Bulletin No. 2024–30

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HIGHLIGHTS

OF THIS ISSUE

Bulletin No. 2024–30

July 22, 2024

These synopses are intended only as aids to the reader in

identifying the subject matter covered. They may not be

relied upon as authoritative interpretations.

ADMINISTRATIVE

Rev. Proc. 2024-29, page 121.

This procedure provides specifications for the private printing of red-ink substitutes for the 2024 revisions of certain

information returns. This procedure will be reproduced as

the next revision of Publication 1179. Revenue Procedure

2023-30 is superseded.

INCOME TAX

Notice 2024-58, page 120.

This notice announces the applicable percentage under

§ 613A of the Internal Revenue Code to be used in determining percentage depletion for marginal properties for

the 2024 calendar year.

Rev. Proc. 2024-30, page 183.

This revenue procedure modifies Rev. Proc. 2024-23, 202423 I.R.B. 1334, to provide procedures under § 446 of the

Internal Revenue Code and § 1.446-1(e) of the Income Tax

Regulations for obtaining automatic consent of the Commissioner of Internal Revenue to change methods of accounting

Finding Lists begin on page ii.

to the Allowance Charge-off Method described in proposed

regulations under section 166. See Bad Debt Deductions

for Regulated Financial Companies and Members of Regulated Financial Groups, 88 FR 89636 (Dec. 28, 2023).

T.D. 9999, page 72.

These are final 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. These final

regulations 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, these final regulations 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).

The IRS Mission

Provide America’s taxpayers top-quality service by helping

them understand and meet their tax responsibilities and

enforce the law with integrity and fairness to all.

Introduction

The Internal Revenue Bulletin is the authoritative instrument

of the Commissioner of Internal Revenue for announcing official rulings and procedures of the Internal Revenue Service

and for publishing Treasury Decisions, Executive Orders, Tax

Conventions, legislation, court decisions, and other items of

general interest. It is published weekly.

It is the policy of the Service to publish in the Bulletin all substantive rulings necessary to promote a uniform application

of the tax laws, including all rulings that supersede, revoke,

modify, or amend any of those previously published in the

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internal practices and procedures that affect the rights and

duties of taxpayers are published.

Revenue rulings represent the conclusions of the Service

on the application of the law to the pivotal facts stated in

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identifying details and information of a confidential nature are

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Rulings and procedures reported in the Bulletin do not have the

force and effect of Treasury Department Regulations, but they

may be used as precedents. Unpublished rulings will not be

relied on, used, or cited as precedents by Service personnel in

the disposition of other cases. In applying published rulings and

procedures, the effect of subsequent legislation, regulations,

court decisions, rulings, and procedures must be considered,

and Service personnel and others concerned are cautioned

against reaching the same conclusions in other cases unless

the facts and circumstances are substantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code.

This part includes rulings and decisions based on provisions

of the Internal Revenue Code of 1986.

Part II.—Treaties and Tax Legislation.

This part is divided into two subparts as follows: Subpart A,

Tax Conventions and Other Related Items, and Subpart B,

Legislation and Related Committee Reports.

Part III.—Administrative, Procedural, and Miscellaneous.

To the extent practicable, pertinent cross references to these

subjects are contained in the other Parts and Subparts. Also

included in this part are Bank Secrecy Act Administrative

Rulings. Bank Secrecy Act Administrative Rulings are issued

by the Department of the Treasury’s Office of the Assistant

Secretary (Enforcement).

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This part includes notices of proposed rulemakings, disbarment and suspension lists, and announcements.

The last Bulletin for each month includes a cumulative index

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monthly indexes are cumulated on a semiannual basis, and are

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The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

July 22, 2024

Bulletin No. 2024–30

Part I

26 CFR 1.170A-14; 26 CFR 1.170A-16; 26 CFR

1.706-3; and 26 CFR 1.706-4

TD 9999

Statutory Disallowance

of Deductions for Certain

Qualified Conservation

Contributions Made

by Partnerships and S

Corporations

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains

final 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. These final regulations 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, these final

regulations 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 final regulations 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.

July 22, 2024

DATES: Effective date: These regulations

are effective on June 28, 2024.

Applicability date: For dates of

applicability, see §§1.170A-14(o)(1),

1.170A-16(g)(2), 1.706-3(e), and 1.7064(e)(2)(xiii) and (e)(3)(ii).

FOR FURTHER INFORMATION

CONTACT: Concerning the final regulations under §§1.170A-14, 1.706-3, and

1.706-4, contact John Hanebuth or Benjamin Weaver at (202) 317-6850 (not a

toll-free number); concerning the final

regulations under §1.170A-16 and issues

regarding section 170 other than section

170(h)(7), contact Elizabeth Boone at

(202) 317-5100 or Hannah Kim at (202)

317-7003 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

This document contains final regulations amending 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.

I. Overview of Qualified Conservation

Contributions

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.

II. Enactment of Section 170(f)(19) and

(h)(7)

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)(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) 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 section 752

of the Code, and (3) by the partnership

after taking into account these first two

adjustments and such other adjustments as

the Secretary of the Treasury or her delegate (Secretary) may provide.

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 otherwise provides.

Section 170(h)(7)(C) provides an

exception to the Disallowance Rule for

contributions that satisfy a three-year

Bulletin No. 2024–30

holding period. Section 170(h)(7)(D) provides an exception to the Disallowance

Rule for contributions from family passthrough entities. Section 170(h)(7)(E)

provides an exception to the Disallowance

Rule for qualified conservation contributions the conservation purpose of which

is the preservation of a certified historic

structure.

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(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).

III. The Proposed Regulations

On November 20, 2023, the Department of the Treasury (Treasury Department) and the IRS published a notice of

proposed rulemaking (REG-112916-23)

(the proposed regulations) in the Federal

Bulletin No. 2024–30

The proposed regulations would make

changes to existing §1.170A-14, including

modifying paragraph (a) to reference the

Disallowance Rule and adding new paragraphs (j) through (n) to §1.170A-14 to

provide guidance on the application of the

Disallowance Rule (and its exceptions) to

partnerships and S corporations. In addition, the proposed regulations would make

changes to the reporting requirements in

§1.170A-16. Finally, the proposed regulations would make changes to §§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. The provisions of the

proposed regulations are explained in

greater detail in the preamble to the proposed regulations.

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) (generally, the dates of the

issuance of proposed or final regulations

or a notice describing the regulations).

Accordingly, the proposed regulations

under §§1.170A-14(j) through (n), 1.7063, and 1.706-4 were proposed to apply to

contributions made after December 29,

2022. To align the reporting requirements

under §1.170A-16 with the publication of

the revised Form 8283, Noncash Charitable Contributions, and its instructions, the

proposed regulations under §1.170A-16

were proposed to apply to contributions

made in taxable years ending on or after

November 20, 2023 (the date the proposed

regulations were published in the Federal

Summary of Comments and

Explanation of Revisions

This Summary of Comments and

Explanation of Revisions summarizes the

proposed regulations and all the substantive comments submitted in response to

the proposed regulations. The Treasury

Department and the IRS received eight

written comments in response to the proposed regulations. The comments are

available for public inspection at https://

www.regulations.gov or upon request.

There were no requests to speak at the

scheduled public hearing. Consequently,

the public hearing was cancelled (89 FR

39). After full consideration of the comments received, these final regulations

adopt the proposed regulations with modifications as described in this Summary of

Comments and Explanation of Revisions.

The comments can be grouped into

the following categories: (1) definitions,

(2) the computation of relevant basis, (3)

requests for guidance under the partnership allocation rules, (4) the exceptions

to the Disallowance Rule, (5) reporting

requirements, and (6) other comments.

Each category is discussed in turn in the

remainder of this Summary of Comments

and Explanation of Revisions.

I. Definitions

Proposed §1.170A-14(j)(3) contained

definitions of terms, including “allocated

portion,” “amount of qualified conservation contribution,” “contributing partnership,” “contributing S corporation,”

“direct interest,” “directly,” “disallowed

qualified conservation contribution,”

“indirect interest,” “indirectly,” “ultimate

member,” “upper-tier partnership,” and

“upper-tier S corporation.” Commenters

generally provided no comments on these

definitions, except with respect to the definition of the amount of qualified conservation contribution. Thus, the final regulations adopt the definitions as proposed,

except with respect to the definition of the

amount of qualified conservation contribution.

Proposed §1.170A-14(j)(3)(ii) defined

“amount of qualified conservation contribution” as 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.

No comments addressed the first sentence

of proposed §1.170A-14(j)(3)(ii), so the

final regulations adopt that sentence as

proposed.

Proposed §1.170A-14(j)(3)(ii) further

provided, “[i]f the contributing partnership or contributing S corporation files an

amended return or administrative adjustment request under section 6227 of the

July 22, 2024

Code claiming a different amount with

respect to the qualified conservation contribution, the rules of [§1.170A-14] must

be re-applied with respect to such different amount to determine the application

of section 170(h)(7) and [§1.170A-14.]”

One commenter stated that this sentence

would seem to inappropriately allow partnerships or S corporations to file administrative adjustment requests or amended

returns after they had been notified of an

IRS examination. The commenter recommended that the regulations be changed

to refer only to an amended return or

administrative adjustment request that is

a “qualified amended return” for purposes

of the substantial underpayment rules.

The Treasury Department and the IRS

understand the commenter’s reference to

“qualified amended return” to be a reference to §1.6664-2(c)(3). Under §1.66642(c)(3), a qualified amended return is an

amended return or a timely request for

an administrative adjustment under section 6227, filed after the due date of the

return for the taxable year and before the

earliest of several dates, including the date

the taxpayer is first contacted by the IRS

concerning any examination with respect

to the return. Under section 6227(a), a

partnership may file an administrative

adjustment request for the amount of a

partnership-related item for any partnership taxable year. However, under section 6227(c), a partnership may not file

an administrative adjustment request after

a notice of an administrative proceeding

with respect to the taxable year is mailed

under section 6231 of the Code.

The Treasury Department and the IRS

did not intend the proposed regulations to

allow for the filing of an amended return

or administrative adjustment request in situations in which the partnership or S corporation would not otherwise be allowed

to file an amended return or administrative

adjustment request. Moreover, the Treasury Department and the IRS agree that the

re-application provision in §1.170A-14(j)

(3)(ii) should not be understood to allow a

partnership or S corporation to avoid the

Disallowance Rule by filing an amended

return or administrative adjustment

request claiming a lower amount with

respect to a qualified conservation contribution after being contacted by the IRS

concerning an examination regarding the

July 22, 2024

return. For example, under an inappropriate interpretation of the language in

the proposed regulations, a contributing

S corporation could violate the Disallowance Rule by claiming an amount of a

qualified conservation contribution on its

original return that exceeds 2.5 times the

sum of the relevant bases. Then, after its

return has been selected for examination

by the IRS, the contributing S corporation

could attempt to file an amended return on

which it reduces the amount of its claimed

qualified conservation contribution to an

amount not exceeding 2.5 times the sum

of the relevant bases. The contributing

S corporation could then argue that the

re-application provision in §1.170A-14(j)

(3)(ii) allows the Disallowance Rule to be

re-tested, and that, therefore, its qualified

conservation contribution is not disallowed, but instead is allowed to the extent

of the amount claimed on the amended

return. In order to balance the need for a

mechanism to timely fix errors made in

good-faith with the risk of circumvention of the Disallowance Rule, these final

regulations limit the re-application provision by providing that, if the contributing

partnership or contributing S corporation

files an amended return or timely administrative adjustment request under section

6227 of the Code claiming a lower amount

with respect to the qualified conservation

contribution, the rules of §1.170A-14 will

be re-applied with respect to such lower

amount to determine the application of section 170(h)(7) and §1.170A-14 if and only

if the amended return or timely administrative adjustment request is filed before

the contributing partnership or contributing S corporation is put on notice of an

IRS examination relating to the qualified

conservation contribution. The final regulations provide that a contributing partnership or contributing S corporation is

considered to be on notice after the earlier

of: (1) the date the contributing partnership or contributing S corporation is first

contacted by the IRS in connection with

any examination of a return that relates to

the qualified conservation contribution, or

(2) the date any person is first contacted

by the IRS concerning an examination of

that person under section 6700 (relating

to the penalty for promoting abusive tax

shelters) for an activity that relates to the

qualified conservation contribution. These

regulations do not incorporate the full

definition of qualified amended returns

within the meaning of §1.6664-2(c)(3)

as requested by the commenter, because

a definition tailored to the context of this

regulation is sufficient to prevent abusive

circumventions of the Disallowance Rule

without being overbroad and preventing

a contributing partnership or contributing

S corporation from being able to use the

re-application provision in non-abusive

situations.

In addition, the Treasury Department

and the IRS remain concerned about situations in which a contributing partnership or contributing S corporation files

an amended return or administrative

adjustment request that claims a higher

amount with respect to a qualified conservation contribution. In that situation, the

Treasury Department and the IRS have

concluded that the rules of §1.170A-14

should be re-applied with respect to such

higher amount to determine the application of section 170(h)(7) and §1.170A-14

regardless of whether the amended return

or administrative adjustment request constitutes a qualified amended return. This

rule is necessary to ensure that the Disallowance Rule is not avoided simply

by filing an original return claiming an

amount with respect to a qualified conservation contribution that does not exceed

2.5 times the sum of the relevant bases,

followed by an amended return or administrative adjustment request claiming an

amount with respect to the qualified conservation contribution that does exceed

2.5 times the sum of the relevant bases.

Accordingly, these final regulations modify the second sentence of §1.170A-14(j)

(3)(ii) to clarify 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 higher amount with

respect to the qualified conservation contribution, the rules of §1.170A-14 must

be re-applied with respect to such higher

amount to determine the application of

section 170(h)(7) and §1.170A-14; for

example, if a contributing S corporation’s

original return claims a qualified conservation contribution that does not exceed

2.5 times the sum of the relevant bases,

and the S corporation subsequently files an

amended return claiming a higher amount

Bulletin No. 2024–30

with respect to the qualified conservation

contribution that does exceed 2.5 times

the sum of the relevant bases, then the

entire amount of the qualified conservation contribution is a disallowed qualified

conservation contribution (unless one of

the exceptions in §1.170A-14(n) applies).

II. Computation of Relevant Basis

As noted earlier, 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) to the portion of the real property with respect to which the contribution described in section 170(h)(7)(A) is

made. Proposed §1.170A-14(l) provided

guidance on the determination of modified

basis. Proposed §1.170A-14(m) provided

guidance on the allocation of modified

basis, which results in the determination

of relevant basis.

The Treasury Department and the IRS

received several comments on the computation of modified basis and relevant basis,

which can be divided into the following

two topics: (1) the determination of modified basis, and (2) the allocation of modified basis to determine relevant basis.

A. Determination of modified basis

As noted earlier, 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 section 752,

and (3) by the partnership after taking into

account those adjustments and such other

adjustments as the Secretary may provide.

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. This section of the preamble discusses: (1) the proposed regulations, comments, and final regulations for

the determination of a partner’s modified

basis, and (2) the proposed regulations,

Bulletin No. 2024–30

comments, and final regulations for the

determination of an S corporation shareholder’s modified basis.

1. Determination of a Partner’s Modified

Basis

a. Proposed rules for the determination of

a partner’s modified basis

Proposed §1.170A-14(l)(2)(i) defined

the term “modified basis” to mean, 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 §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

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 proposed §1.170A-14(l)(2)

(ii) through (v).

The proposed regulations provided

that the following four adjustments must

be made in the order in which they are

listed. First, proposed §1.170A-14(l)(2)

(ii) required 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 §1.170A-14(l)(2)

(iii) required an adjustment, 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 con-

servation contribution is made. In making

this determination, the partnership would

be required to apply the rules of §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. The proposed regulations provided

that the partnership cannot apply any convention in §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. The proposed

regulations clarified that this hypothetical

determination of the partners’ distributive

shares is only for purposes of calculating

modified basis. Proposed §1.170A-14(l)

(2)(iii) did 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.

Third, proposed §1.170A-14(l)(2)(iv)

required a reduction (but not below zero)

for 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, proposed §1.170A-14(l)(2)(v)

required a reduction for the full amount of

the ultimate member’s share of §1.752-1

liabilities of any partnership (including

a lower-tier partnership). The remaining

amount would be such ultimate member’s

modified basis.

The proposed regulations contained

two examples illustrating these rules.

b. Comments concerning a partner’s

modified basis

The comments on the determination

of modified basis can be grouped into the

following three categories: (1) inclusion

July 22, 2024

of section 752 liabilities in modified basis,

(2) determining modified basis immediately prior to the qualified conservation

contribution, and (3) the complexity of the

computations.

i. Inclusion of section 752 liabilities in

modified basis

Section 170(h)(7)(B)(ii)(II) provides

that modified basis is determined without regard to section 752. Section 752(a)

provides that any increase in a partner’s

share of the liabilities of a partnership,

or any increase in a partner’s individual

liabilities by reason of the assumption by

such partner of partnership liabilities, is

considered as a contribution of money

by such partner to the partnership. Section 752(b) provides that any decrease

in a partner’s share of the liabilities of

a partnership, or any decrease in a partner’s individual liabilities by reason of

the assumption by the partnership of such

individual liabilities, is considered as a

distribution of money to the partner by the

partnership. Existing §1.752-1 provides

guidance under section 752, including a

definition of liabilities. Generally, under

the rules of subchapter K of chapter 1 of

the Code (subchapter K), if a partnership

borrows money, the aggregate bases of

its partners’ interests in the partnership

will increase by the amount of the borrowing. Consistent with section 170(h)

(7)(B)(ii)(II), proposed §1.170A-14(l)(2)

(v) required subtracting the full amount

of the partner’s share of §1.752-1 liabilities of any partnership (including a lower-tier partnership) for purposes of calculating modified basis.

One commenter expressed concern

that the relevant basis calculation ignores

section 752 liabilities generally. The commenter offered an example of a partnership with $200,000 in cash that borrows

an additional $800,000 and purchases a

building for $1,000,000. The commenter

stated that the proposed regulations would

ignore the $800,000 as a section 752 liability and that any conservation contribution for historic preservation of the building would be capped at $500,000.

Section 170(h)(7)(B)(ii)(II) provides

that a partner’s modified basis (and thus,

relevant basis) is determined without

regard to section 752. The approach in the

proposed regulations appropriately effectuates this statutory directive. Thus, in the

commenter’s example, although the partnership’s $800,000 liability will increase

the partners’ aggregate bases in their partnership interests by $800,000, none of that

$800,000 will be reflected in any partner’s

modified basis or relevant basis.

The commenter’s assumption that

the Disallowance Rule would cap the

amount of the partnership’s qualified

conservation contribution at $500,000

misunderstands the rule. Several other

considerations must be taken into account

to determine the extent of any allowable

qualified conservation contribution. First,

the Disallowance Rule is not a cap—as

explained in the preamble to the proposed

regulations and as provided in proposed

§1.170A-14(j)(1), if the amount of a qualified conservation contribution claimed by

a partnership or an S corporation exceeds

2.5 times the sum of the relevant bases,

no deduction is allowed at all for the contribution unless one of the three statutory

exceptions applies. Second, application of

the Disallowance Rule is not based on the

difference between the amount of the contribution and the partnership’s basis in the

donated property; it is based on whether

the contribution exceeds 2.5 times the sum

of the ultimate members’ relevant bases.

The facts presented in the commenter’s

example are insufficient to determine

whether 2.5 times the sum of the relevant

bases is $500,000.1

The same commenter also expressed

concerns that the proposed regulations

appear to treat the ultimate member’s

share of liabilities under §1.752-1(b) as

“flowing only in one direction” because

the proposed regulations provided that

modified basis must be reduced by the

full amount of the ultimate member’s

share of §1.752-1 liabilities of any partnership. The commenter stated that this

language ignores that a partner’s share

of liabilities may increase the partner’s

basis.

It is true that a partner’s share of the

partnership’s liabilities increases the partner’s basis in its interest in the partnership.

However, this basis is not included for

purposes of the Disallowance Rule pursuant to section 170(h)(7)(B)(ii)(II), which

requires modified basis to be determined

without regard to a partner’s share of the

partnership’s liabilities. Thus, these regulations finalize §1.170A-14(l)(2)(v) without change.

ii. Determining modified basis

immediately prior to the qualified

conservation contribution

One commenter stated that the proposed regulations appear to time the calculation of modified basis as of the time

of the qualified conservation contribution.

The commenter stated that this “artificial

cutoff” ignores any basis allocable to the

ultimate members following the contribution, such as from capital contributions or

increases in the ultimate members’ share

of section 752 liabilities.

The Treasury Department and the IRS

confirm that the rules in the proposed

regulations require the calculation of

modified basis (and thus, relevant basis)

as of the time of the qualified conservation contribution. As explained earlier,

the proposed regulations were intended

to effectuate section 170(h)(7)(B)(ii)(I),

which provides that modified basis is the

partner’s adjusted basis in the partnership

as determined “immediately before” the

qualified conservation contribution. The

Treasury Department and the IRS do not

agree with the commenter’s suggestion

that modified basis include amounts that

were reflected in the ultimate member’s

adjusted basis in its interest in the partnership only after the contribution because

inclusion of such amounts would contradict the statute. Thus, the proposed regulations are adopted without change as to

this issue.

As a clarification to the statutory rule

that modified basis is determined immediately before a qualified conservation

contribution is made, the final regulations

add a new step to the list of steps in pro-

Moreover, the commenter’s example seems to involve a qualified conservation contribution the conservation purpose of which is the preservation of a historic structure. If so, the Disallowance Rule would not apply under section 170(h)(7)(E) and proposed §1.170A-14(n)(4), provided that, if the amount of the contribution exceeds 2.5 times the sum of the relevant bases, the

partnership or S corporation complies with the reporting requirements of section 170(f)(19) and proposed §1.170A-16(f)(6).

July 22, 2024

Bulletin No. 2024–30

posed §1.170A-14(l)(2). As described in

the preamble to the proposed regulations,

the proposed regulations were designed to

facilitate the computation of a partner’s

“adjusted basis” in its partnership interest

immediately prior to the qualified conservation contribution. As also described in

the preamble to the proposed regulations,

adjusted basis is typically computed as of

the beginning or end of a taxable year, and

generally, not as of the time of a particular

event, such as the making of a qualified

conservation contribution. Accordingly,

the approach in the proposed regulations

started with a calculation of adjusted basis

that partners are familiar with computing,

and then made adjustments designed to

arrive at an amount that reflects the partner’s adjusted basis immediately before

the qualified conservation contribution.

The proposed regulations did not, however, take into account acquisitions of

additional partnership interests or partial

dispositions of partnership interests that

occurred after the beginning of the taxable

year and prior to the qualified conservation contribution. In those situations, an

additional step is necessary to effectuate

the rule in section 170(h)(7)(B)(ii) that

modified basis is adjusted basis immediately before the qualified conservation

contribution without regard to section

752. The new step, in §1.170A-14(l)(2)

(iii), provides that if, between the beginning of the partnership’s taxable year and

the time of day at which the qualified conservation contribution is made, the ultimate member acquired additional interests

in the partnership, modified basis must be

increased by the ultimate member’s initial

basis in those additional interests. Similarly, §1.170A-14(l)(2)(iii) provides that

if, between the beginning of the partnership’s taxable year and the time of day at

which the qualified conservation contribution is made, the ultimate member partially disposed of its interest in the partnership, modified basis must be decreased

by the ultimate member’s basis in the

interests disposed of. The final regulations

add §1.170A-14(l)(4)(iv) (Example 4) to

illustrate this step.

iii. Complexity of the determination of

modified basis

Multiple commenters stated that

the proposed regulations’ calculations,

including the calculation of modified

basis, were too complex.2 One commenter stated that the proposed regulations are well drafted and that the

mechanical rules work, but that the

computations are too complex. Another

commenter stated that the calculations

were complex and would be difficult for

taxpayers, land trusts, and even the IRS

to administer. Another commenter stated

that the proposed rules are unnecessarily

complex and will likely discourage many

partnerships from making conservation

contributions even if, after performing

the calculations, the contribution would

not be disallowed by the Disallowance

Rule. Finally, another commenter found

the regulations to be a “complex labyrinth” in which one misstep leads to the

disallowance of the charitable deduction

and imposition of the gross overvaluation

penalty under section 6662(h) and also

places a significant burden on the IRS and

the Independent Office of Appeals. This

commenter suggested that, under Executive Order 12866, 58 FR 190 (October

4, 1993), and Internal Revenue Manual

provision 32.1.4.1.1(1)(a), the Treasury

Department and the IRS are required to

draft regulations to minimize litigation,

but that the proposed regulations likely

will increase litigation as the regulations

are overly complex and burdensome for

the average taxpayer.

As an alternative to the complexity in

the proposed regulations, one commenter

suggested that the IRS develop simplified

safe harbor calculations. Another commenter suggested applying pure aggregate rules to the contributing partnership

and any upper-tier partnerships to determine modified basis and relevant basis

and adding an anti-abuse rule that the

transaction does not work if a principal

purpose is to avoid the limitations of section 170(h)(7). This commenter noted,

however, that this suggestion was less

precise and subject to potential abuse,

but stated that it is a rule that even small

practitioners could apply.

These suggested approaches are not

specific or accurate enough to comply

with the statutory directive of section

170(h)(7). Section 170(h)(7)(B)(ii)(I)

through (III) provides that modified basis

is the partner’s adjusted basis in the partnership immediately before the qualified conservation contribution, without

regard to section 752. Partners generally

do not track their bases in their partnership interests on a daily basis. Instead,

such determinations are typically made

at year end. Thus, a partnership generally will not know each partner’s basis

in its partnership interest as of a particular point during the year, such as the

moment at which the partnership makes

a qualified conservation contribution. A

partnership required by section 170(h)

(7)(B)(ii)(III) to compute modified basis

would generally have to start with each

partner’s adjusted basis in its partnership

interest as of the beginning of the year3

and make certain adjustments for items

or events occurring in the portion of the

year ending with the qualified conservation contribution that affect basis. These

are the very steps that were prescribed

by the proposed regulations. Each of the

steps from the proposed regulations is

necessary to carry out the statutory directive that a partner’s modified basis is the

partner’s adjusted basis in its partnership

interest immediately before the time of

the qualified conservation contribution, as

computed by the partnership, and without

regard to section 752 liabilities. Instead of

simply repeating the statutory mandate,

the proposed regulations provided a clear,

administrable, step-by-step approach for

taxpayers to reach the result required by

the statute. To assist with performing the

computations required by this step-bystep approach, the proposed regulations

included several illustrative examples.

Accordingly, proposed §1.170A-14(l)(2)

is finalized with the changes described in

this Part II.A.1 of this Summary of Comments and Explanation of Revisions.

It is unclear from the comments whether some commenters were objecting to the complexity of the determination of modified basis, the determination of relevant basis (once modified basis

is determined), or both. Comments addressing the complexity of determining relevant basis once modified basis is determined are discussed in Parts II.B.1.a, II.B.2, II.B.3.a, and II.B.4.a of

this Summary of Comments and Explanation of Revisions.

In the case of a partner who was not a partner at the beginning of the year, but acquired an interest sometime later, the partnership would generally have to start with the partner’s adjusted

basis in its partnership interest as of the time of the acquisition of that interest. This is the process that these regulations provide.

Bulletin No. 2024–30

July 22, 2024

2. Determination of an S Corporation

Shareholder’s Modified Basis

a. Proposed rules for the determination of

an S corporation shareholder’s modified

basis

Proposed §1.170A-14(l)(3)(i) provided

that the term “modified basis” means,

with respect to any ultimate member that

is a shareholder in an 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 §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” was

defined to 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 §1.170A-14(l)(3)(ii) and

(iii). Consistent with the exclusion of section 752 liabilities under section 170(h)

(7)(B)(ii)(II), proposed §1.170A-14(l)(3)

(i) clarified that modified basis does not

include the ultimate member’s adjusted

basis in any indebtedness of the S corporation to the ultimate member.

Because the calculation of modified

basis for an S corporation begins at the

end of the year, proposed §1.170A-14(l)

(3)(ii) required the computation of modified basis to be increased by the amount

of any decrease to the adjusted basis as a

result of the qualified 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.

Proposed §1.170A-14(l)(3)(iii) provided that the amount determined under

§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

July 22, 2024

corporation’s taxable year. The resulting

amount would be such ultimate member’s

modified basis.

The proposed regulations contained an

example illustrating these rules.

b. Comments concerning modified basis

for S corporation shareholders

Commenters did not provide specific comments concerning the rules for

S corporation shareholders; however, as

described in Part II.A.1.b of this Summary of Comments and Explanation of

Revisions, certain commenters discussed

complexity concerns with respect to modified basis without specifically identifying

partnerships, so those comments may also

apply to S corporations. The Treasury

Department and the IRS have determined

that the rules for determining modified

basis for S corporation shareholders are

not unduly complex. In particular, any

of the information required to determine

modified basis should be readily known

by a contributing S corporation and its

ultimate members. The regulations provide clear, administrable rules that are

illustrated with computational examples.

This clarity will help decrease disputes

about the computation of modified basis.

Accordingly, these final regulations do not

make changes to the rules for the determination of modified basis in response to the

commenters’ concerns about complexity

and proposed §1.170A-14(l)(3) is finalized without change.

B. Allocation of modified basis to

determine relevant basis

Proposed §1.170A-14(m) provided

rules for determining relevant basis, which

is 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. In general,

the proposed regulations provided that

relevant basis is modified basis multiplied

by a fraction, the numerator of which is

the ultimate member’s portion of the basis

in the real property with respect to which

the qualified conservation contribution is

made, and the denominator of which is the

ultimate member’s portion of the basis in

all properties held by the partnership or

S corporation. For example, if an ultimate

member’s share of the basis in the real

property is half of the ultimate member’s

share of the basis in the other properties

of the partnership or S corporation, the

ultimate member’s relevant basis would

be half of the ultimate member’s modified

basis. The proposed regulations contained

rules for these computations, including

rules for the computation of relevant basis

in tiered entities. The proposed regulations also contained additional details and

several examples of the computation of

relevant basis.

The proposed regulations provided

separate rules for the determination of relevant basis for ultimate members who are:

(1) partners in contributing partnerships,

(2) shareholders in contributing S corporations, (3) partners in upper-tier partnerships, and (4) shareholders in upper-tier

S corporations. The following portion of

this Summary of Comments and Explanation of Revisions will discuss each set of

rules in turn.

1. Determination of Relevant Basis for

Partners in Contributing Partnerships

Proposed §1.170A-14(m)(2)(i) through

(iii) provided that the relevant basis of an

ultimate member holding a direct interest

in a contributing partnership is equal to the

ultimate member’s modified basis as determined under proposed §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 §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

§1.170A-14(m)(2)(iii).

For purposes of this computation, proposed §1.170A-14(m)(2)(ii) provided that

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

Bulletin No. 2024–30

the contribution) 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.

Proposed §1.170A-14(m)(2)(iii) provided that 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 §1.170A-14(m)(2)

(ii), and (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. To determine an ultimate

member’s share of the adjusted basis in all

the contributing partnership’s properties,

the proposed regulations provided that a

contributing partnership must apportion

among each of its partners in accordance

with their interests in the partnership under

section 704(b) of the Code the partnership’s 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.

Proposed §1.170A-14(m)(2)(iv) provided the following formula incorporating

these rules:

R = M × (T ÷ (D + T))

Where:

R = Relevant basis.

M = Modified basis as determined

under proposed §1.170A-14(l).

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

Bulletin No. 2024–30

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 × (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.

The comments received on the allocation of modified basis can be grouped into

the following two categories: (a) complexity, and (b) the effect of section 704(c)

property. Each category is discussed in

turn.

a. Complexity of the proposed rules for

the allocation of modified basis

As noted in Part II.A.1.b.iii. of this

Summary of Comments and Explanation

of Revisions, multiple commenters stated

that the calculations in the proposed regulations were too complex. One commenter

stated that the Treasury Department and

the IRS should reconsider the computational proposals and develop “simplified

safe harbor calculations” to give taxpayers

the assurance that they have done the math

correctly and will not unintentionally

incur additional tax and significant pen-

alties. As mentioned previously, one commenter who objected to the complexity of

the calculations proposed an alternative

method of applying pure aggregate rules

to the contributing partnership and any

upper-tier partnerships to determine modified basis and relevant basis. The commenter described this alternative as “simple” and suggested adding an anti-abuse

rule if a principal purpose is to avoid the

limitations of section 170(h)(7), but also

acknowledged that this approach was “[l]

ess precise and subject to potential abuse.”

Other commenters, while stating that the

proposed regulations were complex, did

not express any alternative suggestions.

The rules in the proposed regulations

for the allocation of modified basis to

determine relevant basis are not inappropriately complex in light of the statute

which they administer. Section 170(h)

(7)(B)(i) directs that modified basis be

allocated to the portion of the real property with respect to which the qualified

conservation contribution is made under

rules similar to the rules of section 755.

As mentioned in the preamble to the proposed regulations, the section 755 regulations involve several different methods for

allocating basis adjustments among the

partnership’s properties, including allocating in proportion to the partner’s share

of the adjusted bases in the partnership’s

properties. See §1.755-1(b)(5)(iii)(B).

The section 755 regulations contain mathematical examples illustrating these rules,

formulas, and computations and also additional rules and exceptions.

As explained in the preamble to

the proposed regulations, the Treasury

Department and the IRS considered simply cross-referencing the rules under

section 755. However, allocations under

section 755 are sometimes made in a way

to reduce or eliminate built-in gain or

built-in loss in partnership property. The

relevant basis rule of section 170(h)(7)(B)

(i) 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 built-in loss in

that property. Thus, applying an approach

based solely on the existing section 755

regulations would not be consistent with

July 22, 2024

the purpose of the Disallowance Rule.

Moreover, these regulations for the allocation of modified basis are similar to, and

not more complex than, the rules of section 755.

Section 170(h)(7) is computational in

nature. Although the statute is relatively

short and does not list any formulas, complying with section 170(h)(7)(B)(i) necessarily involves computations involving

every asset owned by the partnership or

S corporation and any lower-tier partnerships. The proposed regulations acknowledged this complexity and, if possible,

sought to simplify the requirements and

provide clear guidance. Thus, the proposed

regulations are not more complex than the

statutory language already requires.

Furthermore, partnerships and S corporations making qualified conservation

contributions are required by existing

rules to track each partner’s and shareholder’s share of the entity’s basis in the

contributed property. See sections 704(d)

(3), 705(a)(2), 1366(d)(4), and 1367(a)(2)

of the Code; Rev. Rul. 96-11, 1996-1 C.B.

140; Rev. Rul. 2008-16, 2008-1 C.B. 585.

Additionally, in certain circumstances the

rules under section 755 require a partnership to calculate a partner’s share of the

partnership’s basis in its properties. Thus,

the approach taken by the proposed regulations is consistent with existing rules

and principles.

The Treasury Department and the IRS

have considered the commenter’s recommendation of determining relevant basis

based on a “pure aggregate” approach,

subject to an anti-abuse rule or some type

of safe harbor. The Treasury Department

and the IRS agree with the commenter’s

assessment that such an approach would

be less clear and more subject to abuse.

As explained in the preamble to the proposed regulations, Congress enacted the

Disallowance Rule because of abusive

syndicated conservation easement transactions. It would not be appropriate to

deviate from the computational requirements of the statute. Congress intended

that partnerships and S corporations that

make qualified conservation contributions

perform several calculations to substantiate that the contribution is not disallowed

by the Disallowance Rule. Allowing for

shortcuts to such calculations that lead to

less accurate results would be inconsistent

July 22, 2024

with Congress’s purpose in enacting the

Disallowance Rule. Moreover, the computational step-by-step approach in the proposed regulations will minimize litigation

by providing clear, administrable guidance. A shorter, more conceptually-based

rule such as “safe harbor” calculations

or “pure aggregate treatment” would be

less clear and would lead to additional

disputes over the proper computation of

relevant basis.

In sum, the Treasury Department and

the IRS have determined that the approach

in the proposed regulations is similar to

the rules of section 755, consistent with

the rule of section 170(h)(7)(B)(i), and

consistent with the purposes of the Disallowance Rule. Accordingly, the Treasury

Department and the IRS do not adopt the

approaches suggested by commenters.

b. Effect of section 704(c) on the

allocation of modified basis

As noted earlier, the proposed regulations allocate modified basis by reference, in part, to the partners’ interests in

the partnership, which is a concept under

section 704(b). Specifically, under proposed §1.170A-14(m)(2)(iii)(B), to determine a partner’s portion of the adjusted

basis in all the contributing partnership’s

properties, the contributing partnership

would 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 proposed regulations did not

explicitly address the impact of section

704(c) amounts. One commenter stated

that, to promote transparency, the final

regulations should discuss what impact, if

any, section 704(c) may have with respect

to conservation easement transactions in

the context of section 170(h)(7).

In part, section 704(c) provides rules

for partnership allocations with respect

to property that has built-in gain (that is,

fair market value in excess of adjusted

basis) or built-in loss (that is, adjusted

basis in excess of fair market value) at

the time the property is contributed by a

partner to the partnership (section 704(c)

property). Section 704(c)(1)(A) provides

that, under regulations prescribed by the

Secretary, income, gain, loss, and deduction with respect to property contributed

to the partnership by a partner is shared

among the partners so as to take account

of the variation between the basis of the

property to the partnership and its fair

market value at the time of contribution.

If a partner contributes property with

built-in gain or built-in loss to a partnership, and the partnership subsequently

sells the property and recognizes that

gain or loss, the regulations under section

704(c)(1)(A) generally require the partnership to allocate that gain or loss to the

contributing partner.

The Treasury Department and the

IRS agree that it may be unclear how

the presence of section 704(c) property

affects the partnership’s apportionment

of its basis in its properties among its

partners for purposes of the computation of relevant basis, and that the final

regulations should provide additional

guidance on how section 704(c) property

affects the computation of relevant basis.

Thus, §1.170A-14(m)(2)(iii)(B) as finalized in this Treasury Decision provides

that to determine a partner’s portion of

the adjusted basis in all of a contributing

partnership’s properties, the contributing partnership must apportion among

its partners 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 basis 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. Consistent with the proposed regulations, these final regulations

provide that this apportionment must

be done under principles similar to the

determination of the partners’ interests

in the partnership under section 704(b),

but add a cross reference to §1.704-1(b)

(3)(ii), which provides factors to consider in determining a partner’s interest

in a partnership. These factors include:

the partners’ relative contributions to the

Bulletin No. 2024–30

partnership, the interests of the partners

in economic profits and losses (if different than that in taxable income or loss),

the interests of the partners in cash flow

and other non-liquidating distributions,

and the rights of the partners to distributions of capital upon liquidation. In

addition, §1.170A-14(m)(2)(iii)(B) as

finalized provides that the apportionment

must reflect section 704(c) principles.

For example, if a partnership property

has built-in loss (the adjusted basis of the

property exceeds its fair market value),

and section 704(c) would require that

built-in loss to be allocated to a certain

partner if that property were sold, all of

the basis in the property that exceeds

the property’s fair market value must be

apportioned to the partner to whom the

loss would be allocated if the property

was sold.

The final regulations contain two

examples illustrating the effect of section 704(c) property upon the computation of relevant basis. In the first example

(§1.170A-14(m)(7)(iv) (Example 4)), one

partner contributes property with built-in

gain to the partnership. The partnership

later makes a qualified conservation contribution with respect to other property.

The example shows how the partnership’s

basis in the built-in gain property is apportioned among the partners for the purposes

of determining relevant basis.

The second example (§1.170A-14(m)

(7)(v) (Example 5)) involves the same

facts, except that the property contributed to the partnership has built-in loss

instead of built-in gain. The example

shows how the basis in the built-in-loss

property is apportioned among the partners for the purposes of determining relevant basis.

The change to §1.170A-14(m)(2)(iii)

(B) is also reflected in the formulaic version of the rule in §1.170A-14(m)(2)(iv)

in these final regulations. Specifically,

item D is modified to read:

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) as determined under

§1.170A-14(m)(2)(iii)(B).

Bulletin No. 2024–30

2. Determination of Relevant Basis for

Ultimate Members That Are Shareholders

in a Contributing S Corporation

Proposed §1.170A-14(m)(3)(i) provided that relevant basis for an ultimate

member holding a direct interest in a contributing S corporation would equal the

ultimate member’s modified basis 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 contributing

S corporation’s properties (including the

portion of the real property with respect

to which the qualified conservation contribution is made). Proposed §1.170A-14(m)

(3)(ii) provided the following formulaic

version of this rule:

R = M × (E ÷ F)

Where:

R = Relevant basis.

M = Modified basis as determined

under §1.170A-14(l).

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).

Commenters did not raise issues specifically concerning the formula for

S corporations but did express concerns

regarding the complexity of proposed

§1.170A-14(m) in general. In the view of

the Treasury Department and the IRS, this

formula accurately accounts for modified

basis as a portion of the real property by

simply taking the pro rata allocation of

adjusted basis in the contributed property

over the pro rata allocation of adjusted

basis in all the S corporation’s properties

and is not more complex than necessary

to carry out the purposes of the Disallowance Rule.

The Treasury Department and the IRS

considered several alternatives to this rule.

One method would be to require a determination of a portion of relevant 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 final regulations

do not take that approach because such an

approach, although technically accurate

and consistent with the purposes of the

Disallowance Rule, would be too burdensome for taxpayers and difficult for the

IRS to administer.

Accordingly, these final regulations

finalize proposed §1.170A-14(m)(3) without change.

3. Determination of Relevant Basis for

Partners in Upper-Tier Partnerships

Proposed §1.170A-14(m)(4) provided

rules for determining the relevant basis of

an ultimate member holding a direct interest in an upper-tier partnership. Proposed

§1.170A-14(m)(4)(i) provided 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.

Proposed

§1.170A-14(m)(4)(ii)

(A) provided 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 will be the contributing partnership). This determination

must be done in accordance with the

principles of proposed §1.170A-14(m)

(2) and the formula provided in pro-

July 22, 2024

posed §1.170A-14(m)(4)(ii)(B). In

other words, the formula provided in

proposed §1.170A-14(m)(4)(ii)(B) is

similar to the formula provided in proposed §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 §1.170A-14(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

proposed §1.170A-14(m)(4)(iii), the

contributing partnership will then use

the amount determined under the formula in proposed §1.170A-14(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.

Proposed

§1.170A-14(m)(4)(ii)(B)

provided the following formula:

G = M × (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 §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.

July 22, 2024

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 × (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.

Proposed §1.170A-14(m)(4)(iii) provided that, after completion of these computations, the contributing partnership

must determine the portion of the amount

determined under item G 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 §1.170A-14(m)(2), and the

following formula:

R = G × (V ÷ (L + V))

Where:

R = Relevant basis.

G = Amount determined with respect

to item G as described under

§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

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.

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 × (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.

a. Complexity of the determination of

relevant basis for ultimate members that

are partners in an upper-tier partnership

Several commenters criticized the

complexity of the proposed regulations’

method for determining relevant basis in

tiered entity arrangements. For example,

one commenter stated that the proposed

regulations use “difficult multivariable

mathematical formulae” like G = M × (U

÷ (J + U)) and R = G × (V ÷ (L + V)). The

commenter stated that these calculations

“are appropriate for launching rockets

or building bridges, but not for claiming

Congressionally-encouraged tax incentives for land conservation.” Another

commenter stated that the complexity of

the proposed regulations places a significant burden on the IRS and the Independent Office of Appeals to determine compliance at the level of an “indeterminable

number” of upper-tier partnerships. The

commenter stated that the proposed regulations provide an “unclear legal standard with respect to the application of the

Disallowance Rule to tiered partnership

structures and thus do not promote simplification and taxpayer burden reduction.”

Another commenter stated that, of

the conservation easement contributions

made by partnerships, very few are made

by tiered partnerships. The commenter

stated that, after enactment of the Disallowance Rule, there will be even fewer,

noting that many of those structures were

Bulletin No. 2024–30

created to facilitate transactions that are

now banned.

The Treasury Department and the IRS

have determined that the proposed computations are not more complex than necessary to effectuate the Disallowance Rule.

In the context of tiered entities, section

170(h)(7)(A) requires the Disallowance

Rule to be tested at each tier and requires

relevant basis to be determined by looking through all tiers of pass-through entities to determine the portion of modified

basis that is attributable to the portion of

the real property with respect to which

the qualified conservation contribution is

made. For example, if an individual is a

partner in an upper-tier partnership, and a

lower-tier partnership makes a qualified

conservation contribution, section 170(h)

(7)(A) requires each partnership to determine if the amount of the contribution

exceeds 2.5 times the sum of the relevant

bases. Section 170(h)(7)(B)(i) provides

that the individual’s relevant basis is the

portion of the individual’s modified basis

in the upper-tier partnership that is allocable (under rules similar to the rules

of section 755) to the portion of the real

property held by the lower-tier partnership

with respect to which the qualified conservation contribution is made.

Applying the rules of section 755 to

tiered entities involves computations at

each tier, which can be complex. Revenue Ruling 87-115, 1987-2 C.B. 163, Situation 1, describes the sale of an interest

in an upper-tier partnership that holds an

interest in a lower-tier partnership. The

upper-tier partnership and the lower-tier

partnership both have elections in effect

under section 754 of the Code. Rev. Rul.

87-115 concludes that, in addition to the

upper-tier partnership computing section

743(b) adjustments and allocating them

among its properties under section 755,

an interest in the lower-tier partnership

will be deemed to have been transferred

for purposes of the lower-tier partnership

computing section 743(b) adjustments and

allocating them among the lower-tier partnership’s properties under section 755.

Thus, the rules of section 755 will have to

be applied at each tier. Similarly, Revenue

Ruling 92-15, 1992-1 C.B. 215, Situation

1, provides that if an upper-tier partnership

makes an adjustment under section 734(b)

that is allocated under the rules of section

Bulletin No. 2024–30

755 to the basis of an interest it holds in a

lower-tier partnership that has an election

under section 754 in effect, the lower-tier

partnership must make section 734(b)

adjustments to the upper-tier partnership’s

share of the lower-tier partnership’s assets

and allocate those adjustments among the

lower-tier partnership’s property under

the rules of section 755. Thus, the rules of

section 755 will have to be applied at each

tier to determine the allocation of the section 734(b) adjustments.

As explained earlier, the proposed

regulations are similar to, and not more

complex than, the rules of section 755.

In addition, the proposed regulations are

more consistent with the purposes of the

Disallowance Rule than a rule that simply cross-references section 755. Both of

these statements are also true with respect

to tiered partnership arrangements. The

computational step-by-step approach in

the proposed regulations provides a clear,

administrable standard, and protects the

purposes of the Disallowance Rule in situations involving tiered partnerships.

The Treasury Department and the IRS

disagree with the commenter who stated

that the proposed regulations apply to an

“indeterminate” number of tiers. The number of tiers is determinable, and within the

control of the taxpayers creating those

tiers. The proposed regulations provide

a flexible approach to accommodate any

number of tiers created by taxpayers.

This flexibility is necessary to prevent the

avoidance of the purposes of the Disallowance Rule. If the regulations stopped

at two tiers, taxpayers could create structures with additional tiers and assert that

they are not required to properly trace relevant basis through all the tiers. In addition, one commenter reported that many

tiered partnership arrangements were created to engage in the very types of abusive

transactions which led Congress to enact

the Disallowance Rule. Accordingly, these

final regulations do not make changes in

response to the comments regarding the

complexity of the relevant basis computations in tiered partnership situations.

b. Effect of section 704(c) on the

allocation of modified basis

As discussed in Part II.B.1.b of this

Summary of Comments and Explana-

tion of Revisions, these final regulations

amend §1.170A-14(m)(2)(iii)(B) and

item D in the formula in §1.170A-14(m)

(2)(iv), which address the apportionment

of a contributing partnership’s adjusted

bases in its properties. To provide a parallel rule for an upper-tier partnership’s

apportionment of its adjusted bases in

its properties, §1.170A-14(m)(4)(ii)(A)

(2) in these final regulations provides

that to determine a partner’s portion of

the adjusted basis in all of an upper-tier

partnership’s properties, the upper-tier

partnership must apportion among its

partners its adjusted basis in each of its

properties (except its interest in the lower-tier partnership), using the adjusted

basis 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.

This apportionment must be done under

principles similar to the determination

of the partners’ interests in the partnership under section 704(b), including the

factors in §1.704-1(b)(3)(ii). In addition,

the apportionment must reflect section

704(c) principles. For example, if a partnership property has built-in loss (the

adjusted basis of the property exceeds

its fair market value), and section 704(c)

would require all of that built-in loss to

be allocated to a certain partner if that

property was sold, all of the basis in the

property that exceeds the property’s fair

market value must be apportioned to the

partner to whom the loss would be allocated if the property was sold.

To effectuate this change, these final

regulations modify the definition of item J

in §1.170A-14(m)(4)(ii)(B) to be:

J = Ultimate member’s portion of the

adjusted basis in all the upper-tier partnership’s properties (other than the uppertier partnership’s interest in the contributing partnership) as determined under

§1.170A-14(m)(4)(ii)(A)(2).

To be consistent with the changes to

§1.170A-14(m)(2)(iii)(B), these final regulations modify the definition of item L in

§1.170A-14(m)(4)(ii)(B) to be:

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 con-

July 22, 2024

tribution is made) as determined under

§1.170A-14(m)(2)(iii)(B).

4. Determination of Relevant Basis

for Shareholders in Upper-Tier

S Corporations

Proposed §1.170A-14(m)(5) provided

rules for determining relevant basis for an

ultimate member holding a direct interest

in an upper-tier S corporation. Proposed

§1.170A-14(m)(5)(i) provided that the

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 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.

Proposed

§1.170A-14(m)(5)(ii)(A)

provided a narrative rule for the uppertier S corporation. Under proposed

§1.170A-14(m)(5)(ii)(A), 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 §1.170A-14(m)(3) and the

formula provided in §1.170A-14(m)(5)(ii)

(B). In other words, the formula provided

in §1.170A-14(m)(5)(ii)(B) is similar to

the formula provided in §1.170A-14(m)

(3), 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

§1.170A-14(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 §1.170A-14(m)(5)(iii), the

contributing partnership will then use the

amount determined under the formula in

§1.170A-14(m)(5)(ii)(B) to compute the

portion of modified basis that is allocable

July 22, 2024

to the portion of the real property with

respect to which the qualified conservation contribution is made.

Proposed

§1.170A-14(m)(5)(ii)(B)

provided the following formula:

N = M × (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 §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 adjusted basis in its

interest in the contributing partnership).

Proposed §1.170A-14(m)(5)(iii) provided that, after completion of these computations, the contributing partnership

must determine the portion of the amount

determined under item N 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 §1.170A-14(m)(2), and the

following formula:

R = N × (W ÷ (S + W))

Where:

R = Relevant basis.

N = Amount determined with respect

to item N as described under

§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 part-

nership 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 × (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.

a. Complexity of the determination of

relevant basis for ultimate members

that are shareholders in an upper-tier

S corporation

Commenters did not provide comments

specific to S corporations, but an uppertier S corporation would necessarily hold

an interest in a partnership, so the rules

applicable to partnerships would apply

to any partnership owned by the S corporation. For the reasons described in Part

II.B.3.a of this Summary of Comments

and Explanation of Revisions (relating

to the complexity of the determination of

relevant basis for ultimate members that

are partners in an upper-tier partnership),

the Treasury Department and the IRS have

determined that these computations should

be retained. Accordingly, these final regulations do not make changes in response

to the comments regarding the complexity

of the relevant basis computations in situ-

Bulletin No. 2024–30

ations involving an S corporation owning

an interest in a lower-tier partnership.

b. Effect of section 704(c) on the

allocation of modified basis

As discussed in Part II.B.1.b of this

Summary of Comments and Explanation of Revisions, these final regulations

amend §1.170A-14(m)(2)(iii)(B) and item

D in the formula in §1.170A-14(m)(2)

(iv). To be consistent with those revisions,

these final regulations modify the definition of item S in §1.170A-14(m)(5)(iii)(B)

to be:

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) as determined under

§1.170A-14(m)(2)(iii)(B).

III. Requests for Guidance on

Partnership Allocations

Subchapter K and the regulations

thereunder provide rules on how a partnership may allocate its items among its

partners. Several commenters requested

that the final regulations provide guidance on partnership allocations of qualified conservation contributions. These

comments are grouped into the following categories: (A) requests for guidance

under section 704(b), (B) requests for

guidance under section 704(c), and (C)

requests for additional guidance on the

application of the proposed regulations

under §1.706-3.

A. Requests for guidance under section

704(b)

Section 704(b) provides that a partner’s distributive share of income, gain,

loss, deduction, or credit is determined in

accordance with the partner’s interest in

the partnership if the partnership agreement does not provide as to the partner’s

distributive share of these items or the

allocation to a partner of these items under

the agreement does not have substantial

economic effect. The existing regulations

under section 704(b) provide guidance,

including definitions of substantial economic effect, capital account provisions,

Bulletin No. 2024–30

and guidance on the determination of a

partner’s interest in the partnership.

The proposed regulations did not

address section 704(b) allocation issues.

The examples in the proposed regulations

tell the reader to assume that the partnership allocations comply with the rules

of subchapter K. Commenters requested

guidance on the following issues involving section 704(b): (1) allocations of qualified conservation contributions under

section 704(b), and (2) section 704(b) capital accounting for qualified conservation

contributions.

1. Allocations of Qualified Conservation

Contributions under Section 704(b)

One commenter stated that the proposed regulations suggest that a partnership can allocate qualified conservation

contributions in any manner it chooses

irrespective of the rules under subchapter

K. The commenter stated that a partnership’s allocation of a qualified conservation contribution must reflect either the

partners’ interests in the partnership or

qualify as a special allocation that satisfies

the substantial economic effect rules. The

commenter recommended that the final

regulations qualify any suggestion that

special allocations may be used in allocating qualified conservation contributions.

Without that, the commenter stated that

the examples in the proposed regulations

may be taken as permission from the

IRS to create a new situation in which an

investor receives more than 2.5 times its

basis in tax deductions.

The proposed regulations do not suggest that a partnership’s allocation of a

qualified conservation contribution is

not subject to the rules of subchapter K.

As noted, the examples in the proposed

regulations tell the reader to assume that

the partnership allocations comply with

the rules of subchapter K. The focus of

these regulations is the implementation of

section 170(f)(19) and (h)(7), which generally do not change the rules for how a

partnership may allocate a qualified conservation contribution among its partners

under section 704(b). Accordingly, guidance on the application of section 704(b)

to a partnership’s allocations of qualified

conservation contributions is outside the

scope of these regulations.

The Treasury Department and the IRS

note that the Disallowance Rule does not

prevent all situations in which an investor receives more than 2.5 times its basis

in tax-deductible qualified conservation

contributions. See §1.170A-14(j)(6)(ii)

(Example 2) for a situation in which the

amount of a partnership’s qualified conservation contribution does not exceed

2.5 times the sum of the partners’ relevant

bases, even though one partner’s share of

the contribution exceeds 2.5 times that

partner’s relevant basis. Such transactions

may, however, constitute a listed transaction.

2. Section 704(b) Capital Accounting for

Qualified Conservation Contributions

Regulations under section 704(b) provide rules for maintenance of a partner’s

capital account. In general terms, a partner’s capital account is increased by the

amount of money the partner contributes

to the partnership, the fair market value

of property the partner contributes to the

partnership, and allocations to the partner of partnership income and gain. In

general terms, a partner’s capital account

is decreased by the amount of money

distributed to the partner by the partnership, the fair market value of any property

distributed to the partner, allocations of

section 705(a)(2)(B) expenditures of the

partnership, and allocations of partnership loss and deduction. See §1.704-1(b)

(2)(iv). Section 705(a)(2)(B) expenditures

are expenditures of a partnership that are

not deductible in computing its taxable

income and not properly chargeable to its

capital accounts. Revenue Ruling 96-11,

1996-1 C.B. 140, provides that a noncash

charitable contribution by a partnership is

a section 705(a)(2)(B) expenditure.

Two commenters requested guidance

on how a disallowed qualified conservation contribution would affect capital

accounts. They stated that the proposed

regulations provide rules for determining

whether a qualified conservation contribution runs afoul of section 170(h)(7) but

fail to provide capital accounting guidance

under section 704(b) to the extent that

a contribution is disallowed. One commenter stated that, under the current section 704(b) regulations, it is unclear what

impact a disallowed qualified conservation

July 22, 2024

contribution would have on book capital

accounts. Another commenter stated that,

in the event that a contributing partnership

continues to conduct business following a disallowed qualified conservation

contribution, the lack of section 704(b)

guidance will create confusion among

tax practitioners, increase the reporting

burden on taxpayers, and require further

guidance from the Treasury Department

and the IRS. These two commenters recommend that the final regulations include

book capital account guidance under section 704(b) with respect to the Disallowance Rule.

The Treasury Department and the IRS

have concluded that guidance on capital

account maintenance under section 704(b)

is outside the scope of these regulations.

There are several situations in which the

Code limits or disallows a deduction for

a partnership’s charitable contribution,

including other provisions of section 170.

As a result of these long-standing rules,

a partnership’s allowed charitable contribution may be less than the fair market value of the donated property. The

Disallowance Rule simply adds another

situation in which a deduction for a partnership’s charitable contribution will be

disallowed. Thus, this issue is broader

than contributions subject to the Disallowance Rule. Accordingly, these final

regulations do not address partnership

capital accounting.

B. Requests for guidance under section

704(c)

In part, section 704(c) provides rules

for partnership allocations with respect to

property that had built-in gain or built-in

loss at the time the property was contributed by a partner to the partnership. Two

commenters sought guidance on whether:

(1) section 704(c)(1)(A) applies to qualified conservation contributions, and (2)

section 704(c)(1)(B) applies to qualified

conservation contributions.

1. Application of Section 704(c)(1)(A) to

Charitable Contributions

Two commenters requested guidance

on whether section 704(c)(1)(A) applies

to the definition of distributive share in

the context of proposed §1.170A-14. The

July 22, 2024

commenters stated that the proposed regulations do not define the term “distributive share.” The commenters stated that,

as a result, it is unclear whether section

704(c) may apply to determine each partner’s distributive share of a qualified conservation contribution. One commenter

stated that, to promote transparency, the

final regulations should define the term

“distributive share” and further discuss

what impact, if any, section 704(c) may

have with respect to conservation easement transactions in the context of section 170(h).

Another commenter stated that none

of the examples in the proposed regulations involve a qualified conservation

contribution with respect to property that

had been contributed to the partnership

by a partner, and that the application of

section 704(c) to allocations of charitable contributions should be addressed.

The commenter hypothesized that the

proposed regulations will create an inference that the rules of section 704(c) do

not apply in the context of a contributed

property that is later the subject of a charitable contribution because it is unclear

under the existing section 704(c) regulations whether charitable contributions of

contributed property are subject to section 704(c). The commenter also attached

or referenced several articles addressing

whether Congress intended for section

704(c) to apply to charitable contributions.

The focus of these regulations is

implementation of section 170(f)(19) and

(h)(7). Thus, the application of section

704(c)(1)(A) to charitable contributions

by a partnership is outside the scope of

these regulations. However, the Treasury

Department and the IRS will continue to

study the issue.

2. Application of Section 704(c)(1)(B) to

Charitable Contributions

Section 704(c)(1)(B) provides in part

that, if a partner contributes property with

built-in gain or built-in loss to a partnership, and the partnership distributes the

property (directly or indirectly) to someone other than the contributing partner

within seven years of the partner’s contribution, the contributing partner is treated

as recognizing gain or loss (as the case

may be) from the sale of such property in

an amount equal to the gain or loss which

would have been allocated to such partner

under section 704(c)(1)(A) if the property

had been sold at its fair market value at the

time of the distribution.

One commenter requested guidance

on whether section 704(c)(1)(B) would

apply if a partner contributes real property to a partnership and within seven

years the partnership makes a qualified

conservation contribution with respect to

that property. The commenter stated that

a partnership’s charitable contribution is

substantively equivalent to a partnership

distribution followed by a charitable contribution by the partners.

The focus of these regulations is

implementation of section 170(f)(19) and

(h)(7). Thus, the application of section

704(c)(1)(B) to charitable contributions

by a partnership is outside the scope of

these regulations. However, the Treasury

Department and the IRS will continue to

study the issue.

C. Proposed regulations under §1.706-3

Section 706(d)(3) of the Code 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.

To facilitate the computation of a partner’s relevant basis immediately before

the contribution, proposed §1.706-3(a)

provided that, for purposes of section

706(d)(3), in the case of a qualified con-

Bulletin No. 2024–30

servation contribution (without regard

to whether such contribution is a disallowed qualified conservation contribution within the meaning of proposed

§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

§1.706-4.

The following sections of this Summary of Comments and Explanation of

Revisions address two issues under proposed §1.706-3(a): (1) whether proposed

§1.706-3(a) requires pro rata allocations,

and (2) whether proposed §1.706-3(a)

withdraws the 2015 proposed regulations

under §1.706-3.

1. Whether Proposed §1.706-3(a)

Requires Pro Rata Allocations

The Treasury Department and the

IRS understand that there are questions

whether the language in proposed §1.7063(a) stating that the upper-tier partnership

must allocate the qualified conservation

contribution among its partners “in proportion to their interests in the upper-tier

partnership” requires the upper-tier partnership to allocate the contribution among

its partners pro rata, with no special allocations.

The Treasury Department and the IRS

did not intend for proposed §1.706-3(a) to

require an upper-tier partnership to allocate a qualified conservation contribution

pro rata among its partners. Accordingly,

the final regulations modify §1.706-3(a)

to provide that the upper-tier partnership

must allocate the contribution among its

partners in accordance with their interests

in the qualified conservation contribution at the time of day at which the qualified conservation contribution was made,

rather than providing that 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.

Bulletin No. 2024–30

2. Whether Proposed §1.706-3(a) and (b)

Withdraw the 2015 Proposed Regulations

Under §1.706-3

One commenter asked about the effect

of the proposed regulations on proposed

regulations under §1.706-3 published

August 3, 2015, REG-109370-10 (80 FR

45905) (the 2015 proposed regulations).

The 2015 proposed regulations proposed

guidance under the general rule of section

706(d)(3).

The proposed regulations did not withdraw, nor did they intend to withdraw, the

2015 proposed regulations. Instead, the

proposed regulations under §1.706-3 are

a regulatory exception to the general rule

in section 706(d)(3), to which the 2015

proposed regulations relate. To avoid confusion, these regulations renumber the

guidance under §1.706-3 to follow the

numbering in the 2015 proposed regulations. Thus, proposed §1.706-3(a) and (b)

are finalized as §1.706-3(d) and (e), incorporating the changes described in this section of the preamble. Section 1.706-3(a)

through (c) are reserved for the 2015 proposed regulations.

In addition, the Treasury Department

and the IRS have determined that the language in proposed §1.706-3 might cause

confusion because it states that the uppertier partnership must allocate the qualified

conservation contribution as described

in §1.706-3 regardless of the method

(interim closing or proration) and convention (daily, semi-monthly, or monthly)

otherwise used by the upper-tier partnership under §1.706-4. This reference to

§1.706-4 might cause confusion because

§1.706-4(a)(2) provides in part that items

subject to allocation under section 706(d)

(3) are not subject to the rules of §1.7064. Thus, although proposed §1.706-3 is

correct to state that the upper-tier partnership’s allocation of the qualified conservation contribution must be done without

regard to the rules of §1.706-4, the reference to §1.706-4 may be read to imply

that the rules of §1.706-4 would otherwise

apply to an upper-tier partnership’s allocation of items attributable to a lower-tier

partnership.

To avoid confusion, these final regulations modify proposed §1.706-3(a) to provide that, for purposes of section 706(d)

(3), in the case of a qualified conservation

contribution (as defined in section 170(h)

(1) and §1.170A-14(a) without regard to

whether such contribution is a disallowed

qualified conservation contribution within

the meaning of §1.170A-14(j)(3)(vii)) by

a partnership that is allocated to an uppertier partnership, the upper-tier partnership

must allocate the contribution among its

partners in accordance with their interests

in the qualified conservation contribution at the time of day at which the qualified conservation contribution was made,

regardless of the general rule of section

706(d)(3). The final regulations provide

that, pursuant to §1.706-4(a)(2), the rules

of §1.706-4 do not apply to allocations

subject to §1.706-3.

IV. Exceptions to the Disallowance Rule

Section 170(h)(7) contains three

exceptions to the Disallowance Rule: the

three-year holding period exception, the

family pass-through entity exception,

and the certified historic structure exception. The proposed regulations included

each exception and provided additional

guidance. Commenters addressed each of

these exceptions, requested an exception

for de minimis overages, and requested a

more explicit statement of the taxpayers

to whom the Disallowance Rule does not

apply. Each category of comments is discussed in turn in the following sections of

this preamble.

A. Exception for contributions outside

three-year holding period

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 pass-through entity 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 owner of the passthrough entity that made such contribution

acquired any interest in such pass-through

entity, and (3) if the interest in the passthrough entity that made such contribution

is held through one or more pass-through

entities, the last date on which any such

pass-through entity acquired any interest in any other such pass-through entity,

and the last date on which any owner in

July 22, 2024

any such pass-through entity acquired

any interest in such pass-through entity.4

Neither section 605 of the SECURE 2.0

Act nor section 170 defines the phrase

“acquired any interest.”

Proposed §1.170A-14(n)(2)(ii) and (iii)

defined the phrase “acquired any interest” for partnerships and S corporations,

respectively. Proposed §1.170A-14(n)(2)

(iv) also clarified that, if the contributing

partnership or contributing S corporation

does not satisfy the requirements of proposed §1.170A-14(n)(2), then proposed

§1.170A-14(n)(2) 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 §1.170A-14(n)(2) if the person

had been the one to make the qualified

conservation contribution. The proposed

regulations contained two examples illustrating these rules. The preamble to the

proposed regulations requested comments

on whether any additional rules or examples should be provided for the three-year

holding period exception.

The only comment received on proposed §1.170A-14(n)(2) supported the

three-year holding period exception and

stated that no further guidance is needed

on the topic. Accordingly, these regulations finalize the proposed regulations

under §1.170A-14(n)(2) without change.

B. Exception for family pass-through

entities

Section 170(h)(7)(D)(i) provides that

the Disallowance Rule does not apply

to any contribution made by any passthrough entity if substantially all of the

interests in such pass-through entity 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:

(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) of the

Code for purposes of determining whether

an individual is a qualifying relative.

Proposed §1.170A-14(n)(3) provided

guidance under the family pass-through

entity exception for partnerships and S

corporations, including: (1) defining “substantially all of the interests,” (2) providing that “members of the family” are

limited to individuals, and (3) imposing

two anti-abuse rules for the family passthrough entity exception.

In addition, proposed §1.170A-14(n)

(3)(v) provided that, if the contributing

partnership or contributing S corporation

does not satisfy the requirements of proposed §1.170A-14(n)(3), then the exception in proposed §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

§1.170A-14(n)(3) if the person had been

the one to make the contribution. No comments were received on the rule in proposed §1.170A-14(n)(3)(v). Accordingly,

the rule in proposed §1.170A-14(n)(3)(v)

is finalized without change.

One commenter expressed support

for the family pass-through entity exception and stated that further guidance was

not needed. Other commenters requested

modifications on: (1) the definition of

“substantially all of the interests,” (2) the

limitation of “members of the family” to

individuals, and (3) the two anti-abuse

rules for the family pass-through entity

exception.

1. Defining “Substantially All of the

Interests”

Section 170(h)(7) does not contain

a definition of “substantially all.” The

preamble to the proposed regulations

mentioned that, 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 (§1.1400Z2(d)-2(d)(4));

80 percent (§§1.41-2(d)(2), 1.41-4(a)(6));

85 percent (§§1.45D-1(c)(5), 1.72(e)-1T,

Q&A 3, 1.528-4(b) and (c)); 90 percent

(§§1.103-8(a)(1)(i), 1.103-16(c), 1.7312(c)(3)(i), 1.1400Z2(d)-2(d)(3)); and 95

percent (§§1.448-1T(e)(4)(i) and (e)(5)(i),

1.460-6(d)(4)(i)(D)(1)).

The preamble to the proposed regulations stated that it is appropriate to select a

percentage at the higher end of this range to

carry out the purpose of the Disallowance

Rule, which is to prevent abusive syndications of qualified conservation contributions. Thus, proposed §1.170A-14(n)(3)

(i) provided that the family pass-through

entity exception applied if at least ninety

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 §1.170A-14(n)(3).

Proposed §1.170A-14(n)(3)(ii)(A) provided that, in the case of a contributing

partnership, at least ninety 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 ninety 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. Proposed §1.170A-14(n)(3)(ii)

(B) provided that, in the case of a contributing S corporation, at least ninety 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 ninety percent of the

total value and at least ninety 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.

One commenter agreed that ninety percent was a reasonable number to define

The Treasury Department and the IRS note that section 170(h)(7)(C) and §1.170A-14(n)(2) are based upon dates of acquisition, not “holding periods,” and therefore, although this exception

is colloquially referred to as the “three-year holding period exception,” the tacked holding period rules of section 1223 of the Code do not apply in determining the application of section

170(h)(7)(C) and §1.170A-14(n)(2).

July 22, 2024

Bulletin No. 2024–30

substantially all, noting that interests held

by persons who are not members of the

family should be “extremely limited.”

Another commenter stated that ninety percent was too high and would unnecessarily

restrict the application of the family passthrough entity exception; however, that

commenter did not provide any examples

of unnecessary restrictions or recommend

a different percentage. A third commenter

recommended lowering the percentage

to eighty-five percent, citing the eightyfive percent standard in Rev. Rul. 73-248,

1973-1 C.B. 295, and the fact that this

Revenue Ruling relates to the percentage

of ownership in a legal entity, as opposed

to the percentage of cash, percentage of

assets, or percentage of time. This commenter also noted that eighty-five percent

was closest to the average of the various

percentages used to define “substantially

all” discussed in the preamble to the proposed regulations.

The Treasury Department and the IRS

agree with the commenter stating that interests held by persons who are not members

of the family should be extremely limited

and that ninety percent is a reasonable

number to define “substantially all.” In the

view of the Treasury Department and the

IRS, the intent of not requiring one-hundred percent of a contributing entity to be

owned by family members was to allow

non-family members to make small,

non-material investments in contributing

entities, such as when a family partnership

issues profits interests to service providers. The two commenters who stated that

ninety percent is too high did not elaborate

or give examples in which a family partnership or family S corporation needed to

provide more than ten percent of its interests to persons who are not members of

the family but still should meet the family

pass-through entity exception to the Disallowance Rule. Further, the average of percentages used to define “substantially all”

in guidance is not relevant to the definition

that makes sense in the context of section

170(h)(7). Thus, these final regulations

adopt the definition of “substantially all”

as proposed.

2. Defining “Members of the Family”

Consistent with section 170(h)(7)(D)

(ii), proposed §1.170A-14(n)(3)(iii) pro-

Bulletin No. 2024–30

vided that, for purposes of §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). The

preamble to the proposed regulations

stated that, under this rule, members of

the family would be limited to individuals and requested comments on whether

certain estates or trusts should be treated

as members of the family for purposes of

the family pass-through entity exception.

The preamble also noted that, under existing §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.

One commenter requested that estates

and trusts of deceased individuals be

included in the definition of “members

of the family” to address the fact that the

interests of deceased individuals may be

included in conservation contributions.

In the view of the Treasury Department

and the IRS, if a family member dies and

the member’s interest in the pass-through

entity has been transferred to the decedent’s estate, the interest still should be

considered to be held by a member of the

family. Otherwise, the pass-through entity

might have to wait until final disposition

of the estate (which may take years) to

make a deductible qualified conservation

contribution, even if the beneficiaries of

the estate are all themselves individual

members of the family. In addition, allowing a decedent’s estate to be treated as a

member of the family if the decedent was

a member of the family at the time of death

is administrable because determining

whether the estate qualified as a member

of the family involves the same determination as whether the decedent qualified

as a member of the family before death.

Accordingly, these final regulations modify §1.170A-14(n)(3)(iii) to provide that a

decedent’s estate is treated as a member of

the family for purposes of §1.170A-14(n)

(3) if the decedent was a member of the

family at the time of death.

In addition, as noted by the commenter,

certain trusts may raise similar issues.

Trusts may be partners or S corporation

shareholders, or may become partners or

shareholders as a result of the death of

an individual member of the family. For

example, if a family member holds a partnership interest through a grantor trust,

that individual would meet the requirements under these regulations of holding

a direct interest in the partnership under

§1.170A-14(j)(3)(v). If that family member dies and the trust is no longer a grantor

trust, the trust should not automatically

cause the partnership to no longer be a

family partnership. If only family members are potential beneficiaries of a trust,

then the trust should be treated as being

a member of the family. Including such a

trust would serve the purpose of the statute

to maintain an exception for partnerships

and S corporations owned and controlled

by a family. A contributing partnership

or contributing S corporation that would

otherwise satisfy the requirements of

the family pass-through entity exception

should not be excluded from the exception

merely because interests are held through

a family trust. Accordingly, these final

regulations modify §1.170A-14(n)(3)(iii)

to provide that a trust, all of the beneficiaries of which are individuals described in

§1.170A-14(n)(3)(iii)(A) or (B), is treated

as a member of the family. For this purpose, the term “beneficiaries” refers to

those persons who currently must or may

receive income or principal from the trust

and those persons who would succeed to

the property of the trust if the trust were

to terminate immediately before the qualified conservation contribution.

3. Anti-Abuse Rules for the Family PassThrough Entity Exception

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.

Section 170(h)(7)(G)(ii) provides the Secretary with authority to issue regulations

or other guidance to prevent the avoidance of the purposes of section 170(h)

(7). Accordingly, to ensure that the family

pass-through entity exception in proposed

§1.170A-14(n)(3) would not be used inappropriately to circumvent the Disallowance Rule, the proposed regulations con-

July 22, 2024

tained two anti-abuse rules: (1) a one-year

holding period, and (2) a ninety-percent

allocation rule.

a. One-year holding period

Proposed

§1.170A-14(n)(3)(iv)(A)

provided that the family pass-through

entity exception does not apply unless at

least ninety 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 preamble to the proposed regulations explained that 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 before the contribution,

promoters could structure transactions

to inappropriately take advantage of certain tacked-holding-period transactions

together with the family pass-through

entity exception. The proposed regulations

provided an example of such a situation, in

which a lower-tier partnership that is not a

family pass-through entity distributes its

real property to an S corporation and an

upper-tier partnership. The S corporation

and the upper-tier partnership each separately qualify as a family pass-through

entity, but the shareholders of the S corporation are not related to the partners of the

upper-tier partnership. Within one year of

the distribution, the S corporation makes

a qualified conservation contribution. The

example concludes that, even though at

the time of the qualified conservation contribution the S corporation is completely

owned by an individual and members of

the family, the family pass-through entity

exception does not apply because the oneyear holding period requirement was not

met.

Two commenters disagreed with the

one-year holding period. These commenters claimed that the inclusion of a

three-year holding period under section

170(h)(7)(C) and the absence of a oneyear holding period under the family

pass-through entity exception evidenced

a congressional intent not to include a

one-year holding period for the family pass-through entity exception under

July 22, 2024

section 170(h)(7)(D). One of these commenters opined that the proposed oneyear holding period requirement violated

due process by retroactively binding

taxpayers who had already made contributions that did not satisfy the one-year

holding period. The other commenter

stated that the Treasury Department and

the IRS had offered no evidence in support of the statement in the preamble to

the proposed regulations that reliance on

a tacked holding period raises serious

concerns that the family pass-through

entity exception is being used inappropriately to circumvent the Disallowance

Rule.

The Treasury Department and the IRS

disagree that the Treasury Department and

the IRS lack authority to promulgate an

anti-abuse rule. Section 170(h)(7)(G) is

a specific grant of authority to 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 to prevent the avoidance of the

purposes of section 170(h)(7). In addition,

section 7805(a) authorizes the Secretary to

prescribe all needful rules and regulations

for the enforcement of title 26, including

all rules and regulations as may be necessary by reason of any alteration of law

in relation to internal revenue. As noted

above, section 7805(b)(2) permits regulations issued within 18 months of December 29, 2022 (the date SECURE 2.0 Act

was enacted), to apply to contributions

after December 29, 2022. Section 7805(b)

(3) provides that the Secretary may provide that any regulation may take effect or

apply retroactively to prevent abuse. Section 170(h)(7)(G) and section 7805(a), (b)

(2), and (b)(3) provide ample authority for

an anti-abuse rule applicable to contributions after December 29, 2022.

The holding period anti-abuse rule is

necessary to address the potential for taxpayers to inappropriately take advantage

of certain tacked-holding-period transactions to utilize the family pass-through

entity exception. In particular, the example in the proposed regulations illustrates

inappropriate avoidance of the purposes

of the Disallowance Rule. As described,

the example shows a distribution from

a partnership that is not a family passthrough entity to two separate upper-tier

entities, each of which is a family passthrough entity, followed by a qualified

conservation contribution within one year

of the distribution. This situation should

not qualify for the family pass-through

entity exception because the distributing

partnership was not a family pass-through

entity. If such a situation qualified for the

family pass-through entity exception, then

partnerships that fail to qualify as family

pass-through entities could simply distribute land to upper-tier entities, each of

which would be a family pass-through

entity (such as single-member S corporations or partnerships wholly-owned by

spouses) and thus each upper-tier entity

could inappropriately avail itself of the

family pass-through entity exception.

Without an anti-abuse rule, similar inappropriate results could be obtained through

other tacked-holding-period transactions,

including contributions to family passthrough entities by persons who are not

members of the family.

However, after consideration of the

comments, the Treasury Department

and the IRS have decided to finalize the

one-year holding period rule with two

changes. First, the final regulations clarify

that, solely for purposes of §1.170A-14(n)

(3)(iv)(A), section 1223(1) and (2) of the

Code do not apply in determining whether

at least ninety 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. This

clarification is only for purposes of the

anti-abuse rule in §1.170A-14(n)(3)(iv)

(A) and does not affect the holding period

of the property for any other purpose,

including section 170(e). The Treasury

Department and the IRS note that this rule

was already implicit in the proposed regulations; in fact, proposed §1.170A-14(n)

(3)(vi)(B) (Example 2) described a situation in which an S corporation failed the

one-year holding period requirement even

though it would have had a tacked holding

period under section 1223 that exceeded

one year.

Second, the final regulations provide

that the one-year holding period rule does

not apply if the entire amount of the qualified conservation contribution is limited

Bulletin No. 2024–30

by section 170(e) to the contributing partnership’s or contributing S corporation’s

adjusted basis in the qualified conservation contribution. For example, if section

170(e) limits a qualified conservation contribution to the contributing partnership’s

adjusted basis because the property with

respect to which the qualified conservation contribution is made was purchased

within one year of the qualified conservation contribution, the anti-abuse rule in

§1.170A-14(n)(3)(iv)(A) does not apply.

This change limits the one-year holding

requirement to transactions that inappropriately take advantage of tacked holding

periods to utilize the family pass-through

entity exception.

b. Ninety percent allocation rule

Proposed

§1.170A-14(n)(3)(iv)(B)

provided that the exception in proposed

§1.170A-14(n)(3) does not apply unless at

least ninety percent of the qualified conservation contribution is allocated to the

individual and all members of the individual’s family who own at least ninety percent of all the interests in the contributing

partnership or contributing S corporation.

Commenters did not comment on this

anti-abuse rule. Therefore, these regulations maintain the ninety percent allocation rule.

C. Certified historic structure exception

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)). Proposed §1.170A-14(n)

(4) simply repeated this statutory language and did not provide further guidance regarding the cases to which this

exception would apply. No comments

were received on proposed §1.170A-14(n)

(4), which these regulations finalize without change.

Proposed

§1.170A-14(n)(4)

also

contained a cross-reference to the special reporting requirements in proposed

§1.170A-16(f)(6) for a contribution that

meets the certified historic structure

exception. Several commenters addressed

these special reporting requirements.

Bulletin No. 2024–30

Those comments are discussed in Part V.D

of this Summary of Comments and Explanation of Revisions,

D. The request for a de minimis overage

exception

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) “shall

not be 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.

One commenter stated that there is a “cliff

effect” to the statute and the proposed

regulations in that a contribution of one

dollar more than 2.5 times the sum of the

relevant bases results in disallowance of

any deduction for any of the contribution.

The commenter stated that there should be

some regulatory leniency if the taxpayer

was acting in good faith and there is de

minimis overage.

The Treasury Department and the IRS

agree with the commenter that the statutory language imposes a “cliff effect,” but

do not agree that a de minimis exception

is necessary or desirable. As explained

in Part I of this Summary of Comments

and Explanation of Revisions, the first

sentence of proposed §1.170A-14(j)(3)

(ii), which these regulations finalize without change, provides 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.

By focusing on the amount claimed by

the contributing partnership or contributing S corporation, rather than the fair

market value of the contribution, this rule

provides greater certainty to both taxpayers and the IRS. The regulations do not

require the contributing partnership or

contributing S corporation to claim the full

amount of the contribution that it might

otherwise claim in the absence of the Disallowance Rule. Therefore, a contributing

partnership or contributing S corporation

making a contribution that would otherwise be disallowed by the Disallowance

Rule could avoid the Disallowance Rule

by claiming an amount of qualified conservation contribution that is less than or

equal to 2.5 times the sum of the relevant

bases, assuming that the claimed amount

is not more than the fair market value of

the contribution. Thus, taxpayers may be

able to mitigate the “cliff effect” noted by

the commenter.

In accordance with section 170(h)

(7)(G), which provides authority for 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 to prevent

the avoidance of the purposes of section

170(h)(7), these final regulations also

provide that, if a partner or S corporation

shareholder claims an amount of qualified

conservation contribution that is inconsistent with and greater than the amount of

the partner’s distributive share or S corporation shareholder’s pro rata share of qualified conservation contribution reported to

the partner or S corporation shareholder

by the partnership or S corporation, predicated on a position that the partnership’s

or S corporation’s qualified conservation

contribution was a greater amount than

the amount claimed by the partnership

or S corporation, and the qualified conservation contribution would have been a

disallowed qualified conservation contribution if the partnership or S corporation

had actually claimed that greater amount,

then the partner’s or S corporation shareholder’s claimed qualified conservation

contribution is a disallowed qualified conservation contribution. This rule is necessary to avoid situations in which a partner

or an S corporation shareholder seeks to

avoid the application of section 170(h)(7)

by claiming an amount with respect to a

qualified conservation contribution that

is more than the amount allocated to the

partner or shareholder and reported by the

partnership or S corporation.

E. Statement regarding taxpayers to

whom the Disallowance Rule does not

apply

One commenter stated that the proposed

regulations lacked clarity as to which provisions apply to every contributing partnership or contributing S corporation and

requested that the final regulations include

July 22, 2024

a preliminary explanation of scope. The

commenter recommended that, if different provisions have different scopes,

then that should be made clear. The commenter recommended that the final regulations explicitly state that §1.170A-14(j)

through (n) does not apply to qualified

conservation contributions made by individuals, joint tenancies, tenancies in common, or C corporations. The commenter

also recommended that the final regulations explicitly state that §1.170A-14(j)

through (n) does not apply to partnerships

and entities taxed as partnerships: (1)

which have held the real property subject

to the qualified conservation contribution for more than one year immediately

before the date and hour of the qualified

conservation contribution, disregarding

any tacked holding period; and (2) all of

whose members, on the date and time of

the qualified conservation contribution,

have held the same percentage interest in

the partnership, directly or indirectly, disregarding any tacked holding period, for

more than one year immediately before

the date and hour of the qualified conservation contribution.

With respect to the request to clarify

that §1.170A-14(j) through (n) does not

apply to qualified conservation contributions made by individuals, joint tenancies, tenancies in common, or by C

corporations, the Treasury Department

and the IRS agree in part. Section 170(h)

(7)(A) and (F) provide that the Disallowance Rule applies only to certain qualified conservation contributions made by

partnerships, S corporations, and other

pass-through entities; thus, it does not

apply to qualified conservation contributions made by individuals or C corporations. However, in certain cases an

arrangement that is a joint tenancy or

tenancy in common under State law may

be considered a partnership for Federal

tax purposes. See §301.7701-1(a)(2). If

so, a qualified conservation contribution

by such an arrangement would be subject

to the Disallowance Rule. Accordingly,

§1.170A-14(j)(1) of these final regulations includes a statement that the Disallowance Rule does not apply to qualified

conservation contributions made directly

by landowners that are not pass-through

entities, such as individuals or C corporations.

July 22, 2024

With respect to the request to clarify

that §1.170A-14(j) through (n) does not

apply to partnerships and entities taxed

as partnerships: (1) which have held the

real property subject to the qualified conservation contribution for more than one

year immediately before the date and hour

of the qualified conservation contribution, disregarding any tacked-on holding

period and (2) all of whose members, on

the date and time of the qualified conservation contribution, have held the same

percentage interest in the partnership,

directly or indirectly, disregarding any

tacked holding period, for more than one

year immediately before the date and hour

of the qualified conservation contribution,

the Treasury Department and the IRS

have concluded that such a rule would be

inconsistent with section 170(h)(7). As

explained in Part IV.A of this Summary

of Comments and Explanation of Revisions, section 170(h)(7)(C) provides an

exception to the Disallowance Rule for

pass-through entities that satisfy a threeyear holding period. Accordingly, the final

regulations do not adopt this recommendation.

V. Reporting Requirements

Section 170(f)(11)(H) grants the Treasury Department and the IRS authority

to promulgate regulations to provide for

substantiation of a charitable contribution.

Section 170(h)(7)(G) grants the Treasury

Department and the IRS authority to promulgate regulations to carry out the purposes of section 170(h)(7), including to

require reporting (including reporting

related to tiered partnerships and the modified basis of partners and S corporation

shareholders).

As noted in the preamble to the proposed regulations, existing §1.170A-16

imposes substantiation and reporting

requirements for noncash charitable contributions, including but not limited to

qualified conservation contributions by

pass-through entities. Subject to certain exceptions, §1.170A-16 requires the

donor to file Form 8283 in the case of a

noncash charitable contribution exceeding

$500. Specifically, existing §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 §1.170A-16(d) generally

requires the donor to complete Form 8283

(Section A or Section B, as applicable)

in the case of a noncash charitable contribution of more than $5,000. Existing

§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,

as applicable). Section 170(f)(11)(D) and

existing §1.170A-16(e) require a donor

of a noncash contribution of more than

$500,000 to attach a qualified appraisal

to the return on which the deduction is

claimed. Existing §1.170A-16(f) provides

additional substantiation rules, including

rules for donors that are partnerships or S

corporations.

The proposed regulations provided

guidance in the following four categories:

(1) requirements for all noncash charitable contributions of more than $500,

(2) requirements for noncash charitable

contributions by partnerships and S corporations, (3) requirements for qualified conservation contributions made

by partnerships and S corporations, and

(4) requirements for qualified conservation contributions made by partnerships

and S corporations the conservation purpose of which is the preservation of a certified historic structure.

A. Requirements for all noncash

charitable contributions of more than

$500

The proposed regulations made one

clarifying change applicable to all noncash charitable contributions of more than

$500—a requirement that taxpayers input

numerical entries into Form 8283.

Section 1.170A-16(c)(3) provides the

elements of a completed Form 8283 (Section A), and §1.170A-16(d)(3) provides

the elements of a completed Form 8283

(Section B). To further clarify reporting

requirements for donated property, proposed §1.170A-16(c)(3)(v) and (d)(3)(ix)

each added a requirement, respectively,

that, if a number can be inserted into any

box on Form 8283, the number must be

inserted in the box on Form 8283; alternatively, taxpayers may attach a statement to

the Form 8283 explaining why a number

cannot be inserted. The proposed regula-

Bulletin No. 2024–30

tions also clarified that, while nothing precludes a taxpayer from both inserting the

number in the appropriate box on Form

8283 and including an attached statement

explaining any additional information

regarding the number, taxpayers may not

respond to a request for information on

Form 8283 with nonresponsive responses,

for example, by indicating that the

requested information is available upon

request or will be provided upon request.

The proposed regulations provided that

inclusion of such nonresponsive language

in response to a request for information on

Form 8283 may be treated by the IRS as

being an incomplete filing of Form 8283.

The preamble to the proposed regulations explained the IRS had observed

a pronounced increase in taxpayers filing a Form 8283 that did not contain any

numbers and instead referred the IRS to

an attachment. Often, the attachment

included nonresponsive information, such

as “available upon request,” was entirely

blank, or otherwise did not provide the

information required by Form 8283. Other

times, the attachment included multiple

numbers for different boxes, leaving the

IRS to figure out which of the included

numbers was appropriate for a particular box. The proposed regulations stated

that these actions are to the detriment of

fair and effective tax administration, and

stated,

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.

A commenter suggested that confusion could be avoided if the regulation

Bulletin No. 2024–30

stated that an attached statement will only

be acceptable if it clearly explains why

the taxpayer cannot provide the basis of

their donation or is simply explanatory

of the basis the taxpayer provided. The

commenter also suggested that the box

requiring the taxpayer to report its basis

in the donated property could be left blank

if the taxpayer provided an explanatory

statement attached to the Form 8283. The

same commenter suggested that the regulations add a box for the taxpayer to check

if the entire explanation and number are

contained in an attached statement. These

comments are largely already addressed

by the proposed regulations, which provided that taxpayers may attach a statement to the Form 8283 explaining why a

number cannot be inserted and also clarified that nothing precludes a taxpayer

from both inserting the number in the

appropriate box on Form 8283 and including an attached statement explaining any

additional information regarding the number. The request to add a box to check if

the entire explanation and number are

contained in the attached statement is outside the scope of these final regulations

but will be considered in connection with

updates to the Form 8283.

One commenter agreed with the Treasury Department and the IRS’s “general

attitude toward Form 8283 and taxpayers who leave information blank,” but

requested that the Form 8283 include a

box to disclose tacked holding periods.

This commenter noted that the Form

8283 currently only contains a box for

“date acquired by donor” and stated that

accountants had expressed confusion over

whether acquisition date or holding period

date ought to be inserted into that box,

because the holding period date is the relevant date for all other accounting and tax

purposes. The commenter suggested that

adding a box for the holding period would

account for potential disparities between

the date entered in the “date acquired by

donor” box and the actual date when a

donor’s holding period began to run.

The request to add a box for the holding period is outside the scope of these

final regulations but will be considered

in connection with updates to the Form

8283. The Treasury Department and IRS

emphasize that current instructions to

Form 8283 direct taxpayers to enter the

date the property is acquired by the donor

and that taxpayers may submit an attachment disclosing the tacked holding period

to explain potential disparities between

the date acquired by the donor and the

date the donor’s holding period began to

run.

This commenter also suggested that

any increase in the number of taxpayers

filing Forms 8283 that do not contain

numbers and instead refer the IRS to an

attachment is evidence of taxpayer confusion on how to fill out the Form 8283,

“particularly when the IRS has taken a litigating position that attempts to disqualify

deductions in numerous easement cases

based on alleged failures in the taxpayers’ Forms 8283.” The commenter suggested that the final regulations should

not discourage taxpayers from providing

additional information on an attachment,

particularly if the taxpayer is doing so

to supplement information on the Form

8283. This comment is consistent with the

proposed regulations, which provided that

taxpayers may attach a statement to the

Form 8283 explaining why a number cannot be inserted and also clarified that nothing precludes a taxpayer from both inserting the number in the appropriate box

on Form 8283 and including an attached

statement explaining any additional information regarding the number.

This commenter also proposed that the

regulations include a “substantial compliance” standard for Form 8283 for taxpayers who make a good faith effort to

complete the form. The commenter stated

that substantial compliance relief should

not apply if a taxpayer omits information

from Form 8283 altogether or otherwise

manipulates the form, but that if a taxpayer makes a good-faith mistake, such as

miscalculating basis in a way that does not

affect the calculation of whether a qualified conservation contribution exceeds 2.5

times the sum of the relevant bases, the

taxpayer should not be punished by having its deduction denied altogether.

While the IRS may work with a taxpayer to fix a good-faith mistake, the

Treasury Department and the IRS decline

to adopt a “substantial compliance” standard for Form 8283. First, there are certain

reporting requirements that are statutorily

imposed and cannot be satisfied through

substantial compliance, including the

July 22, 2024

requirement to obtain a qualified appraisal

and attach an appraisal summary to the

return. See Hewitt v. Commissioner, 109

T.C. 258, aff’d without published opinion, 166 F.3d 332 (4th Cir. 1998); Deficit

Reduction Act of 1984 (DEFRA), Public

Law No. 98-369, section 155(a)(3), 98

Stat. 494 (1984). Second, even for those

reporting requirements that may implicate

the substantial compliance doctrine, the

determination of whether substantial compliance should apply is made under common law and should be applied only in

cases in which the taxpayer acted in good

faith and exercised due diligence but nevertheless failed to meet regulatory requirements. See Prussner v. U.S., 896 F.2d 218,

224 (7th Cir. 1990). See also McAlpine

v. Commissioner, 968 F.2d 459, 462 (5th

Cir. 1992). Substantial compliance is not

applicable if the requirement is essential

but may be applied if the requirements

are procedural or directory. See Estate of

Strickland v. Commissioner, 92 T.C. 16,

27 (1989). The determination of whether

substantial compliance is satisfied is a

facts-and-circumstances analysis that is

ordinarily resolved through the examination, Appeals, or judicial process.

One commenter noted that the requirement to report cost basis has been in existence since 1988 and stated that some

practitioners have failed to scrupulously

report either the cost basis, fair market

value, or both, maintaining that an earlier

iteration of the Form 8283 instructions

were vague as to this requirement. The

commenter asked that the final regulations

“remove all doubt and reaffirm that the

reporting requirement was never vague or

ambiguous.”

The Treasury Department and the IRS

agree that the requirements for an accurate Form 8283 have always required

the reporting of cost or other basis in

the donated property. Section 155(a)

(1) of DEFRA specifically instructs the

Secretary to promulgate regulations that

require a taxpayer claiming a deduction

for a noncash charitable contribution to:

(1) obtain a qualified appraisal for the

property, (2) attach an appraisal summary

to the return on which such deduction is

first claimed for such contribution, and

(3) include on such return such additional

information (including the cost basis and

acquisition date of the contributed prop-

July 22, 2024

erty) as the Secretary may prescribe in

such regulations. (Emphasis added). In

fulfillment of this mandate, the Secretary

promulgated §1.170A-13, Recordkeeping and Return Requirements for Deductions for Charitable Contributions. TD

8002, 49 FR 50663, December 31, 1984.

Section 1.170A-13(b)(3)(i)(B) requires

reporting cost or other basis for charitable contribution deductions in excess of

$500 if required by the return form or its

instructions. Section 1.170A-13(b)(3)(ii)

provides that, if a taxpayer has reasonable

cause for being unable to provide such

information, the taxpayer must attach

an explanatory statement to the return.

Existing §1.170A-16(c)(3)(iv)(F) and (d)

(3)(vi) require the reporting of cost or

other basis on Form 8283. Additionally,

section 170(f)(11)(B) and (C) provide the

Secretary the authority to require information other than property descriptions

for contributions of more than $500 and

requires qualified appraisals for contributions of more than $5,000. These final

regulations clarify requirements for completing certain fields on Form 8283, but

the requirement to include cost basis is

clear under existing regulations and does

not require reiterating in other parts of

the regulations, including in these final

regulations.

Accordingly, proposed §1.170A-16(c)

(3)(v) and (d)(3)(ix) are finalized with

only minor, non-substantive changes

(such as using the term “non-responsive

language” instead of the term “non-responsive responses”).

B. Requirements for noncash charitable

contributions over $500 by partnerships

and S corporations

Existing §1.170A-16(f)(4)(i) provides that, if a partnership or S corporation makes a noncash charitable

contribution, the partnership or S corporation is required to 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 deduction under

section 170. Similarly, 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

deduction under section 170 for the property described in Form 8283. Proposed

§1.170A-16(f)(4)(i) retained these rules

and clarified that any additional tiers of

pass-through entities must also provide

a copy of the donor’s Form 8283 to its

partners or shareholders who receive an

allocation of the charitable contribution.

Existing §1.170A-16(f)(4)(ii) requires

a partner or S corporation shareholder

that receives an allocation of a charitable contribution to which §1.170A-16(c),

(d), or (e) applies to attach a copy of the

partnership’s or S corporation’s completed Form 8283 (Section A or Section

B) to the return on which the deduction

is claimed. Proposed §1.170A-16(f)(4)(ii)

retained these rules and clarified that the

partner or shareholder must also attach a

copy of any additional Forms 8283 that

must be provided to them under proposed

§1.170A-16(f)(4)(iii)(A).

Proposed

§1.170A-16(f)(4)(iii)(A)

provided that a partner of a partnership

or shareholder of an S corporation that

receives an allocation of a charitable contribution to which §1.170A-16(c), (d), or

(e) applies must complete its own Form

8283 with any information required by

Form 8283 and the instructions to Form

8283. In addition, proposed §1.170A-16(f)

(4)(iii)(A) provided that 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. Proposed

§1.170A-16(f)(4)(iii)(A) required each

partner or shareholder to attach its separate Form 8283 to the return on which

the contribution is claimed, in addition

to the copy of the donor’s Form 8283 as

well as other Forms 8283 that the partner

or shareholder received. This proposed

requirement applied to all noncash charitable contributions over $500 made by a

partnership or S corporation, not just those

for conservation easements.

The comments received on these provisions addressed: (1) the requirement that

partners and S corporation shareholders

complete and file separate Forms 8283,

and (2) donee responsibilities pertaining

to the partners’ and shareholders’ Forms

8283.

Bulletin No. 2024–30

1. The Form 8283 Filing Requirement for

Partners and Shareholders

One commenter addressed proposed

§1.170A-16(f)(4)(iii)(A). This commenter suggested that, rather than requiring partners and S corporation shareholders to complete and file separate Forms

8283, the donating partnership or S corporation should be required to include

on its Form 8283 information about the

partners’ and shareholders’ bases and

holding periods. The commenter suggested retaining the “current approach”

of having one Form 8283 for the contributing partnership (that is distributed

to the partners) and then requiring the

specific information the IRS is seeking

on the attachment (which is required for

all qualified conservation contributions)

submitted by the partners.

Section 170(f)(11) disallows a charitable contribution deduction unless certain

substantiation requirements are met. Providing a Form 8283 is a reasonable, basic

step for substantiating charitable contributions for taxpayers who ultimately

claim the deduction. Congress provided,

as part of DEFRA, the authority to require

taxpayers to submit Forms 8283. The

legislative history shows that Congress

was concerned that “opportunities to offset income through inflated valuations of

donated property have been increasingly

exploited by tax shelter promoters.”

Staff of Senate Comm. on Finance, 98th

Cong., 2d Sess., Explanation of Provisions of the Deficit Reduction Act of

1984, at 503 (Comm. Print 1984). This

has long been an area of abuse for which

taxpayers have creatively sought to avoid

transparent reporting and instead have

attempted to disguise overvalued charitable contributions.

Proposed

§1.170A-16(f)(4)(iii)(A)

provides the IRS with important information and the burden imposed on taxpayers

is reasonable in light of the potential for

abuse. As the preamble to the proposed

regulations stated, in pass-through and

tiered-entity structures, the IRS regularly observes partners and shareholders providing incomplete information to

substantiate their charitable contribution

deductions. A partner’s or S corporation shareholder’s Form 8283 that contains the necessary information from the

Form K-1 received from the donating

partnership, donating S corporation, or

an upper-tier partnership or upper-tier S

corporation streamlines processing and

efficiency. Thus, these final regulations

finalize §1.170A-16(f)(4)(iii)(A) as proposed.

2. Donee Responsibilities Pertaining to

Partners’ and Shareholders’ Forms 8283

A commenter stated that the requirement that partners and S corporation

shareholders provide their own Form

8283 represents substantial additional

work for donees that likely would make

them less willing (and able) to assess the

accuracy and completeness of Form 8283.

This commenter stated that, if there is an

expectation that the donee would sign an

individual’s Form 8283, then it would

require more due diligence for the donee,

creating on-the-ground problems and complexities. The commenter also stated that

retaining so many copies of Forms 8283

as part of their permanent record would

significantly increase their record-keeping burden (although this commenter also

stated that the great majority of conservation easement donations are not made by

partnerships and, of those, very few are

made by tiered partnerships).

The proposed regulations did not

impose a requirement for the donee to sign

and/or retain a copy of each partner’s and

shareholder’s Forms 8283. The requirement in §1.170A-16(d)(3)(ii) that a completed Form 8283 (Section B) include the

donee’s signature only applies to the Form

8283 filed by the donor, in these instances

the contributing pass-through entity. To

clarify this issue, the Instructions to Form

8283 have been updated to provide: “A

member’s Form 8283 is not required

to have signatures.” See the Form 8283

Instructions released on January 17, 2024,

which state “(Rev. December 2023)” after

“Instructions for Form 8283” at the top of

the first page.

C. Requirements for qualified

conservation contributions made by

partnerships and S corporations

As explained in the preamble to the

proposed regulations, to ensure that taxpayers claiming qualified conservation

contributions properly comply with section 170(f)(19) and (h)(7), 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,

the proposed regulations inserted a new

paragraph, proposed §1.170A-16(d)(3)

(viii),5 which provided that, for qualified

conservation contributions made by a

partnership or S corporation, the contributing partnership or contributing S corporation must report the sum of each ultimate member’s relevant basis, computed

in accordance with §1.170A-14(j) through

(m), on the Form 8283 (Section B). Under

proposed §1.170A-16(d)(3)(viii), this

new requirement did not apply to contributions described in section 170(h)(7)

holding period) or section 170(h)(7)(D)

and §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

§1.170A-14(n)(4) (for contributions to

preserve certified historic structures), in

which case the reporting requirement did

apply.

Proposed

§1.170A-16(f)(4)(iii)(B)

provided an additional substantiation rule

for partners and S corporation shareholders receiving an allocation of a qualified

conservation contribution. That paragraph

required that an ultimate member’s separate Form 8283 must

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