A fresh Situation of labor of Chief Counsel Generic Acceptable Advice Memorandum discussed the construct of an modification clause in a conservation easement.
The memorandum famed that there are a total lot of circumstances pending that regard the disallowance of a charitable deduction beneath share 170 involving conservation easements. It additionally famed that a super amount of these circumstances in total have the interpretation of the deed and its clauses.
Mountainous geographical region landscape in spring.
One model of clause at wretchedness is an modification clause—that is, a clause that amends the easement. The downside with an modification clause is that it will trigger the deed to fail the share 170 requirements.
Let’s review the conventional statutory requirements for a charitable contribution deduction for a conservation easement.
Customarily, the Code restricts a charitable contribution deduction if the curiosity within the property given is lower than the taxpayer’s total curiosity within the property—which could presumably well per chance be the case if an easement is granted as a replacement of the total property. Alternatively, an exception applies for a “licensed conservation contribution.” A licensed conservation contribution requires a contribution of a licensed proper property curiosity, to a licensed group, completely for conservation purposes.
Briefly, this rule is to blueprint a tax deduction for property householders that give up obvious rights that withhold their land for obvious uses—such as land preservation, preservation of originate areas, retaining ancient constructions, etc.
Now, as relevant right here, two parts discuss to those restrictions being in perpetuity. First, the definition of a “licensed proper property curiosity” requires, among other things, that the restriction be “granted in perpetuity.” IRC § 170(h)(2). Second, the language “completely for conservation purposes” additionally requires that the “conservation cause is obtain in perpetuity.” IRC § 170(h)(5).
The stress with an modification clause, then, is that its presence can also indicate that the restrictions are no longer in perpetuity on legend of they’ll be modified (amended) later.
Indeed, this wretchedness has been litigated earlier than. As an instance, in Belk v. Commissioner, 140 T.C. 1 (2013), the Tax Court held that, though an easement was once perpetual in its phrases, the deed allowed the parties to alter the property discipline to the easement; as such, the Tax Court held that the easement was once no longer a licensed proper property curiosity on legend of it was once no longer granted in perpetuity. In other words, explicit property was once no longer donated that was once discipline to a order restriction granted in perpetuity.
The Chief Counsel Memorandum famed that “[a]n modification clause wants to be idea of as within the context of the deed as a total and the encircling details and circumstances to settle the parties’ rights, powers, responsibilities, and tasks.” Therefore, this requires a “case-by-case prognosis.”
The memorandum additionally offered a provision that, it famed, complied with the perpetuity requirements of § 170(h)—but gathered famed that any inquiry is based entirely on the deed as a total and the encircling details:
Grantee and Grantor can also amend this Easement to strengthen the Property’s conservation values or add proper property discipline to the restrictions blueprint forth on this deed to the restricted property by an amended deed of easement, provided that no modification shall (i) have an effect on this Easement’s perpetual duration, (ii) enable pattern, improvements, or uses prohibited by this Easement on its efficient date, (iii) struggle with or be contrary to or inconsistent with the conservation purposes of this Easement, (iv) lower the protection of the conservation values, (v) have an effect on the qualification of this Easement as a “licensed conservation contribution” or “curiosity in land”, (vi) have an effect on the residing of Grantee as a “licensed group” or “eligible accomplished”, or (vii) blueprint an impermissible deepest abet or deepest inurement in violation of federal tax law. No modification shall be efficient except documented in a notarized writing executed by Grantee and Grantor and recorded within the Clerk’s Situation of labor of the Circuit Court of [County, State].
In sum, the memorandum concludes that the presence of an modification clause would now not automatically or essentially trigger an easement to fail the perpetuity requirements of share 170(h). As a replacement, a case-by-case prognosis is required.
Please note that Chief Counsel Advice Memoranda can not be worn or cited as precedent. The CCA Memorandum is Number AM 2020-001 (March 17, 2020; launched March 27,2020); you shall be in a position to gain it right here
That is perfect a summary of the CCA and some parts were brushed apart or edited; these disorders are extremely technical and detailed — must you have to advice on this residing, please review the CCA in its entirety and search the advice of a tax lawyer.