP
Partnership are G, E, and F because they each receive a distributive
share of the qualified conservation contribution and are not a
partnership or S corporation. Because UTP Partnership is a partnership,
it is not an ultimate member of LTP Partnership, even though it
receives a distributive share of the qualified conservation
contribution. The amount of LTP Partnership's qualified conservation
contribution is $100X, which does not exceed 2.5 times the sum of each
of the ultimate member's relevant basis, which is $105X ($105X = 2.5 x
(G's $10X relevant basis + E's $11X relevant basis + F's $21X relevant
basis)). Therefore, LTP Partnership's contribution is not a disallowed
qualified conservation contribution (that is, is not disallowed by
section 170(h)(7) and this paragraph (j)) with respect to LTP
Partnership and G.
(C) Analysis for UTP Partnership. Because UTP Partnership receives
an allocated portion, UTP Partnership must apply this paragraph (j) and
paragraphs (k) through (m) of this section to determine whether its
allocated portion is a disallowed qualified conservation contribution.
The ultimate members of UTP Partnership are E and F because they each
receive a distributive share of UTP Partnership's allocated portion and
are not partnerships or S corporations. The amount of UTP Partnership's
allocated portion of LTP Partnership's qualified conservation
contribution is $95X, which exceeds 2.5 times the sum of E's and F's
relevant bases, which is $80X ($80X = 2.5 x (E's $11X relevant basis +
F's $21X relevant basis)). Therefore, UTP Partnership's allocated
portion of LTP Partnership's contribution is a disallowed qualified
conservation contribution with respect to UTP Partnership, E, and F. No
partner of UTP Partnership may claim any deduction with respect to this
contribution, even though F's $50X distributive share of the
contribution does not exceed 2.5 times F's $21X relevant basis. This
does not affect the determination that G's distributive share of the
contribution is not a disallowed qualified conservation contribution.
(k) Determination of relevant basis. For purposes of this section,
the term relevant basis means, with respect to any ultimate member, the
portion of such ultimate member's modified basis (as determined under
paragraph (l) of this section) that is allocable (under the rules of
paragraph (m) of this section) to the portion of the real property with
respect to which the qualified conservation contribution is made.
(l) Determination of modified basis--(1) In general. In the case of
an ultimate member holding a direct interest in a partnership, the
ultimate member's modified basis is determined by such partnership
immediately before the qualified conservation contribution is made in
the manner described in paragraph (l)(2) of this section. In the case
of an ultimate member holding a direct interest in an S corporation,
the ultimate member's modified basis is determined by such S
corporation in the manner described in paragraph (l)(3) of this
section.
(2) Partners in partnerships--(i) Computation. For purposes of this
section, the term modified basis means, with respect to any ultimate
member that is a direct partner in either a contributing partnership or
an upper-tier partnership, such ultimate member's adjusted basis in its
interest in the partnership in which the ultimate member holds a direct
interest as of the beginning of the first day of the partnership's
taxable year in which the qualified conservation contribution is made,
with adjustments as determined under paragraphs (l)(2)(ii) through (v)
of this section. However, if the ultimate member was not a partner as
of the beginning of the first day of the partnership's taxable year in
which the qualified conservation contribution is made, then the term
modified basis means such ultimate member's adjusted basis in its
interest in the partnership immediately after the transaction that
resulted in the ultimate member becoming a partner, with adjustments as
determined under paragraphs (l)(2)(ii) through (v) of this section. The
adjustments under paragraphs (l)(2)(ii) through (v) of this section
must be made in the order in which they are listed.
(ii) Step 1. First, the computation of modified basis must start
with the ultimate member's adjusted basis under paragraph (l)(2)(i) of
this section and then reflect an increase for any contributions made by
the ultimate member to the partnership during the portion of the year
commencing with the beginning of the taxable year of the partnership
and ending immediately prior to the time of day at which the qualified
conservation contribution is made as provided in section 722 of the
Code.
(iii) Step 2. Second, the amount determined under paragraph
(l)(2)(ii) of this section must be adjusted, as provided in section 705
of the Code, by the ultimate member's hypothetical distributive share
of partnership items attributable to the portion of the year commencing
with the beginning of the taxable year of the partnership and ending
immediately prior to the time of day at which the qualified
conservation contribution is made. In making this determination, the
partnership must apply the rules of Sec. 1.706-4 and apply a
hypothetical interim closing method to allocate the partnership's items
attributable to the portion of the year commencing with the beginning
of the taxable year of the partnership and ending immediately prior to
the time of
[[Page 80935]]
day at which the qualified conservation contribution is made. The
partnership cannot apply any convention in Sec. 1.706-4(c) to the
hypothetical determination of the partners' distributive shares, but
rather must perform the calculation as though the determination
occurred immediately prior to the time of day at which the qualified
conservation contribution is made. This hypothetical determination of
the partners' distributive shares is only for purposes of calculating
modified basis. This paragraph (l) does not require the partnership to
use the interim closing method with respect to the determination of its
partners' actual distributive shares of partnership items of income,
gain, loss, deduction, and credit for the taxable year in which the
qualified conservation contribution is made or otherwise. See Sec.
1.706-4 for applicable rules for the determination of a partner's
distributive share when a partner's interest varies during a
partnership taxable year.
(iv) Step 3. Third, the amount determined under paragraph
(l)(2)(iii) of this section must be reduced (but not below zero) by any
distributions made by the partnership to the ultimate member during the
portion of the year commencing with the beginning of the taxable year
of the partnership and ending immediately prior to the time of day at
which the qualified conservation contribution is made as provided in
section 733 of the Code.
(v) Step 4. Fourth, the amount determined under paragraph
(l)(2)(iv) of this section must be reduced by the full amount of the
ultimate member's share of Sec. 1.752-1 liabilities of any partnership
(including a lower-tier partnership). The remaining amount is such
ultimate member's modified basis. Thus, an ultimate member's modified
basis may be less than zero.
(3) S corporation shareholder--(i) Computation. For purposes of
this section, the term modified basis means, with respect to any
ultimate member that is a shareholder of either a contributing S
corporation or an upper-tier S corporation, such ultimate member's
adjusted basis in its shares in the S corporation as of the end of the
S corporation's taxable year in which the qualified conservation
contribution is made, with adjustments as determined under paragraphs
(l)(3)(ii) and (iii) of this section. However, if the ultimate member
was not a shareholder at the end of the S corporation's taxable year in
which the qualified conservation contribution is made, then the term
modified basis means such ultimate member's adjusted basis in its
shares in the S corporation immediately prior to the transaction that
terminated its interest in the S corporation, with adjustments as
determined under paragraphs (l)(3)(ii) and (iii) of this section.
Modified basis does not include the ultimate member's adjusted basis of
any indebtedness of the S corporation to the ultimate member. The
adjustments under paragraphs (l)(3)(ii) and (iii) of this section must
be made in the order in which they are listed.
(ii) Step 1. First, the computation of modified basis must start
with the ultimate member's adjusted basis under paragraph (l)(3)(i) of
this section, and then reflect an increase for the extent to which the
ultimate member's adjusted basis reflects a reduction as a result of
the qualified conservation contribution. Thus, the ultimate member's
modified basis with respect to a qualified conservation contribution
does not reflect any reduction for the ultimate member's pro rata share
of the S corporation's basis in the conservation easement or other
property contributed in the qualified conservation contribution.
(iii) Step 2. Second, the amount determined under paragraph
(l)(3)(ii) of this section must be multiplied by the number of days
during the S corporation's taxable year in which the ultimate member
was a shareholder and divided by the total number of days during the S
corporation's taxable year. The resulting amount is such ultimate
member's modified basis.
(4) Examples. The following examples illustrate the provisions of
this paragraph (l). For the three examples in this paragraph (l)(4),
assume that the exceptions in paragraph (n) of this section do not
apply.
(i) Example 1--(A) Facts. AB Partnership is a calendar-year
partnership for Federal income tax purposes whose partners are A and B,
each of whom is an individual and has a 50 percent interest in income,
gain, loss, and deduction. Several years ago, B contributed property to
AB Partnership subject to a Sec. 1.752-1 liability. At the beginning
of AB Partnership's 2024 taxable year (the beginning of the day on
January 1, 2024), A's adjusted basis in its interest in AB Partnership
is $19X, and B's adjusted basis in its interest in AB Partnership is
$17X. At 10:01 a.m. on August 29, 2024, AB Partnership makes a
qualified conservation contribution. On August 29, 2024, the amount of
the Sec. 1.752-1 liability is $10X and is allocated under the rules of
section 752 to A. During 2024, there were no variations in any
partner's interests in AB Partnership within the meaning of section
706. During 2024, AB Partnership earned $8X of ordinary income and
sustained ($4X) of capital loss in the ordinary course of its business,
both of which are allocated equally to A and B. Within 2024, AB
Partnership earned $6X of ordinary income, and sustained ($4X) of
capital loss between the beginning of the day on January 1, 2024, and
10:00 a.m. on August 29, 2024, and AB Partnership earned $2X of
ordinary income, and sustained $0X of capital loss between 10:01 a.m.
on August 29, 2024, and the end of the day on December 31, 2024. Other
than the qualified conservation contribution, none of AB Partnership's
items are extraordinary items within the meaning of Sec. 1.706-
4(e)(2). In April 2024, AB Partnership distributed $1X cash to A. In
November 2024, B contributed $2X cash to AB Partnership.
(B) Analysis. The ultimate members of AB Partnership are A and B
because they each receive a distributive share of the qualified
conservation contribution and are not partnerships or S corporations.
To determine A's and B's modified bases, AB Partnership must start with
A's and B's adjusted bases in the AB Partnership as of the beginning of
the first day of the taxable year of AB Partnership and then make the
adjustments required under paragraphs (l)(2)(ii) through (v) of this
section. Accordingly, the computation of A's beginning modified basis
begins with $19X, and the computation of B's modified basis begins with
$17X. First, those amounts must be increased by any contributions
between the beginning of the day on January 1, 2024, and 10:00 a.m. on
August 29, 2024. Because there were none, after this step, the
computation of A's modified basis remains at $19X and the computation
of B's modified basis remains at $17X. Then these amounts must be
adjusted as provided in section 705 by A's and B's hypothetical
distributive share of AB Partnership's items attributable to the
portion of the year between the beginning of the day on January 1,
2024, and 10:00 a.m. on August 29, 2024. Thus, the computations of A's
and B's modified bases will each reflect an increase for their
hypothetical $3X distributive share of the $6X ordinary income that AB
Partnership earned between the beginning of the day on January 1, 2024,
and 10:00 a.m. on August 29, 2024, and a decrease for their
hypothetical ($2X) distributive share of the ($4X) capital loss that AB
Partnership incurred between the beginning of the day on January 1,
2024, and 10:00 a.m. on August 29, 2024. Therefore, after this step,
the computation of A's modified basis
[[Page 80936]]
reflects an increase from $19X to $20X, and the computation of B's
modified basis reflects an increase from $17X to $18X. Next, these
amounts must be reduced by any distributions between the beginning of
the day on January 1, 2024, and 10:00 a.m. on August 29, 2024. Thus,
the computation of A's modified basis reflects a reduction from $20X to
$19X. B did not receive any distribution, so the computation of B's
modified basis remains at $18X. Finally, the full amount of A's and B's
shares of Sec. 1.752-1 liabilities must be subtracted. Thus, the
computation of A's modified basis reflects a reduction from $19X to
$9X, which is A's modified basis. B's modified basis is $18X.
(ii) Example 2--(A) Facts. CD Partnership, a partnership for
Federal income tax purposes, is a calendar-year partnership using the
calendar day convention under Sec. 1.706-4 whose partners on January
1, 2024, are C and D, each of whom is an individual and has a 50
percent interest in income, gain, loss, and deduction. On March 15,
2024, C sells its interest to E, a C corporation. At 1:15 p.m. on
September 15, 2024, CD Partnership makes a qualified conservation
contribution. On September 21, 2024, D sells its interest to F, an
individual. During 2024, CD Partnership earned $8X of ordinary income
and sustained ($14X) of ordinary loss. Within 2024, CD Partnership
earned all $8X of ordinary income in November and December, and
sustained all ($14X) of ordinary loss in April through August. In May
2024, D contributed $6X cash to CD Partnership, and E contributed
property with a fair market value of $6X and basis of $3X. D and E are
equal partners during the period in which they are both partners. CD
Partnership made no distributions during 2024. CD Partnership had no
Sec. 1.752-1 liabilities during 2024. In accordance with Sec. 1.706-
4(e)(2)(ix), CD Partnership treats its qualified conservation
contribution as an extraordinary item allocable only to D and E, its
partners at 1:15 p.m. on September 15, 2024. Other than the qualified
conservation contribution, none of AB Partnership's items are
extraordinary items within the meaning of Sec. 1.706-4(e)(2). CD
Partnership uses the proration method under Sec. 1.706-4 to allocate
its items among C, D, E, and F. Under the proration method, CD
Partnership allocates each C, D, E, and F a distributive share of a
portion of both the $8X ordinary income and the ($14X) ordinary loss.
D's adjusted basis in its interest in CD Partnership at the beginning
of CD Partnership's 2024 taxable year (the beginning of the day on
January 1, 2024), is $8X. E's adjusted basis in its interest in CD
Partnership immediately after E acquires C's interest in CD Partnership
is $6X.
(B) Analysis. The ultimate members of CD Partnership are D and E
because they each receive a distributive share of the qualified
conservation contribution and are not partnerships or S corporations.
To determine D's and E's modified bases, CD Partnership must start with
D's and E's adjusted bases in CD Partnership as of the beginning of the
day on January 1, 2024, and then make the adjustments required under
paragraphs (l)(2)(ii) through (v) of this section. However, because E
was not a partner as of the beginning of the day on January 1, 2024, CD
Partnership must start with E's adjusted basis immediately after E's
purchase of C's interest in CD Partnership. Accordingly, the
computation of D's modified basis begins with $8X, and the computation
of E's modified basis begins with $6X. Then, these amounts must be
increased by any contributions made by D or E, respectively, to CD
Partnership between the beginning of the day on January 1, 2024, and
1:14 p.m. on September 15, 2024. Therefore, the computation of D's
modified basis reflects an increase from $8X to $14X (for D's $6X
contribution of cash to CD Partnership in May 2024), and the
computation of E's modified basis reflects an increase from $6X to $9X
(for E's contribution of property to CD Partnership with a basis of $3X
in May 2024). Next, these amounts must be adjusted as provided in
section 705 by D's and E's hypothetical distributive share of CD
Partnership's items attributable to the portion of the year between the
beginning of the day on January 1, 2024, and 1:14 p.m. on September 15,
2024. CD Partnership must perform the analysis using an interim closing
method to a hypothetical variation at 1:14 p.m. on September 15, 2024,
immediately prior to the qualified conservation contribution. The
computation of D's modified basis will reflect an adjustment for its
hypothetical distributive share of all CD Partnership's items incurred
from the beginning of the day on January 1, 2024, through 1:14 p.m. on
September 15, 2024. The computation of E's modified basis will reflect
an adjustment for its hypothetical distributive share of all CD
Partnership's items incurred from the end of the day on March 15, 2024,
through 1:14 p.m. on September 15, 2024. For purposes of this paragraph
(l)(4)(ii)(B) (Example 2), it does not matter that CD Partnership
actually used the proration method to allocate its 2024 income.
Instead, under this hypothetical calculation of the distributive share,
the computation of D's and E's modified bases will each reflect a
reduction for their 50 percent share of the ($14X) ordinary loss.
Because none of CD Partnership's $8X of ordinary income was earned
between the beginning of the day on January 1, 2024, and 1:14 p.m. on
September 15, 2024, neither D's nor E's modified basis will reflect an
increase for any amount of that income. Thus, after this step, the
computation of D's modified basis reflects a reduction from $14X to
$7X, and the computation of E's modified basis reflects a reduction
from $9X to $2X. Then, these amounts must be reduced by any
distributions between the beginning of the day on January 1, 2024, and
1:14 p.m. on September 15, 2024. Because there were none, after this
step, the computation of D's modified basis remains at $7X, and the
computation of E's modified basis remains at $2X. Finally, the full
amount of D's and E's shares of Sec. 1.752-1 liabilities must be
subtracted. Because there were none, D's modified basis is $7X, and E's
modified basis is $2X.
(iii) Example 3--(A) Facts. HI Inc. is a calendar-year S
corporation whose shareholders on January 1, 2024, are H and I, each of
whom owns 50 percent of the shares. On May 1, 2024, H sells all of its
stock to J. In June 2024, HI Inc. contributes a conservation easement
that is a qualified conservation contribution on 400 acres of real
property. HI Inc.'s adjusted basis in the conservation easement is $12X
(which is different from HI Inc.'s adjusted basis in the 400 acres and
also may be different from the value of the conservation easement). On
July 1, 2024, I sells all of its stock to K. Under Sec. 1.1377-1, HI
Inc. allocates its qualified conservation contribution \1/6\ to H, \1/
4\ to I, \1/3\ to J, and \1/4\ to K. Pursuant to the second sentence of
section 1367(a)(2)(B), as a result of the qualified conservation
contribution, H's adjusted basis in its shares is reduced by $2X, I's
adjusted basis in its shares is reduced by $3X, J's adjusted basis in
its shares is reduced by $4X, and K's adjusted basis in its shares is
reduced by $3X. At the end of HI Inc.'s 2024 taxable year (the end of
the day on December 31, 2024), J's adjusted basis in its shares is $15X
and K's adjusted basis in its shares is $11X. Immediately prior to H's
sale to J, H's adjusted basis in its shares was $8X. Immediately prior
to I's sale to K, I's adjusted basis in its shares was $7X. Whether H,
I, J, or K have adjusted basis in indebtedness of HI Inc., has no
effect on the computation of their modified bases. H is an estate of a
deceased
[[Page 80937]]
shareholder, and I, J, and K are individuals that are not nonresident
aliens.
(B) Analysis. The ultimate members of HI Inc. are H, I, J, and K,
because they each receive a pro rata share of the qualified
conservation contribution and are not partnerships or S corporations.
To determine H's, I's, J's, and K's modified bases, HI Inc. must begin
with each shareholder's adjusted basis in its shares as of the end of
the day on December 31, 2024 (the end of the S corporation's taxable
year in which it made the qualified conservation contribution).
However, because H and I were not shareholders as of the end of the day
on December 31, 2024, HI Inc. must begin with H's adjusted basis
immediately before H's sale to J, and I's adjusted basis immediately
before I's sale to K. Accordingly, the computation of H's modified
basis begins with $8X, the computation of I's modified basis begins
with $7X, the computation of J's modified basis begins with $15X, and
the computation of K's modified basis begins with $11K. Next, HI Inc.
must increase these amounts by the extent the adjusted bases were
reduced as a result of the qualified conservation contribution.
Accordingly, the computation of H's modified basis reflects an increase
from $8X to $10X, the computation of I's modified basis reflects an
increase from $7X to $10X, the computation of J's modified basis
reflects an increase from $15X to $19X, and the computation of K's
modified basis reflects an increase from $11X to $14X. Finally, HI Inc.
must multiply each of these amounts by the number of days during 2024
in which each ultimate member was a shareholder, and divide by 366 (the
total number of days in HI Inc.'s 2024 taxable year). H was a
shareholder for 122 days. Thus, H's modified basis is $3.33X ($10X x
122/366). I was a shareholder for 183 days. Thus, I's modified basis is
$5X ($10X x 183/366). J was a shareholder for 244 days. Thus, J's
modified basis is $12.67X ($19X x 244/366). K was a shareholder for 183
days. Thus, K's is $7X ($14X x 183/366).
(m) Allocation of modified basis--(1) In general. An allocation of
an ultimate member's modified basis to the portion of the real property
with respect to which the qualified conservation contribution is made
must be made in accordance with this paragraph (m). Rules for
allocating an ultimate member's modified basis in a contributing
partnership are provided in paragraph (m)(2) of this section. Rules for
allocating an ultimate member's modified basis in a contributing S
corporation are provided in paragraph (m)(3) of this section. Rules for
allocating an ultimate member's modified basis in an upper-tier
partnership are provided in paragraph (m)(4) of this section. Rules for
allocating an ultimate member's modified basis in an upper-tier S
corporation are provided in paragraph (m)(5) of this section. Records
must be kept in accordance with paragraph (m)(6) of this section.
(2) Determination of relevant basis for an ultimate member holding
a direct interest in a contributing partnership--(i) Narrative rule.
This paragraph (m)(2) applies in the case of an ultimate member holding
a direct interest in a contributing partnership and provides that a
contributing partnership must determine each such ultimate member's
relevant basis as provided in this paragraph (m)(2). Relevant basis
equals each ultimate member's modified basis as determined under
paragraph (l)(2) of this section multiplied by a fraction--
(A) The numerator of which is the ultimate member's share of the
contributing partnership's adjusted basis in the portion of the real
property with respect to which the qualified conservation contribution
is made as determined under paragraph (m)(2)(ii) of this section; and
(B) The denominator of which is the ultimate member's portion of
the adjusted basis in all the contributing partnership's properties as
determined under paragraph (m)(2)(iii) of this section.
(ii) Ultimate member's share of the contributing partnership's
adjusted basis in the portion of the real property with respect to
which the qualified conservation contribution is made. For purposes of
this paragraph (m)(2), an ultimate member's share of the contributing
partnership's adjusted basis in the portion of the real property with
respect to which the qualified conservation contribution is made equals
the contributing partnership's adjusted basis in the portion of the
real property with respect to which the qualified conservation
contribution is made (determined as of the time of day of the
contribution) multiplied by a fraction--
(A) The numerator of which is the ultimate member's distributive
share of the qualified conservation contribution; and
(B) The denominator of which is the total amount of the
contributing partnership's qualified conservation contribution.
(iii) Ultimate member's portion of the adjusted basis in all the
contributing partnership's properties. For purposes of this paragraph
(m)(2), an ultimate member's portion of the adjusted basis in all the
contributing partnership's properties is equal to the sum of:
(A) The ultimate member's share of the contributing partnership's
adjusted basis in the portion of the real property with respect to
which the qualified conservation contribution is made as determined
under paragraph (m)(2)(ii) of this section; plus
(B) The ultimate member's portion of the adjusted basis in all the
contributing partnership's properties other than the portion of the
real property with respect to which the qualified conservation
contribution is made. To determine the ultimate member's portion of the
adjusted basis in all the contributing partnership's properties, the
contributing partnership must apportion among its partners in
accordance with their interests in the partnership under section 704(b)
its adjusted basis in each of its properties (except the portion of the
real property with respect to which the qualified conservation
contribution is made), using the adjusted bases immediately before the
qualified conservation contribution, without duplication or omission of
any property, and by treating the adjusted basis in each property as
not less than zero.
(iv) Formulaic rule. The rule of this paragraph (m)(2) is also
expressed in the following formula:
Figure 1 to Paragraph (m)(2)(iv)
R = M x (T / (D + T))
Where:
R = Relevant basis.
M = Modified basis as determined under paragraph (l) of this
section.
D = Ultimate member's portion of the adjusted basis in all the
contributing partnership's properties (other than the portion of the
real property with respect to which the qualified conservation
contribution is made), determined by apportioning among the partners
of the contributing partnership in accordance with their interests
in the partnership under section 704(b) its adjusted basis in each
of its properties (other than the portion of the real property with
respect to which the qualified conservation contribution is made),
using the adjusted bases immediately before the qualified
conservation contribution, without duplication or omission of any
property, and by treating the adjusted basis in each property as not
less than zero.
T = Ultimate member's share of the contributing partnership's
adjusted basis in the portion of the real property with respect to
which the qualified conservation contribution is made, determined
according to the following formula: A x (B / C).
A = Contributing partnership's adjusted basis in the portion of the
real property with respect to which the qualified conservation
contribution is made.
[[Page 80938]]
B = Ultimate member's distributive share of the qualified
conservation contribution.
C = Total amount of the contributing partnership's qualified
conservation contribution.
(3) Determination of relevant basis for an ultimate member holding
a direct interest in a contributing S corporation--(i) Narrative rule.
This paragraph (m)(3) applies in the case of an ultimate member holding
a direct interest in a contributing S corporation and provides that a
contributing S corporation must determine each such ultimate member's
relevant basis as provided in this paragraph (m)(3). Relevant basis
equals each ultimate member's modified basis as determined under
paragraph (l)(3) of this section multiplied by a fraction--
(A) The numerator of which is the ultimate member's pro rata
portion of the contributing S corporation's adjusted basis in the
portion of the real property with respect to which the qualified
conservation contribution is made; and
(B) The denominator of which is the ultimate member's pro rata
portion of the adjusted basis in all the contributing S corporation's
properties (including the portion of the real property with respect to
which the qualified conservation contribution is made).
(ii) Formulaic rule. The rule of this paragraph (m)(3) is also
expressed in the following formula:
Figure 2 to Paragraph (m)(3)(ii)
R = M x (E / F)
Where:
R = Relevant basis.
M = Modified basis as determined under paragraph (l) of this
section.
E = Ultimate member's pro rata portion of the contributing S
corporation's adjusted basis in the portion of the real property
with respect to which the qualified conservation contribution is
made.
F = Ultimate member's pro rata portion of the adjusted basis in all
the contributing S corporation's properties (including the portion
of the real property with respect to which the qualified
conservation contribution is made).
(4) Determination of relevant basis for an ultimate member holding
a direct interest in an upper-tier partnership--(i) In general. This
paragraph (m)(4) applies in the case of an ultimate member holding a
direct interest in an upper-tier partnership. Each such ultimate
member's modified basis must be traced through all upper-tier
partnerships to the contributing partnership, and the contributing
partnership must determine the relevant basis. This involves a multi-
step process under which, beginning with the upper-tier partnership in
which the ultimate member holds a direct interest, each upper-tier
partnership must perform calculations, and then finally the
contributing partnership must use those calculations to compute the
ultimate member's relevant basis. For simplicity, this paragraph (m)(4)
describes a situation in which there are two tiers of partnerships--a
contributing partnership and an upper-tier partnership. In a situation
involving more tiers, each partnership must apply the rules and
principles of this paragraph (m)(4) iteratively to determine relevant
basis.
(ii) Upper-tier partnership--(A) Narrative rule. The upper-tier
partnership must determine the portion of each ultimate member's
modified basis that is allocable to the upper-tier partnership's
interest in the partnership in which it holds a direct interest (in a
situation involving only two tiers of partnerships, that will be the
contributing partnership). This determination must be done in
accordance with the principles of paragraph (m)(2) of this section, and
the formula provided in paragraph (m)(4)(ii)(B) of this section. In
other words, the formula provided in paragraph (m)(4)(ii)(B) is similar
to the formula provided in paragraph (m)(2)(iv) of this section, except
that, instead of determining the portion of modified basis that is
allocable to the portion of the real property with respect to which the
qualified conservation contribution is made, the formula in paragraph
(m)(4)(ii)(B) determines the portion of modified basis that is
allocable to the upper-tier partnership's interest in the next lower-
tier partnership. As explained in paragraph (m)(4)(iii) of this
section, the contributing partnership will then use the amount
determined under the formula in paragraph (m)(4)(ii)(B) to compute the
portion of modified basis that is allocable to the portion of the real
property with respect to which the qualified conservation contribution
is made.
(B) Formulaic rule. The rule of this paragraph (m)(4)(ii) is also
expressed in the following formula:
Figure 3 to Paragraph (m)(4)(ii)(B)
G = M x (U / (J + U))
Where:
G = The portion of the ultimate member's modified basis that is
allocable to the upper-tier partnership's interest in the
contributing partnership.
M = Modified basis as determined under paragraph (l) of this
section.
J = Ultimate member's portion of the adjusted basis in all the
upper-tier partnership's properties (other than the upper-tier
partnership's interest in the contributing partnership), determined
by apportioning among the partners of the upper-tier partnership in
accordance with their interests in the partnership under section
704(b) its adjusted basis in each of its properties (other than the
upper-tier partnership's interest in the contributing partnership),
using the adjusted bases immediately before the qualified
conservation contribution, without duplication or omission of any
property, and by treating the adjusted basis in each property as not
less than zero.
U = Ultimate member's share of the upper-tier partnership's adjusted
basis in its interest in the contributing partnership, determined
according to the following formula: H x (B / K).
H = Upper-tier partnership's adjusted basis in its interest in the
contributing partnership.
B = Ultimate member's distributive share of the qualified
conservation contribution.
K = Upper-tier partnership's allocated portion of the qualified
conservation contribution.
(iii) Contributing partnership--(A) Narrative rule. After
completion of the computations under paragraph (m)(4)(ii) of this
section, the contributing partnership must determine the portion of the
amount determined under item G (see paragraph (m)(4)(ii)(B) of this
section) with respect to each ultimate member that is allocable to the
portion of the real property with respect to which the qualified
conservation contribution is made. This determination must be done in
accordance with the principles of paragraph (m)(2) of this section, and
the formula provided in paragraph (m)(4)(iii)(B) of this section.
(B) Formulaic rule. The rule of this paragraph (m)(4)(iii) is also
expressed in the following formula:
Figure 5 to Paragraph (m)(4)(iii)(B)
R = G x (V / (L + V))
Where:
R = Relevant basis.
G = Amount determined with respect to item G as described under
paragraph (m)(4)(ii)(B) of this section.
L = Upper-tier partnership's portion of adjusted basis in all the
contributing partnership's properties (other than the portion of the
real property with respect to which the qualified conservation
contribution is made), determined by apportioning among the partners
of the contributing partnership in accordance with their interests
in the partnership under section 704(b) its adjusted basis in each
of its properties (except the interest in the contributing
partnership), using the adjusted bases immediately before the
qualified conservation contribution, without duplication or omission
of any property, and by treating the adjusted basis in each property
as not less than zero.
[[Page 80939]]
V = Upper-tier partnership's share of the contributing partnership's
adjusted basis in the portion of the real property with respect to
which the qualified conservation contribution is made, determined
according to the following formula: A x (K / C).
A = Contributing partnership's adjusted basis in the portion of the
real property with respect to which the qualified conservation
contribution is made.
K = Upper-tier partnership's allocated portion of the qualified
conservation contribution.
C = Total amount of the contributing partnership's qualified
conservation contribution.
(5) Determination of relevant basis for an ultimate member holding
a direct interest in an upper-tier S corporation--(i) In general. This
paragraph (m)(5) applies in the case of an ultimate member holding a
direct interest in an upper-tier S corporation. Each such ultimate
member's modified basis must be traced through the upper-tier S
corporation and any upper-tier partnerships to the contributing
partnership, and the contributing partnership must determine the
relevant basis. This involves a multi-step process under which,
beginning with the upper-tier S corporation, the upper-tier S
corporation and any upper-tier partnerships must perform calculations,
and then finally the contributing partnership must use those
calculations to compute the ultimate member's relevant basis. For
simplicity, this paragraph (m)(5) describes a situation in which there
are two tiers--a contributing partnership and an upper-tier S
corporation. In a situation involving more tiers, each partnership and
the upper-tier S corporation must apply the rules and principles of
this paragraph (m) iteratively to determine relevant basis.
(ii) Upper-tier S corporation--(A) Narrative rule. The upper-tier S
corporation must determine the portion of each ultimate member's
modified basis that is allocable to the upper-tier S corporation's
interest in the partnership in which it holds a direct interest (in a
situation involving only two tiers, that will be the contributing
partnership). This determination must be done in accordance with the
principles of paragraph (m)(3) of this section, and the formula
provided in paragraph (m)(5)(ii)(B) of this section. In other words,
the formula provided in paragraph (m)(5)(ii)(B) is similar to the
formula provided in paragraph (m)(3)(ii) of this section, except that,
instead of determining the portion of modified basis that is allocable
to the portion of the real property with respect to which the qualified
conservation contribution is made, the formula in paragraph
(m)(5)(ii)(B) determines the portion of modified basis that is
allocable to the upper-tier S corporation's interest in the next lower-
tier partnership. As explained in paragraph (m)(5)(iii) of this
section, the contributing partnership will then use the amount
determined under the formula in paragraph (m)(5)(ii)(B) to compute the
portion of modified basis that is allocable to the portion of the real
property with respect to which the qualified conservation contribution
is made.
(B) Formulaic rule. The rule of this paragraph (m)(5)(ii) is also
expressed in the following formula:
Figure 6 to Paragraph (m)(5)(ii)(B)
N = M x (P / Q)
Where:
N = Portion of the ultimate member's modified basis that is
allocable to the upper-tier S corporation's interest in the
contributing partnership.
M = Modified basis as determined under paragraph (l) of this
section.
P = Ultimate member's pro rata portion of the upper-tier S
corporation's adjusted basis in its interest in the contributing
partnership.
Q = Ultimate member's pro rata portion of the adjusted basis in all
the upper-tier S corporation's properties (including the upper-tier
S corporation's adjusted basis in its interest in the contributing
partnership).
(iii) Contributing partnership--(A) Narrative rule. After
completion of the computations under paragraph (m)(5)(ii) of this
section, the contributing partnership must determine the portion of the
amount determined under item N (see paragraph (m)(5)(ii)(B) of this
section) with respect to each ultimate member that is allocable to the
portion of the real property with respect to which the qualified
conservation contribution is made. This determination must be done in
accordance with the principles of paragraph (m)(2) of this section, and
the formula provided in paragraph (m)(5)(iii)(B) of this section.
(B) Formulaic rule. The rule of this paragraph (m)(5)(iii) is also
expressed in the following formula:
Figure 7 to Paragraph (m)(5)(iii)(B)
R = N x (W / (S + W))
Where:
R = Relevant basis.
N = Amount determined with respect to item N as described under
paragraph (m)(5)(ii)(B) of this section.
S = Upper-tier S corporation's portion of the adjusted basis in all
the contributing partnership's properties (other than the portion of
the real property with respect to which the qualified conservation
contribution is made), determined by apportioning among the partners
of the contributing partnership in accordance with their interests
in the partnership under section 704(b) its adjusted basis in each
of its properties (other than the portion of the real property with
respect to which the qualified conservation contribution is made),
using the adjusted bases immediately before the qualified
conservation contribution, without duplication or omission of any
property, and by treating the adjusted basis in each property as not
less than zero.
W = Upper-tier S corporation's share of the contributing
partnership's adjusted basis in the portion of the real property
with respect to which the qualified conservation contribution is
made, determined according to the following formula: A x (Y / C).
A = Contributing partnership's adjusted basis in the portion of the
real property with respect to which the qualified conservation
contribution is made.
Y = Upper-tier S corporation's allocated portion of the qualified
conservation contribution.
C = Total amount of the contributing partnership's qualified
conservation contribution.
(6) Recordkeeping requirements. Contributing partnerships,
contributing S corporations, upper-tier partnerships, and upper-tier S
corporations must maintain dated, written statements in their books and
records, by the due date, including extensions, of their Federal income
tax returns, substantiating the computation of each ultimate member's
adjusted basis, modified basis, and relevant basis. See Sec. 1.6001-1.
These statements need not be maintained (nor does modified basis or
relevant basis need to be computed) with respect to contributions that
meet an exception in paragraph (n)(2) or (3) of this section.
(7) Examples. The following examples illustrate the provisions of
this paragraph (m). For the three examples in this paragraph (m)(7),
assume that the partnership allocations comply with the rules of
subchapter K of chapter 1 of the Code and the exceptions in paragraph
(n) of this section do not apply.
(i) Example 1--(A) Facts. YZ Partnership is a partnership for
Federal income tax purposes whose partners are individuals Y and Z. YZ
Partnership owns 100 acres of real property with an adjusted basis of
$10X. YZ Partnership makes a qualified conservation contribution on 60
acres of the property. YZ Partnership claims a contribution of $18X,
which it allocates $12X to Y and $6X to Z. YZ Partnership's adjusted
basis in the 60 acres is $6X, and its adjusted basis in all of its
other properties (including its $4X basis in the 40 acres on which a
qualified conservation contribution was not made) is $18X. Y's modified
basis is
[[Page 80940]]
$8X. Y's portion of YZ Partnership's adjusted basis in all partnership
property (other than the 60 acres) as determined in accordance with Y's
interest in YZ Partnership is $4X. Z's modified basis is $12X. Z's
portion of YZ Partnership's adjusted basis in all partnership property
(other than the 60 acres) as determined in accordance with Z's interest
in YZ Partnership is $14X.
(B) General analysis. Y and Z are the ultimate members of YZ
Partnership because they each receive a distributive share of the
qualified conservation contribution and are not partnerships or S
corporations. Their relevant bases must be determined according to the
following formula:
Figure 8 to Paragraph (m)(7)(i)(B)
R = M x (T / (D + T))
Where:
R = Relevant basis.
M = Modified basis as determined under paragraph (l) of this
section.
D = Ultimate member's portion of the adjusted basis in all of the
contributing partnership's properties (other than the portion of the
real property with respect to which the qualified conservation
contribution is made).
T = Ultimate member's share of the contributing partnership's
adjusted basis in the portion of the real property with respect to
which the qualified conservation contribution is made, determined
according to the following formula: A x (B / C).
A = Contributing partnership's adjusted basis in the portion of the
real property with respect to which the qualified conservation
contribution is made.
B = Ultimate member's distributive share of the qualified
conservation contribution.
C = Total amount of the contributing partnership's qualified
conservation contribution.
(C) Y's relevant basis. With respect to Y:
(1) M = $8X.
(2) D = $4X.
(3) A = $6X.
(4) B = $12X.
(5) C = $18X.
(6) Thus, T is $4X = $6X x ($12X / $18X).
(7) Accordingly, Y's relevant basis is $4X = $8X x ($4X / ($4X +
$4X)).
(D) Z's relevant basis. With respect to Z:
(1) M = $12X.
(2) D = $14X.
(3) A = $6X.
(4) B = $6X.
(5) C = $18X.
(6) Thus, T is $2X = $6X x ($6X / $18X).
(7) Accordingly, Z's relevant basis is $1.5X = $12X x ($2X / ($14X
+ $2X)).
(E) Sum of relevant bases. The amount of YZ Partnership's claimed
contribution is $18X, which exceeds 2.5 times the sum of Y's and Z's
relevant bases, which is $13.75X ($13.75X = 2.5 x (Y's relevant basis
of $4X + Z's relevant basis of $1.5X)). Accordingly, YZ Partnership's
contribution is a disallowed qualified conservation contribution. No
person may claim any deduction with respect to this contribution.
(ii) Example 2--(A) Facts. CD Inc. is an S corporation with
shareholders C and D, each of whom is an individual that is not a
nonresident alien. C owns one third of the outstanding stock in CD
Inc., and D owns the remaining two thirds. CD Inc. owns 100 acres of
real property with an adjusted basis of $10X. CD Inc. makes a qualified
conservation contribution on 60 acres of the property. CD Inc. claims a
contribution of $9X, which it allocates $3X to C and $6X to D. CD
Inc.'s adjusted basis in the 60 acres is $6X, and its adjusted basis in
all its properties (including its $6X basis in the 60 acres) is $24X.
C's modified basis in CD Inc. is $8X. D's modified basis in CD Inc. is
$12X.
(B) General analysis. C and D are the ultimate members of CD Inc.
because they each receive a pro rata share of the qualified
conservation contribution and are not partnerships or S corporations.
Their relevant bases must be determined according to the following
formula:
Figure 9 to Paragraph (m)(7)(ii)(B)
R = M x (E / F)
Where:
R = Relevant basis.
M = Modified basis as determined under paragraph (l) of this
section.
E = Ultimate member's pro rata portion of the contributing S
corporation's adjusted basis in the portion of the real property
with respect to which the qualified conservation contribution is
made.
F = Ultimate member's pro rata portion of the adjusted basis in all
the contributing S corporation's properties (including the portion
of the real property with respect to which the qualified
conservation contribution is made).
(C) C's relevant basis. With respect to C:
(1) M = $8X.
(2) E = $2X (\1/3\ of $6X).
(3) F = $8X (\1/3\ of $24X).
(4) Thus, C's relevant basis is $2X = $8X x ($2X / $8X).
(D) D's relevant basis. With respect to D:
(1) M = $12X.
(2) E = $4X (\2/3\ of $6X).
(3) F = $16X (\2/3\ of $24X).
(4) Thus, D's relevant basis is $3X = $12X x ($4X / $16X).
(E) Sum of relevant bases. The amount of CD Inc.'s claimed
qualified conservation contribution is $9X, which does not exceed 2.5
times the sum of C's and D's relevant bases, which is $12.50 ($12.50X =
2.5 x (C's relevant basis of $2X + D's relevant basis of $3X)).
Accordingly, CD Inc.'s contribution is not a disallowed qualified
conservation contribution (that is, is not disallowed by section
170(h)(7) and paragraph (j) of this section).
(iii) Example 3--(A) Facts. LTP Partnership is a partnership for
Federal income tax purposes whose partners are individual E and UTP
Partnership, a partnership for Federal income tax purposes. UTP
Partnership's partners are C corporations P and Q. LTP Partnership owns
300 acres of real property. LTP Partnership makes a qualified
conservation contribution on all 300 acres. LTP Partnership claims a
qualified conservation contribution of $22X, which it allocates $2X to
E and $20X to UTP Partnership. UTP Partnership allocates its $20X share
of the qualified conservation contribution $6X to P and $14X to Q. LTP
Partnership's basis in the 300 acres is $18X, and its adjusted basis in
all of its other properties is $12X. E's modified basis in LTP
Partnership is $4X. E's portion of LTP Partnership's adjusted basis in
all partnership property (other than the 300 acres) as determined in
accordance with E's interest in LTP Partnership is $4.36X. UTP
Partnership's portion of LTP Partnership's adjusted basis in all
partnership property (other than the 300 acres) as determined in
accordance with UTP Partnership's interest in LTP Partnership is
$7.64X. UTP Partnership's adjusted basis in its interest in LTP
Partnership is $19, and its adjusted basis in all other properties is
$6X. P's modified basis in UTP Partnership is $12X. P's portion of UTP
Partnership's adjusted basis in all partnership property (other than
the interest in LTP Partnership) as determined in accordance with P's
interest in UTP Partnership is $3.6X. Q's modified basis in UTP
Partnership is $8X. Q's portion of UTP Partnership's adjusted basis of
all partnership property (other than the interest in LTP Partnership)
as determined in accordance with Q's interest in UTP Partnership is
$2.4X.
(B) Analysis: partner E. (1) The ultimate members of LTP
Partnership are E, P, and Q because they each receive a distributive
share of the qualified conservation contribution and are not
partnerships or S corporations. Because E holds a direct interest in
LTP Partnership, E's relevant basis must be determined in accordance
with the following formula:
[[Page 80941]]
Figure 10 to Paragraph (m)(7)(iii)(B)(1)
R = M x (T / (D + T))
Where:
R = Relevant basis.
M = Modified basis as determined under paragraph (l) of this
section.
D = Ultimate member's portion of the adjusted basis in all the
contributing partnership's properties (other than the portion of the
real property with respect to which the qualified conservation
contribution is made).
T = Ultimate member's share of the contributing partnership's
adjusted basis in the portion of the real property with respect to
which the qualified conservation contribution is made, determined
according to the following formula: A x (B / C).
A = Contributing partnership's adjusted basis in the portion of the
real property with respect to which the qualified conservation
contribution is made.
B = Ultimate member's distributive share of the qualified
conservation contribution.
C = Total amount of the contributing partnership's qualified
conservation contribution.
(2) With respect to E:
(i) M = $4X.
(ii) D = $4.36X.
(iii) A = $18X.
(iv) B = $2X.
(v) C = $22X.
(vi) Thus, T is $1.64X = $18X x ($2X / $22X).
(vii) Accordingly, E's relevant basis is $1.09X = $4X x ($1.64X /
($4.36X + $1.64X)).
(C) Analysis: General rule for UTP Partnership. Because P and Q
hold interests in an upper-tier partnership, UTP Partnership must first
determine the portions of P's and Q's modified bases that are allocable
to UTP Partnership's interest in LTP Partnership. This is to be done
according to the following formula:
Figure 11 to Paragraph (m)(7)(iii)(C)
G = M x (U / (J + U))
Where:
G = The portion of the ultimate member's modified basis that is
allocable to the upper-tier partnership's interest in the
contributing partnership.
M = Modified basis as determined under paragraph (l) of this
section.
J = Ultimate member's portion of adjusted basis in all the upper-
tier partnership's properties (other than the upper-tier
partnership's interest in the contributing partnership).
U = Ultimate member's share of the upper-tier partnership's adjusted
basis in its interest in the contributing partnership, determined
according to the following formula: H x (B / K).
H = Upper-tier partnership's adjusted basis in its interest in the
contributing partnership.
B = Ultimate member's distributive share of the qualified
conservation contribution.
K = Upper-tier partnership's allocated portion of the qualified
conservation contribution.
(D) Analysis: Step 1 for P. With respect to P:
(1.
(E) Analysis: Step 1 for Q. With respect to Q:
(1) M = $8X.
(2) J = $2.4X.
(3) H = $19X.
(4) B = $14X.
(5) K = $20X.
(6) Thus, U is $13.30X = $19X x ($14X / $20X).
(7) Accordingly, the portion of Q's modified basis that is
allocable to UTP Partnership's interest in LTP Partnership is $6.78X =
$8X x ($13.30X / ($2.40X + $13.30X)).
(F) Analysis: General rule for LTP Partnership. Next, LTP
Partnership must determine P's and Q's relevant bases, which equals the
portions of the amounts determined under paragraphs (m)(7)(iii)(D) and
(E) of this section (Example 3) that are allocable to the portion of
the real property with respect to which the qualified conservation
contribution was made. This must be done according to the following
formula:
Figure 12 to Paragraph (m)(7)(iii)(F)
R = G x (V / (L + V))
Where:
R = Relevant basis.
G = Amount determined with respect to item G under paragraph
(m)(4)(ii)(B) of this section.
L = Upper-tier partnership's portion of adjusted basis in all the
contributing partnership's properties (other than the portion of the
real property with respect to which the qualified conservation
contribution is made).
V = Upper-tier partnership's share of the contributing partnership's
adjusted basis in the portion of the real property with respect to
which the qualified conservation contribution is made, determined
according to the following formula: A x (K / C).
A = Contributing partnership's adjusted basis in the portion of the
real property with respect to which the qualified conservation
contribution is made.
K = Upper-tier partnership's allocated portion of the qualified
conservation contribution.
C = Total amount of the contributing partnership's qualified
conservation contribution.
(G) Analysis: Step 2 for P. With respect to P:
(1) G = $7.35X.
(2) L = $7.64X.
(3) A = $18X.
(4) K = $20X.
(5) C = $22X.
(6) Thus, V is $16.36X = $18X x ($20X / $22X).
(7) Accordingly, P's relevant basis is $5.01X = $7.35X x ($16.36X /
($7.64X + $16.36X)).
(H) Analysis: Step 2 for Q. With respect to Q:
(1) G = $6.78X.
(2) L = $7.64X.
(3) A = $18X.
(4) K = $20X.
(5) C = $22X.
(6) Thus, V is $16.36X = $18X x ($20X / $22X).
(7) Accordingly, Q's relevant basis is $4.62X = $6.78X x ($16.36X /
($7.64X + $16.36X)).
(I) Analysis: Computation of 2.5 times sum of relevant bases. The
ultimate members of LTP Partnership are E, P, and Q. The amount of LTP
Partnership's qualified conservation contribution is $22X. This does
not exceed 2.5 times the sum of each of the ultimate member's relevant
basis, which totals $26.80 ($26.80 = 2.5 x (E's relevant basis of 1.09X
+ P's relevant basis of $5.01X + Q's relevant basis of $4.62X)).
Therefore, LTP Partnership's contribution is not a disallowed qualified
conservation contribution (that is, is not disallowed by section
170(h)(7) and paragraph (j) of this section). Because UTP Partnership
receives an allocated portion, it must apply paragraphs (j) through (l)
of this section and this paragraph (m) to determine whether its
allocated portion is a disallowed qualified conservation contribution.
The ultimate members of UTP Partnership are P and Q. The amount of UTP
Partnership's allocated portion of LTP Partnership's qualified
conservation contribution is $20X. This does not exceed 2.5 times the
sum of P's and Q's relevant bases, which is $24.08X ($24.08X = 2.5 x
(P's relevant basis of $5.01X + Q's relevant basis of $4.62X)).
Therefore, UTP Partnership's allocated portion of LTP Partnership's
contribution is not a disallowed qualified conservation contribution
(that is, is not disallowed by section 170(h)(7) and paragraph (j) of
this section).
(n) Exceptions--(1) In general. Paragraph (j) of this section does
not apply to any qualified conservation contribution that satisfies one
or more of the three exceptions in this paragraph (n). However, as
provided in paragraph (j)(5) of this section, there is no presumption
that such a contribution is compliant with section 170, any other
section of the Code, or the regulations in this part or any other
guidance. Being described in this paragraph (n) is not a safe harbor
for purposes of any other provision of law or with respect to the value
of the contribution. Such transactions are subject to adjustment or
disallowance for any other reason,
[[Page 80942]]
including failure to satisfy other requirements of section 170 and
overvaluation of the contribution. In addition, taxpayers who engage in
such transactions may be required to disclose under Sec. 1.6011-4 the
transactions as listed transactions.
(2) Exception for contributions outside three-year holding period--
(i) In general. Paragraph (j) of this section does not apply to any
qualified conservation contribution by a contributing partnership or
contributing S corporation made at least three years after the latest
of--
(A) The last date on which the contributing partnership or
contributing S corporation acquired any portion of the real property
with respect to which such qualified conservation contribution is made;
(B) The last date on which any partner in the contributing
partnership or shareholder in the contributing S corporation acquired
any interest in such partnership or S corporation; and
(C) If the interest in the contributing partnership is held through
one or more upper-tier partnerships or upper-tier S corporations--
(1) The last date on which any such upper-tier partnership or
upper-tier S corporation acquired any interest in the contributing
partnership or any other upper-tier partnership; and
(2) The last date on which any partner or shareholder in any such
upper-tier partnership or upper-tier S corporation acquired any
interest in such upper-tier partnership or upper-tier S corporation.
(ii) Acquisition of partnership interest. For purposes of this
paragraph (n)(2), an acquisition of any interest in a partnership is
any variation within the meaning of that term in Sec. 1.706-4(a)(1);
however, a variation does not include a change in allocations that
satisfies the requirements of Sec. 1.706-4(b)(1).
(iii) Acquisition of interest in an S corporation. For purposes of
this paragraph (n)(2), an acquisition of any interest in an S
corporation is any transfer, issuance, redemption, or other disposition
of stock in the S corporation; however, an acquisition does not include
any issuance or redemption involving all shareholders that does not
affect the proportionate ownership of any shareholder.
(iv) Exception is determined at the level of the contributing
partnership or contributing S corporation. If the contributing
partnership or contributing S corporation does not satisfy the
requirements of this paragraph (n)(2), then this paragraph (n)(2) will
not apply to any person who receives a distributive share or pro rata
share of the qualified conservation contribution (including an upper-
tier partnership or upper-tier S corporation), regardless of whether
the person receiving such distributive share or pro rata share would
have satisfied the requirements of this paragraph (n)(2) if the person
had been the one to make the qualified conservation contribution.
(v) Examples. The following examples illustrate the provisions of
this paragraph (n)(2). For the two examples in this paragraph
(n)(2)(v), assume that the exceptions in paragraphs (n)(3) and (4) of
this section do not apply.
(A) Example 1--(1) Facts. ABC Partnership is a partnership for
Federal income tax purposes. Since 2015, ABC Partnership's partners
have been A, an individual, and BC Inc., an S corporation. Since 2015,
BC Inc.'s shareholders have been B and C, each of whom is an individual
that is not a nonresident alien. On December 27, 2024, ABC partnership
acquires real property. On August 29, 2025, BC Inc. redeems half of B's
shares in BC Inc. On December 28, 2027, ABC Partnership makes a
qualified conservation contribution.
(2) Analysis. Pursuant to paragraph (n)(2)(iii) of this section, BC
Inc.'s redemption of some of B's shares is treated as an acquisition of
an interest in BC Inc. for purposes of this paragraph (n)(2).
Accordingly, ABC Partnership's contribution occurred less than three
years after the latest acquisition of an interest in a partnership or S
corporation that held an interest in ABC Partnership, the contributing
partnership. Therefore, ABC Partnership's contribution fails to satisfy
the requirements of this paragraph (n)(2) and must apply the provisions
of paragraphs (j) through (m) of this section to determine whether the
contribution is a disallowed qualified conservation contribution.
(B) Example 2--(1) Facts. LTP partnership is a partnership for
Federal income tax purposes. Since 2017, LTP Partnership's partners
have been UTP Partnership, a partnership for Federal income tax
purposes, and FG Inc., an S corporation. Since 2018, UTP Partnership's
partners have been individuals D and E, and there has been no variation
in their ownership. Since 2019, FG Inc.'s shareholders have been F and
G, each of whom is an individual that is not a nonresident alien. On
March 15, 2024, LTP Partnership acquires real property. On September
15, 2026, D dies and D's interest in UTP Partnership passes to D's
estate. On March 18, 2027, LTP Partnership makes a qualified
conservation contribution. LTP Partnership allocates all of the
qualified conservation contribution to FG Inc.
(2) Analysis. Pursuant to paragraph (n)(2)(ii) of this section, the
transfer of D's interest in UTP Partnership to D's estate is treated as
an acquisition of an interest in UTP Partnership for purposes of
paragraph (n)(2) of this section. Accordingly, LTP Partnership's
contribution occurred less than three years after the latest
acquisition of an interest in a partnership or S corporation that held
an interest in LTP Partnership, the contributing partnership.
Therefore, LTP Partnership's contribution fails to satisfy the
requirement of this paragraph (n)(2). Pursuant to paragraph (n)(2)(iv)
of this section, FG Inc. cannot avail itself of this paragraph (n)(2)
with respect to its allocated portion of LTP Partnership's
contribution. Accordingly, FG Inc. must apply the provisions of
paragraphs (j) through (m) of this section to determine whether its
allocated portion is a disallowed qualified conservation contribution.
(3) Exception for family partnerships and S corporations--(i)
General rule. Paragraph (j) of this section does not apply with respect
to any qualified conservation contribution made by a contributing
partnership or contributing S corporation if at least 90 percent of the
interests in the contributing partnership or contributing S corporation
are held by an individual and members of the family of such individual,
and the contributing partnership or contributing S corporation meets
the requirements of this paragraph (n)(3).
(ii) Ninety percent of the interests--(A) Family partnerships. In
the case of a contributing partnership, at least 90 percent of the
interests in the contributing partnership are held by an individual and
members of the family of such individual if, at the time of the
qualified conservation contribution, at least 90 percent of the
interests in capital and profits in such partnership are held, directly
or indirectly, by an individual and members of the family of such
individual.
(B) Family S corporations. In the case of a contributing S
corporation, at least 90 percent of the interests in the contributing S
corporation are held by an individual and members of the family of such
individual if, at the time of the qualified conservation contribution,
at least 90 percent of the total value and at least 90 percent of the
total voting power of the outstanding stock in such S corporation are
held by an individual and members of the family of such individual.
(iii) Members of the family. For purposes of this paragraph (n)(3),
the
[[Page 80943]]
term members of the family means, with respect to any individual--
(A) The spouse of such individual; and
(B) Any individual who bears a relationship to such individual that
is described in section 152(d)(2)(A) through (G) of the Code.
(iv) Anti-abuse rules--(A) Holding period. This paragraph (n)(3)
does not apply unless at least 90 percent of the interests in the
property with respect to which the qualified conservation contribution
was made were owned, directly or indirectly, by one individual and
members of the family of that individual for at least one year prior to
the date of the contribution. The members of the family during that
year need not be the same members of the family that own an interest at
the time of the qualified conservation contribution; however, at least
one individual must own an interest for the entire year, and at least
90 percent of the interests in the property must be owned, directly or
indirectly, during that year by that individual and members of that
individual's family.
(B) Allocations. This paragraph (n)(3) does not apply unless at
least 90 percent of the qualified conservation contribution is
allocated to the individual and all members of the family who own at
least 90 percent of the interests in the contributing partnership or
contributing S corporation under paragraph (n)(3)(ii) of this section.
(v) Exception is determined at the level of the contributing
partnership or contributing S corporation. If the contributing
partnership or contributing S corporation satisfies the requirements of
this paragraph (n)(3), then any upper-tier partnership or upper-tier S
corporation need not apply paragraphs (j) through (m) of this section
and this paragraph (n) to its allocated portions of such contribution.
If the contributing partnership or contributing S corporation does not
satisfy the requirements of this paragraph (n)(3), then the exception
in this paragraph (n)(3) will not apply to any person who receives a
distributive share or pro rata share of the qualified conservation
contribution (including an upper-tier partnership or upper-tier S
corporation), regardless of whether the person receiving such
distributive share or pro rata share would have satisfied the
requirements of this paragraph (n)(3) if the person had been the one to
make the contribution.
(vi) Examples. The following examples illustrate the provisions of
this paragraph (n)(3). For the two examples in this paragraph
(n)(3)(vi), assume that the exceptions in paragraphs (n)(2) and (4) of
this section do not apply.
(A) Example 1--(1) Facts. Individual A and A's sibling B acquire
real property on July 5, 2024. On September 14, 2024, B transfers its
interest in the real property to B's child C. On February 21, 2025, A
and C transfer their interests in the real property to AC Partnership,
a partnership for Federal income tax purposes whose only partners are A
and C. On March 18, 2025, A's stepfather D becomes a partner in AC
Partnership in exchange for a capital contribution. On September 15,
2025, AC Partnership makes a qualified conservation contribution on the
real property. AC Partnership never had any partners other than A, C,
and D.
(2) Analysis. B, C, and D qualify as members of the family with
respect to A. Accordingly, as of the time of the qualified conservation
contribution, at least 90 percent of the interests in capital and
profits of AC Partnership were owned by an individual and members of
that individual's family. In addition, at least 90 percent of the
interests in the property with respect to which the qualified
conservation contribution was made were owned, directly and indirectly,
by A and members of A's family for at least one year prior to the date
of the contribution. Moreover, at least 90 percent of the contribution
is allocated to A and members of A's family. Accordingly, the
requirements of this paragraph (n)(3) are satisfied, and the
Disallowance Rule in section 170(h)(7)(A) and paragraph (j) of this
section does not apply.
(B) Example 2--(1) Facts. LTP Partnership is a partnership for
Federal income tax purposes whose partners are EF Inc., an S
corporation, and UTP Partnership, a partnership for Federal income tax
purposes. EF Inc. and UTP Partnership each hold a 50 percent interest
in the profits and capital of LTP Partnership. The shareholders of EF
Inc. are E and E's sibling F. The partners of UTP Partnership are G and
G's child H. E and F are not related to G and H. LTP Partnership has
held real property since 2019. On July 5, 2024, LTP Partnership
distributes half of the acres of its real property to EF Inc., and the
remaining acres to UTP Partnership. On October 21, 2024, EF Inc., makes
a qualified conservation contribution on the real property it received
from LTP Partnership.
(2) Analysis. F qualifies as a member of the family with respect to
E. Accordingly, as of the time of EF Inc.'s qualified conservation
contribution, EF Inc. was owned at least 90 percent by an individual
and members of that individual's family. In addition, at least 90
percent of EF Inc's qualified conservation contribution is allocated to
E and members of E's family. However, E and members of E's family
failed to own at least 90 percent of the property with respect to which
the qualified conservation contribution was made for at least one year
prior to the date of the contribution. In particular, G and H (who are
not members of the family with respect to E or F) indirectly owned a 50
percent interest in the property until July 5, 2024. Accordingly, the
requirements of this paragraph (n)(3) are not satisfied. EF Inc. must
apply the provisions of paragraphs (j) through (m) of this section to
determine whether the contribution is a disallowed qualified
conservation contribution.
(4) Exception for contributions to preserve certified historic
structures. Paragraph (j) of this section does not apply to any
qualified conservation contribution the conservation purpose of which
is the preservation of any building that is a certified historic
structure (as defined in section 170(h)(4)(C)). See Sec. 1.170A-
16(f)(6) for special reporting requirements for a contribution that
meets the exception in this paragraph (n)(4).
(o) Applicability dates--(1) In general. Except as provided in
paragraphs (g)(4)(ii), (i), and (o)(2) of this section, paragraphs (a)
through (i) of this section apply only to contributions made on or
after December 18, 1980. Paragraphs (j) through (n) of this section
apply to contributions made after December 29, 2022.
(2) Exception. Paragraph (h)(4)(ii) of this section applies on and
after June 1, 2023.
0
Par. 3. Section 1.170A-16 is amended by:
0
1. In paragraph (c)(3)(iv)(F), adding the word ``and'' at the end of
the paragraph;
0
2. In paragraph (c)(3)(iv)(G), removing the language ``and'' at the end
of the paragraph;
0
3. Redesignating paragraph (c)(3)(v) as paragraph (c)(3)(vi) and adding
new paragraph (c)(3)(v);
0
4. In paragraph (d)(3)(vii), removing the language ``and'' at the end
of the paragraph;
0
5. Redesignating paragraph (d)(3)(viii) as paragraph (d)(3)(x) and
adding new paragraph (d)(3)(viii);
0
6. Adding paragraph (d)(3)(ix);
0
7. Revising paragraph (f)(4);
0
8. Adding paragraph (f)(6);
0
9. Revising paragraph (g).
The additions and revisions read as follows:
[[Page 80944]]
Sec. 1.170A-16 Substantiation and reporting requirements for noncash
charitable contributions.
* * * * *
(c) * * *
(3) * * *
(v) Where a number can be inserted into any box on Form 8283
(Section A), the number inserted in the box on Form 8283 (Section A).
Alternatively, taxpayers may attach a statement to the Form 8283
explaining why a number cannot be inserted. Nothing in this paragraph
(c)(3)(v) precludes a taxpayer from both inserting the number in the
appropriate box on Form 8283 (Section A) and including an attached
statement explaining any additional information regarding the number.
Taxpayers may not respond to a request for information on Form 8283
(Section A) with nonresponsive responses, for example, by indicating
that the requested information is available upon request or will be
provided upon request. The inclusion of such nonresponsive language in
response to a request for information on Form 8283 (Section A) may be
treated by the IRS as being an incomplete filing of Form 8283; and
* * * * *
(d) * * *
(3) * * *
(viii) In the case of a partnership or S corporation that makes a
qualified conservation contribution, the sum of each ultimate member's
relevant bases, computed in accordance with Sec. 1.170A-14(j) through
(m), but only:
(A) For contributions described in section 170(h)(7)(E) and Sec.
1.170A-14(n)(4) (for contributions to preserve certified historic
structures), regardless of whether they are also described in section
170(h)(7)(C) and Sec. 1.170A-14(n)(2) (for contributions made outside
of the three-year holding period) and/or section 170(h)(7)(D) and Sec.
1.170A-14(n)(3) (for contributions made by certain family partnerships
or S corporations); and
(B) For all contributions not described in section 170(h)(7)(E) and
Sec. 1.170A-14(n)(4), provided they are not described in section
170(h)(7)(C) and Sec. 1.170A-14(n)(2) (for contributions made outside
of the three-year holding period) and/or section 170(h)(7)(D) and Sec.
1.170A-14(n)(3) (for contributions made by certain family partnerships
or S corporations);
(ix) Where a number can be inserted into any box on Form 8283
(Section B), the number inserted in the box on Form 8283 (Section B).
Alternatively, taxpayers may attach a statement to the Form 8283
explaining why a number cannot be inserted. Nothing in this paragraph
(d)(3)(ix) precludes a taxpayer from both inserting the number in the
appropriate box on Form 8283 (Section B) and including an attached
statement explaining any additional information regarding the number.
Taxpayers may not respond to a request for information on Form 8283
(Section B) with nonresponsive responses, for example, by indicating
that the requested information is available upon request or will be
provided upon request. The inclusion of such nonresponsive language in
response to a request for information on Form 8283 (Section B) may be
treated by the IRS as being an incomplete filing of Form 8283; and
* * * * *
(f) * * *
(4) Partners and S corporation shareholders--(i) Form 8283 (Section
A or Section B) must be provided to partners and S corporation
shareholders. If the donor is a partnership or an S corporation, the
donor must provide a copy of its completed Form 8283 (Section A or
Section B) to every partner or shareholder who receives an allocation
of a charitable contribution under section 170 for the property
described in Form 8283 (Section A or Section B). Similarly, a recipient
partner that is a partnership or S corporation must provide a copy of
the donor's completed Form 8283 (Section A or Section B) to each of its
partners or shareholders who receives an allocation of the charitable
contribution, and so on through any additional tiers.
(ii) Partners and S corporation shareholders must attach Forms 8283
(Section A or Section B) to return. A partner of a partnership or
shareholder of an S corporation who receives an allocation of a
charitable contribution under section 170 for property to which
paragraph (c), (d), or (e) of this section applies must attach to the
return on which the contribution is claimed a copy of each Form 8283
that must be provided to them under paragraph (f)(4)(i) or (iii) of
this section.
(iii) Partners and S corporation shareholders must file separate
Forms 8283 and provide copies to any partners--(A) In general. Subject
to paragraph (f)(4)(iii)(B) of this section, every partner of a
partnership (including a partner that is itself a partnership or S
corporation) or shareholder of an S corporation that receives an
allocation of a charitable contribution under section 170 for which
paragraph (c), (d), or (e) of this section applies must complete a
separate Form 8283 with any information required by Form 8283 and the
instructions to Form 8283. In the case of a partner that is itself a
partnership or S corporation, that partnership or S corporation must
provide a copy of its completed separate Form 8283 to every partner or
shareholder who receives an allocation of the charitable contribution,
and so on through any additional tiers. The partner or shareholder must
attach its separate Form 8283 to the return on which the contribution
is claimed, in addition to the copy of each Form 8283 that the partner
or shareholder is required to attach pursuant to paragraph (f)(4)(ii)
of this section.
(B) Conservation contributions. The terms defined in Sec. 1.170A-
14(j)(3) apply for purposes of this paragraph (f)(4)(iii)(B). In the
case of a qualified conservation contribution that is made by a
partnership or S corporation, an ultimate member's separate Form 8283
must include their own relevant basis. An upper-tier partnership's or
upper-tier S corporation's separate Form 8283 must include the sum of
each of its ultimate member's relevant bases (as computed in accordance
with Sec. 1.170A-14(j) through (m)). This paragraph (f)(4)(iii)(B)
does not apply to contributions described in section 170(h)(7)(C) and
Sec. 1.170A-14(n)(2) (for contributions made outside of the three-year
holding period) or section 170(h)(7)(D) and Sec. 1.170A-14(n)(3) (for
contributions made by certain family partnerships or S corporations),
provided that they are not also described in section 170(h)(7)(E) and
Sec. 1.170A-14(n)(4) (for contributions to preserve certified historic
structures), in which case this paragraph (f)(4)(iii)(B) does apply.
* * * * *
(6) Conservation contributions by pass-through entities preserving
certified historic structures--(i) In general. The terms defined in
Sec. 1.170A-14(j)(3) apply for purposes of this paragraph (f)(6). For
any contribution described in paragraph (f)(6)(ii) of this section,
pursuant to section 170(f)(19), no deduction is allowed under section
170 or any other provision of the Code under which deductions are
allowable to pass-through entities with respect to such contribution
unless the contributing partnership, the contributing S corporation,
the upper-tier partnership, or the upper-tier S corporation,
respectively--
(A) Includes on its return for the taxable year in which the
contribution is made a statement that it made such a contribution or
received such allocated portion, as described in paragraph (f)(6)(iii)
of this section; and
[[Page 80945]]
(B) Provides such information about the contribution as the
Secretary may require in guidance, forms, or instructions.
(ii) Contributions to which this paragraph (f)(6) applies. This
paragraph (f)(6) applies to any qualified conservation contribution (as
defined in section 170(h)(1) and Sec. 1.170A-14):
(A) The conservation purpose of which is preservation of a building
that is a certified historic structure (as defined in section
170(h)(4)(C));
(B) That is either made by a contributing partnership or
contributing S corporation (as defined in Sec. 1.170A-14(j)(3)(iv)),
or that is an allocated portion (as defined in Sec. 1.170A-
14(j)(3)(i)) of an upper-tier partnership (as defined in Sec. 1.170A-
14(j)(3)(xi)) or upper-tier S corporation (as defined in Sec. 1.170A-
14(j)(3)(xii)); and
(C) The amount of such contribution (as defined in Sec. 1.170A-
14(j)(3)(ii)) or such allocated portion (as defined in Sec. 1.170A-
14(j)(3)(i)) exceeds 2.5 times the sum of each ultimate member's
relevant basis (as defined in Sec. 1.170A-14(j) through (m)).
(iii) Required information. A partnership or S corporation
satisfies the requirements of section 170(f)(19)(A) and paragraph
(f)(6)(i) of this section by filing a completed Form 8283, including
information about relevant basis, in accordance with section 170, the
regulations under section 170, and the instructions to Form 8283.
(g) Applicability dates--(1) In general. Except as provided in
paragraph (g)(2) of this section, this section applies to contributions
made after July 30, 2018.
(2) Certain paragraphs. Paragraphs (c)(3)(vi), (d)(3)(viii) and
(x), and (f)(4) and (6) of this section apply to taxable years ending
on or after November 20, 2023.
0
Par. 4. Section 1.706-0 is amended by revising the entry for Sec.
1.706-3 to read as follows:
Sec. 1.706-0 Table of contents.
* * * * *
Sec. 1.706-3 Items attributable to interest in lower-tier
partnership.
(a) Conservation contributions.
(b) Applicability date.
* * * * *
0
Par. 5. Section 1.706-3 is revised to read as follows:
Sec. 1.706-3 Items attributable to interest in lower-tier
partnership.
(a) Conservation contributions. For purposes of section 706(d)(3),
in the case of a qualified conservation contribution (as defined in
section 170(h)(1) and Sec. 1.170A-14(a) without regard to whether such
contribution is a disallowed qualified conservation contribution within
the meaning of Sec. 1.170A-14(j)(3)(vii)) by a partnership that is
allocated to an upper-tier partnership, the upper-tier partnership must
allocate the contribution among its partners in proportion to their
interests in the upper-tier partnership at the time of day at which the
contribution was made, regardless of the method (interim closing or
proration) and convention (daily, semi-monthly, or monthly) otherwise
used by the upper-tier partnership under Sec. 1.706-4.
(b) Applicability date. Paragraph (a) of this section applies to
qualified conservation contributions made after December 29, 2022.
0
Par. 6. Section 1.706-4 is amended by:
0
1. Redesignating paragraphs (e)(2)(ix) through (xi) as paragraphs
(e)(2)(x) through (xii), respectively, and adding new paragraph
(e)(2)(ix);
0
2. Adding the word ``and'' at the end of newly redesignated paragraph
(e)(2)(xi); and
0
3. Revising paragraphs (e)(3) and (g).
The addition and revisions read as follows:
Sec. 1.706-4 Determination of distributive share when a partner's
interest varies.
* * * * *
(e) * * *
(2) * * *
(ix) Any qualified conservation contribution (as defined in section
170(h)(1) and Sec. 1.170A-14(a) without regard to whether such
contribution is a disallowed qualified conservation contribution within
the meaning of Sec. 1.170A-14(j)(3)(vii));
* * * * *
(3) Small item exception. A partnership may treat an item described
in paragraph (e)(2) of this section (except for an item described in
paragraph (e)(2)(ix) of this section) as other than an extraordinary
item for purposes of this paragraph (e) if, for the partnership's
taxable year the total of all items in the particular class of
extraordinary items (as enumerated in paragraphs (e)(2)(i) through
(xii) of this section, for example, all tort or similar liabilities,
but in no event counting an extraordinary item more than once) is less
than five percent of the partnership's gross income, including tax-
exempt income described in section 705(a)(1)(B), in the case of income
or gain items, or gross expenses and losses, including section
705(a)(2)(B) expenditures, in the case of losses and expense items; and
the total amount of the extraordinary items from all classes of
extraordinary items amounting to less than five percent of the
partnership's gross income, including tax-exempt income described in
section 705(a)(1)(B), in the case of income or gain items, or gross
expenses and losses, including section 705(a)(2)(B) expenditures, in
the case of losses and expense items, does not exceed $10 million in
the taxable year, determined by treating all such extraordinary items
as positive amounts.
* * * * *
(g) Applicability dates--(1) In general. Except as provided in
paragraphs (g)(2) and (3) of this section, this section applies for
partnership taxable years that begin on or after August 3, 2015.
(2) Paragraph (c)(3) of this section. The rules of paragraph (c)(3)
of this section apply for taxable years of partnerships other than
existing publicly traded partnerships that begin on or after August 3,
2015. For purposes of this paragraph (g)(2), an existing publicly
traded partnership is a partnership described in section 7704(b) that
was formed prior to April 14, 2009. For purposes of this paragraph
(g)(2), the termination of a publicly traded partnership under section
708(b)(1)(B) due to the sale or exchange of 50 percent or more of the
total interests in partnership capital and profits in a taxable year
beginning on or before December 31, 2017, is disregarded in determining
whether the publicly traded partnership is an existing publicly traded
partnership.
(3) Paragraph (e)(2)(ix) of this section. Paragraph (e)(2)(ix) of
this section applies to qualified conservation contributions made after
December 29, 2022.
Douglas W. O'Donnell,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2023-25423 Filed 11-17-23; 8:45 am]
BILLING CODE 4830-01-P