# Audit Technique Guide

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/agency%3Airs%3A8d3be01f02c1c5af

## Record

- **Collection:** Agency decision
- **Document type:** Agency decision

## Text

Conservation
Easement
Audit Technique Guide
This document is not an official pronouncement of the law or the position of the Service and cannot be
used, cited, or relied upon as such. This guide is current through the revision date. Since changes may
have occurred after the revision date that would affect the accuracy of this document, no guarantees are
made concerning the technical accuracy after the revision date.
The taxpayer names and addresses shown in this publication are hypothetical.

Audit Technique Guide Revision Date: 1/21/2021

Publication 5464 (Rev. 1-2021) Catalog Number 75086E Department of the Treasury
Internal Revenue Service www.irs.gov

Table of Contents
I. Overview.............................................................................................. 13
A. Statement of Purpose ................................................................... 13
B. Generally........................................................................................ 13
C. Background / History .................................................................... 14
D. Relevant Terms ............................................................................. 15
D.1. Conservation Easement ..................................................... 15
D.2. Charitable Contribution ...................................................... 15
D.3. Qualified Conservation Contribution ................................ 15
D.4. Conservation Purpose ........................................................ 16
D.5. Fair Market Value................................................................. 16
E. Law / Authority .............................................................................. 16
E.1. Exhibit 1-1 Conservation Easement Legal Authority ....... 16
E.2. Tax Issues ............................................................................ 17
E.3. Resources ............................................................................ 17
II. Statutory Requirements for All Charitable Contributions .............. 18
A. Overview ........................................................................................ 18
B. Charitable Contribution Definition .............................................. 18
B.1. Qualified Organization ........................................................ 18
B.2. Charitable Intent .................................................................. 18
C. Real Estate Contributions ............................................................ 18
D. Partial Interest Rule ...................................................................... 19
2

E. Conditional Gifts ........................................................................... 19
F. Earmarking .................................................................................... 19
G. Year of Donation ........................................................................... 19
H. Substantiation of Noncash Contributions .................................. 20
I. Amount of Deduction ................................................................... 21
III. Qualified Conservation Contribution ................................................ 22
A. Overview ........................................................................................ 22
B. Qualified Real Property Interest .................................................. 22
C. Qualified Organization .................................................................. 22
D. Conservation Purpose .................................................................. 23
E. Perpetuity ...................................................................................... 23
E.1. Reserved Rights .................................................................. 24
E.2. Recording Easements......................................................... 25
E.3. Amendment Clauses in Easement Deeds ......................... 25
E.4. Subordination of Mortgages in Lender Agreements........ 26
E.5. Extinguishment ................................................................... 26
E.6. Allocation of Proceeds in Deed and Lender Agreements26
IV. Qualified Organization ....................................................................... 28
A. Overview ........................................................................................ 28
B. Qualified Organization .................................................................. 28
C. Commitment and Resources ....................................................... 28
D. Special Rules for Buildings in a Registered Historic District ... 29
3

E. Cash Contributions ....................................................................... 29
E.1. Quid Pro Quo Contribution ................................................ 30
V. Conservation Purpose ....................................................................... 30
A. Overview ........................................................................................ 30
B. Land for Outdoor Recreation or Education ................................ 31
C. Relatively Natural Habitat or Ecosystem .................................... 31
D. Open Space ................................................................................... 33
D.1. Scenic Enjoyment ............................................................... 33
D.2. Governmental Conservation Policy ................................... 34
D.3. Significant Public Benefit ................................................... 34
E. Historically Important Land or Structure .................................... 36
E.1. Historically Important Land ................................................ 36
E.2. Certified Historic Structure ................................................ 36
E.3. Special Rules for Buildings in Registered Historic
Districts .................................................................................... 37
F. Public Access ................................................................................ 38
G. Inconsistent Uses ......................................................................... 38
H. Baseline Study .............................................................................. 39
VI. Substantiation..................................................................................... 39
A. Overview ........................................................................................ 40
B. Contemporaneous Written Acknowledgment ............................ 40
C. Form 8283, Noncash Charitable Contributions .......................... 42
4

C.1. Generally .............................................................................. 42
C.2. Declaration of Appraiser..................................................... 43
C.3. Donee Acknowledgment..................................................... 44
C.4. Failure to Attach Form 8283 ............................................... 44
D. Qualified Appraisal ....................................................................... 44
D.1. Qualified Appraisal Under Regulations ............................. 44
D.2. Generally Accepted Appraisal Standards ......................... 45
D.3. Reasonable Cause .............................................................. 45
E. Façade Easement Filing Fee (Registered Historic District Only)
45
F. Baseline Study .............................................................................. 45
G. Additional Donor Recordkeeping Requirements ....................... 46
H. Exhibit 6-1 - Substantiation Requirements ................................. 46
VII. Qualified Appraisal Requirements .................................................... 47
A. Overview ........................................................................................ 47
B. Qualified Appraisal ....................................................................... 47
B.1. Reasonable Cause Exception ............................................ 49
C. Qualified Appraiser ....................................................................... 50
D. Generally Accepted Appraisal Standards................................... 51
D.1. Uniform Standards of Professional Appraisal Practice ... 51
E. Appraisal Fees .............................................................................. 53
VIII.

Amount of Deduction ................................................................... 53
5

A. Overview ........................................................................................ 53
B. Percentage Limitations ................................................................ 53
B.1. Individuals............................................................................ 53
B.2. Corporations ........................................................................ 54
B.3. Special Rules for Qualified Farmers and Ranchers ......... 54
B.4. Carryovers ........................................................................... 55
C. Contributions of Appreciated Property....................................... 55
C.1. Ordinary Income and Short-Term Capital Gain Property 55
C.2. Long-Term Capital Gain Property ...................................... 56
D. Bargain Sale .................................................................................. 57
D.1. Taxable Gain ........................................................................ 57
D.2. Federal and State Easement Purchase Programs ........... 57
E. Quid Pro Quo or Substantial Benefit and Charitable Intent ...... 58
F. Rehabilitation Tax Credit .............................................................. 58
F.1. Recapture of Rehabilitation Tax Credit ............................. 59
IX. Valuation of Conservation Easements ............................................. 59
A. Overview ........................................................................................ 59
B. Valuation Process ......................................................................... 60
C. Valuation Date ............................................................................... 61
D. FMV ................................................................................................ 61
D.1. Before and After Method .................................................... 61
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D.2. Use of Flat Percentage Cannot Be Applied to Before Value
62
D.3. Contiguous Parcels............................................................. 62
D.4. Enhancement Rule .............................................................. 62
E. Market Analysis ............................................................................. 63
F. Highest and Best Use ................................................................... 64
G. Methodology .................................................................................. 65
G.1. Sales Comparison Approach ............................................. 66
G.2. Cost Approach..................................................................... 67
G.3. Income Capitalization Approach ........................................ 67
G.4. Subdivision Development Method ..................................... 67
G.5. Aggregate Partnership Interest.......................................... 69
H. Transferable Development Rights ............................................... 69
X. Partnership Anti-Abuse Rules, Judicial Doctrines, and Codified
Economic Substance Doctrine .......................................................... 70
A. Partnership Anti-Abuse Rules ..................................................... 70
B. Judicial Doctrines ......................................................................... 72
B.1. Bona Fide Partner and Partnership ................................... 72
B.2. Substance Over Form ......................................................... 73
B.3. Step Transaction Doctrine.................................................. 74
C. Codified Economic Substance Doctrine ..................................... 76
XI. Preplanning the Examination ............................................................ 77
A. Overview ........................................................................................ 77
7

B. Review of Return ........................................................................... 77
B.1. Form 8283 – Appraisal Summary ....................................... 78
B.2. Signature Requirements ..................................................... 79
B.3. Return Attachments ............................................................ 79
B.4. Other Tax Issues ................................................................. 80
B.5. TEFRA Considerations ....................................................... 80
B.6. BBA Considerations (Taxable Years Beginning on or After
January 1, 2018) ...................................................................... 81
C. Internal Sources of Information ................................................... 81
C.1. IRS Intranet .......................................................................... 81
C.2. Program Analysts................................................................ 81
C.3. Integrated Data Retrieval System – IDRS .......................... 81
C.4. Façade Filing Fee Verification ............................................ 82
C.5. Tax Exempt Organization Search ...................................... 82
C.6. Office of Professional Responsibility ................................ 82
D. External Sources of Information.................................................. 83
D.1. Internet Research ................................................................ 83
D.2. Taxpayer............................................................................... 83
D.3. Donee Organization ............................................................ 83
D.4. Appraiser.............................................................................. 84
D.5. Public Records .................................................................... 84
D.6. National Park Service.......................................................... 85
8

E. Interviews ...................................................................................... 86
F. Information Document Requests................................................. 86
G. Valuation Expert Involvement ...................................................... 86
G.1. Referral to LB&I Engineering ............................................. 87
G.2. Referral Outcomes .............................................................. 87
G.3. LB&I Engineering Products................................................ 88
G.4. Outside Experts ................................................................... 88
H. Consultation with Counsel ........................................................... 88
I. Coordination with TEGE ............................................................... 88
XII. Conducting the Examination ............................................................. 89
A. Overview ........................................................................................ 89
B. Interviews ...................................................................................... 90
C. Property Inspection ...................................................................... 91
D. Review of Documents ................................................................... 92
D.1. Deed of Conservation Easement ....................................... 92
D.2. Perpetuity ............................................................................. 93
D.3. Conservation Purpose ........................................................ 93
D.4. Reserved Rights .................................................................. 94
D.5. Lender Agreements............................................................. 94
D.6. Subordination Agreements ................................................ 94
D.7. Allocation of Proceeds ....................................................... 95
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D.8. Baseline Study..................................................................... 95
D.9. Taxpayer’s Appraisal .......................................................... 97
D.10. Donee Organization ............................................................ 97
D.11. Commitment and Resources.............................................. 97
D.12. Cash Payments.................................................................... 98
D.13. Contemporaneous Written Acknowledgment................... 99
D.14. National Park Service – Form 10-168 ................................ 99
D.15. Partnership Documents .................................................... 101
E. Third-Party Contacts .................................................................. 101
E.1. Donee Organizations ........................................................ 102
E.2. Mortgage Lenders ............................................................. 102
E.3. Appraiser............................................................................ 103
E.4. Federal and State Conservation Agencies ..................... 103
E.5. Local Government Officials.............................................. 103
E.6. Real Estate Agents ............................................................ 104
E.7. Property Owners ............................................................... 104
XIII.

Concluding the Examination...................................................... 104

A. Overview ...................................................................................... 104
B. Issue Identification ..................................................................... 105
B.1. Substantial Compliance.................................................... 105
C. Report Writing ............................................................................. 106
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C.1. Job Aids ............................................................................. 107
C.2. Valuation Expert Reports ................................................. 108
C.3. Penalties............................................................................. 108
C.4. Technical Assistance ........................................................ 109
D. Closing Conference .................................................................... 109
E. Taxpayer Protests ....................................................................... 109
E.1. Rebuttals to Taxpayer Protest ......................................... 109
F. Exhibit 13-1 Conservation Easement Issue Identification
Worksheet .................................................................................... 110
XIV.

Penalties ...................................................................................... 114

A. Overview ...................................................................................... 114
B. Introduction to Penalty Approval .............................................. 115
C. Accuracy-Related Penalties ....................................................... 117
C.1. Section 6662(b)(1) and (c) Negligence or Disregard of
Rules or Regulations............................................................. 117
C.2. Section 6662(b)(2) and (d) Substantial Understatement of
Income Tax ............................................................................. 118
C.3. Section 6662(b)(3) and (e) Substantial Valuation
Misstatement and Section 6662(h) Gross Valuation
Misstatement ......................................................................... 118
C.4. Section 6662(b)(6) and (i) Codified Economic Substance
Doctrine .................................................................................. 119
D. Section 6663 Civil Fraud Penalty ............................................... 120
E. Section 6664 Reasonable Cause Exception ............................. 120
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E.1. Special Rule for Overvaluation of Charitable
Contributions ......................................................................... 120
E.2. Reliance on Professionals................................................ 121
F. Section 6694 Understatement of Taxpayer’s Liability by Tax
Return Preparer ........................................................................... 122
G. Sections 6700 and 6701 Penalty for Promoting Abusive Tax
Shelters and Aiding and Abetting Understatements of Tax ... 122
H. Section 6695A Substantial and Gross Valuation Misstatements
Attributable to Incorrect Appraisals .......................................... 123
H.1. Office of Professional Responsibility Sanctions............ 124
I. Penalties Specifically Related to Reportable Transactions .... 124
I.1. Section 6662A Accuracy-Related Penalty on
Understatements with Respect to Reportable Transactions
125
I.2. Section 6707A Penalty for Failure to Include Reportable
Transaction Information with Return................................... 126
I.3. Section 6707 Failure to Furnish Information Regarding
Reportable Transaction ........................................................ 126
I.4. Section 6708 Failure to Maintain Lists of Advisees with
Respect to Reportable Transactions ................................... 127
XV.

State Tax Credits ......................................................................... 127

A. Overview ...................................................................................... 127
B. State Tax Credit Programs ......................................................... 127
C. Receipt of State Tax Credits ...................................................... 128
D. Sale of State Tax Credits ............................................................ 129

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I. Overview
A. Statement of Purpose
(1) The purpose of this audit techniques guide (ATG) is to provide guidance for the
examination of charitable contributions of conservation easements. Users of
this guide will learn about the general requirements for charitable contributions
and additional requirements for contributions of conservation easements.
(2) This ATG includes examination techniques and an overview of the valuation of
conservation easements. It also includes a discussion of penalties, which may
be applicable to taxpayers and others involved in the conservation easement
transaction.
(3) This guide is not designed to be all-inclusive. It is not a comprehensive training
manual for conservation easements.

B. Generally
(1) To be deductible, donated conservation easements must be legally binding,
permanent restrictions on the use, modification and development of property
such as farmland, forest land, scenic areas, historic land or historic structures.
The restrictions on the property must be in perpetuity. Current and future
owners of the easement and the underlying property must all be bound by the
terms of the conservation easement deed.
(2) The general rule is that no charitable contribution deduction is allowed for a
transfer of property of less than the taxpayer’s entire interest in the property.
IRC § 170(f)(3). Section 170(f)(3)(B)(iii) provides an exception to the partial
interest rule for qualified conservation contributions.
(3) Section 170(h)(1) of the Internal Revenue Code (IRC) states that a qualified
conservation contribution is a contribution of a qualified real property interest
(i.e., a restriction granted in perpetuity on the use which may be made of the
real property) to a qualified organization exclusively for conservation purposes.
The IRC and accompanying Treasury Regulations outline the requirements that
must be met before a charitable contribution is deductible.
(4) Qualified organizations that accept conservation easements must have a
commitment to protect the conservation purposes of the donation in perpetuity
and must have sufficient resources to enforce compliance with the terms of the
easement deed.
(5) Section 170(h)(4)(A) specifies the four conservation purposes:
• Preservation of land areas for outdoor recreation by, or the education of,
the general public.
• Protection of a relatively natural habitat of fish, wildlife, or plants, or similar
ecosystem.
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• Preservation of open space (including farmland and forest land), where
such preservation is for the scenic enjoyment of the general public or
pursuant to a clearly delineated federal, state, or local governmental
conservation policy and, for both purposes, will yield a significant public
benefit.
• Preservation of a historically important land area or a certified historic
structure.
(6) The donation of a conservation easement that meets all statutory and
regulatory requirements, including specific substantiation requirements, can be
claimed as a charitable contribution deduction.
(7) The value of a conservation easement must be determined in a qualified
appraisal prepared and signed by a qualified appraiser. The value of the
contribution is the fair market value (FMV) of the conservation easement at the
time of the contribution. To the extent there is a substantial record of sales of
conservation easements comparable to the donated easement, the FMV is
based on the sales price of such comparables. If there is no substantial record
of marketplace sales, the value is generally the difference between the FMV of
the underlying property before and after the easement is granted to the donee.
Because there is usually no substantial record of comparable sales, a before
and after valuation is used in most cases.
(8) To conduct a quality examination, in-depth development of facts is necessary.
Examiners have primary responsibility for addressing the taxpayer’s compliance
with all statutory and regulatory requirements.
(9) Valuation is also an important component of this tax issue. A multi-divisional
approach, working with LB&I Engineering, Counsel, and Tax Exempt and
Government Entities (TEGE), may be needed to properly develop tax issues in
a conservation easement examination.
(10)Taxpayers, return preparers, appraisers, and others involved with an improper
or overvalued conservation easement may be subject to various penalties.
(11)While the charitable contribution of a conservation easement may be the most
significant issue on the tax return, Examiners should be alert to other related tax
issues such as a sale of state tax credits, basis adjustments, or a recapture of
rehabilitation tax credits.

C. Background / History
(1) In recognition of our need to preserve our heritage, Congress allowed an
income tax deduction for owners of significant property who give up certain
rights of ownership to preserve their land or buildings for future generations.
(2) The IRS has seen abuses of this tax provision that compromise the policy
Congress intended to promote. We have seen taxpayers, often encouraged by
promoters and armed with questionable appraisals, take inappropriately large
14

deductions for easements. In some cases, taxpayers claim deductions when
they are not entitled to any deduction at all (for example, when taxpayers fail to
comply with the law and regulations governing deductions for contributions of
conservation easements). Also, taxpayers have sometimes used or developed
these properties in a manner inconsistent with section 501(c)(3). In other cases,
the charity has allowed property owners to modify the easement or develop the
land in a manner inconsistent with the easement’s restrictions.
(3) Another problem arises in connection with historic easements, particularly
façade easements. Here again, some taxpayers are taking improperly large
deductions. They agree not to modify the façade of their historic house and they
give an easement to this effect to a charity. However, if the façade was already
subject to restrictions under local zoning ordinances, the taxpayers may, in fact,
be giving up nothing, or very little. A taxpayer cannot give up a right that he or
she does not have.

D. Relevant Terms
D.1. Conservation Easement
(1) “Conservation easement” is the generic term for easements granted for
preservation of land areas for outdoor recreation, protection of a relatively
natural habitat for fish, wildlife, or plants, or a similar ecosystem, preservation of
open space for the scenic enjoyment of the public or pursuant to a federal,
state, or local governmental conservation policy, and preservation of a
historically important land area or historic building.
(2) Conservation easements permanently restrict how land or buildings are used.
The “deed of conservation easement” describes the conservation purpose, the
restrictions and the permissible uses of the property. The deed must be
recorded in the public record and must contain legally binding restrictions
enforceable by the donee organization.
(3) The donor gives up certain rights specified in the deed of conservation
easement, but retains ownership of the underlying property. The extent and
nature of the donee organization’s control depends on the terms of the
conservation easement deed. The organization has an interest in the
encumbered property that runs with the land, which means that its restrictions
are binding not only on the landowner who grants the easement but also on all
future owners of the property.

D.2. Charitable Contribution
(1) A charitable contribution is a contribution or gift to or for the use of a qualifying
organization. See Chapter 2.

D.3. Qualified Conservation Contribution

15

(1) Section 170(h)(1) defines a qualified conservation contribution as a contribution
of a qualified real property interest to a qualified organization to be used
exclusively for conservation purposes.

D.4. Conservation Purpose
(1) Section 170(h)(4)(A) defines “conservation purpose” as one of the following:
• Preservation of land for outdoor recreation by, or the education of, the
general public.
• Protection of a relatively natural habitat of fish, wildlife, or plants, or similar
ecosystem.
• Preservation of open space (including farmland and forest land) either for
the scenic enjoyment of the general public or pursuant to a clearly
delineated governmental conservation policy (both purposes must yield a
significant public benefit).
• Preservation of a historically important land area or a certified historic
structure.
(2) The easement must be created by deed and be exclusively for conservation
purposes. Donations of conservation easements may meet more than one
conservation purpose.

D.5. Fair Market Value
(1) The value of the donated easement must meet the definition of FMV as defined
by Treas. Reg. § 1.170A-1(c)(2): The FMV is the price at which the property
would change hands between a willing buyer and a willing seller, neither being
under any compulsion to buy or sell and both having reasonable knowledge of
relevant facts.

E. Law / Authority
E.1. Exhibit 1-1 Conservation Easement Legal Authority
(1) NOTE: This exhibit is not an all-inclusive list of potential issues for donations of
conservation easements. Users should review IRC § 170, DEFRA § 155, the
corresponding Treasury Regulations, Notice 2006-96 and case law.
Code/Regs/Other

Title

IRC § 170

Charitable, etc., contributions and gifts

DEFRA § 155

Deficit Reduction Act of 1984

Notice 2006-96

Guidance Regarding Appraisal
Requirements for Noncash Charitable
16

Contributions
Treas. Reg. § 1.170A-1

Charitable, etc., contributions and gifts;
allowance of deduction

Treas. Reg. § 1.170A-13

Recordkeeping and return requirements for
deductions for charitable contributions
Qualified conservation contributions
Substantiation and reporting requirements
for noncash charitable contributions
Qualified appraisal and qualified appraiser

Treas. Reg. § 1.170A-14
Treas. Reg. § 1.170A-16
Treas. Reg. § 1.170A-17

E.2. Tax Issues
(1) Taxpayers must satisfy numerous statutory provisions in order to claim a
noncash charitable contribution deduction for the donation of a conservation
easement. Some deficiencies revealed in examinations of conservation
easements include:
• Failure to meet charitable contributions rules, for example the easement
was granted in exchange for a change in zoning by the county (a quid pro
quo).
• Noncompliance with substantiation requirements.
• Inadequate documentation of or lack of conservation purpose.
• Lack of perpetuity evidenced by terms in the deeds.
• Reserved property rights inconsistent with conservation purpose.
• Failure to comply with subordination rules.
• Failure to provide the donee organization with the specified proportionate
share of the proceeds in the event of extinguishment.
• Use of improper appraisal methodologies.
• Failure to report income from the sale of state tax credits.
• Overvalued conservation easements.
(2) The IRS has identified some promoters and appraisers involved in conservation
easement tax schemes.

E.3. Resources
(1) Information about conservation easements, including contacts, job aids, and
other reference materials are on the IRS Virtual Library, Form 1040 Knowledge
Base.
17

II. Statutory Requirements for All Charitable Contributions
A. Overview
(1) In order to claim a charitable contribution deduction for a conservation
easement, taxpayers must meet the statutory requirements applicable to all
charitable contributions, as well as the specific requirements for conservation
easement donations.
(2) See Publication 526, Charitable Contributions (PDF), Publication 561,
Determining the Value of Donated Property (PDF), and Publication 1771,
Charitable Contributions - Substantiation and Disclosure Requirements (PDF).

B. Charitable Contribution Definition
(1) A charitable contribution is a contribution or gift to or for the use of a qualifying
organization. It is a transfer of money or property made with charitable intent
and without receipt of adequate consideration. IRC § 170(c); Treas. Reg. §
1.170A-1(h).
(2) Section 170 contains the rules that govern income tax deductions for charitable
contributions, including donations of conservation easements.

B.1. Qualified Organization
(1) A taxpayer can only deduct contributions made to organizations eligible to
accept tax-deductible contributions, which are organizations described in IRC §
170(c).
(2) An organization accepting tax-deductible contributions of conservation
easements must meet additional requirements to be a qualified organization.
See Chapter 4 for additional guidance on qualified organizations.

B.2. Charitable Intent
(1) A charitable contribution is a donation or gift to, or for the use of, a qualified
organization. It is voluntary and made without receipt, or the expectation of
receipt, of anything of economic value.
(2) A transfer of money or property is not voluntary if it is required or is made with
the expectation of a direct or indirect benefit. A benefit received or expected to
be received in connection with a payment or transfer by the taxpayer is called a
quid pro quo.
(3) See Chapter 8 for additional discussion of charitable intent and quid pro quo.

C. Real Estate Contributions
(1) For a contribution of real estate, including a contribution of a conservation
easement, there is no “transfer,” and therefore no deductible charitable
contribution, unless there is:
18

• A deed signed by the donor transferring the property and
• Acceptance by the qualified organization.
(2) Conservation easement deeds must be recorded in the public record.

D. Partial Interest Rule
(1) Generally, in order to have a deductible contribution, a taxpayer must contribute
the entire interest in the property. A partial interest is generally not deductible.
This is known as the "partial interest" rule. IRC § 170(f)(3)(A).
(2) A qualified conservation contribution is deductible even though it is a partial
interest. It is an exception to the partial interest rule. IRC §§ 170(f)(3)(B)(iii) and
(h).

E. Conditional Gifts
(1) If the contribution is a conditional gift, the donor cannot take a deduction.
• Example: If Justin transfers land in Maine to a city on the condition that
the land is used by the city for an unlikely use (e.g., alligator habitat), there
is no deductible charitable contribution before the time that the specified
use actually occurs.
(2) However, if there is only a negligible chance that the gift will be defeated, the
deduction is allowed. Treas. Reg. §§ 1.170A-1(e) and 1.170A-7(a)(3).
• Example: Susan transfers land to a city on the condition that the land is
used by the city for a public park. If, on the date of the gift, the city plans to
use the property as a park, and the possibility that it will not be used as a
park is so remote as to be negligible, the deduction is allowable at the time
of the transfer to the city.

F. Earmarking
(1) A taxpayer may not deduct earmarked contributions (e.g., for the benefit of a
particular individual or family). Earmarked amounts are treated as transfers to
the earmarked beneficiary and not as transfers to the IRC § 170(c)
organization.
• Example: Steven made payments to his church. He earmarked the
payments for John, a needy individual. Steven cannot deduct the amount
of the payments since he earmarked the funds for John. The church was
merely a conduit for Steven’s gift to John.

G. Year of Donation
(1) A taxpayer may deduct contributions paid within the taxable year. IRC §
170(a)(1) and Treas. Reg. § 1.170A-1(a) and (b).
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(2) A promise to pay cash or transfer property in the future is not deductible. The
taxpayer may deduct payments made by check when the check is mailed or
delivered to the IRC § 170(c) organization. Treas. Reg. § 1.170A-1(b).
(3) For conservation easements, the year of the deduction is the year of
recordation. Treas. Reg. § 1.170A-14(g)(1).
• Example: A conservation easement was granted to a qualified
organization on December 20, 2007, as evidenced by the dated
signatures on the conservation easement deed. However, the easement
was not recorded in the public records until March 12, 2008. The year of
donation is 2008.

H. Substantiation of Noncash Contributions
(1) A charitable contribution is not deductible unless it is properly substantiated in
accordance with the IRC and the regulations. The documentation requirements
vary depending on the date of contribution, nature of the contribution (noncash
in the case of a conservation easement), type of property contributed, and
dollar amount claimed. For a conservation easement, the following documents
are required:
(2) Contemporaneous written acknowledgment from the donee organization. IRC §
170(f)(8). The contemporaneous written acknowledgment must meet the
acknowledgment requirement and the contemporaneous requirement.
• The acknowledgment must:
• Be in writing,
• Describe the property received by the donee,
• Contain a statement of whether the donee provided any goods or
services in consideration, in whole or in part, for the gift, and
• Provide a description of and a good faith estimate of the goods or
services, other than intangible religious benefits, provided to the
taxpayer.
• The contemporaneous requirement provides:
• The taxpayer must get the acknowledgment on or before the earlier
of:
• The date the taxpayer files a return for the year in which the
contribution was made, or
• The due date (including extensions) for filing such return.
(3) Form 8283, Section B, with supplemental statement.
(4) Deed (should be stamped with the recording date).
(5) Qualified Appraisal (for contributions of more than $5,000).
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(6) Baseline study.
(7) The tax court has considered a number of cases in which taxpayers argued that
the deed of easement satisfied the contemporaneous written acknowledgment
requirement. In French v. Commissioner, T.C. Memo. 2016-53, and Schrimsher
v. Commissioner, T.C. Memo. 2011–71, the deed did not satisfy the
contemporaneous written acknowledgment requirement. In Big River
Development, LP v. Commissioner, T.C. Memo. 2017-166; 310 Retail, LLC v.
Commissioner, T.C. Memo. 2017-164; RP Golf, LLC v. Commissioner, T.C.
Memo. 2012-282; and Averyt v. Commissioner, T.C. Memo. 2012–198, the
deed did satisfy the contemporaneous written acknowledgment requirement.
(8) Examiners should contact Counsel for assistance if a taxpayer contends that
the deed of easement satisfies the contemporaneous written acknowledgment
requirement.
(9) In Belair Woods, LLC v. Commissioner, T.C. Memo. 2018-159, a Form 8283
that omitted the cost basis of the subject property, with an attachment indicating
that it was not necessary to disclose it, neither strictly nor substantially complied
with the regulatory requirement to include such information on the form. See
also RERI Holdings v. Commissioner, 149 T.C. 1 (2017); Treas. Reg. § 1.170A13(c)(2)(i)(B) and (4)(ii)(E). Taxpayers are afforded the opportunity to
demonstrate reasonable cause for omitting the information. IRC §
170(f)(11)(A)(ii)(II).
(10)See Publication 526, Charitable Contributions (PDF), and Publication 1771,
Charitable Contributions - Substantiation and Disclosure Requirements (PDF)
and Chapter 6 for additional guidance on substantiation requirements.
(11)See IRC § 170(f)(8)(A)-(D), Treas. Reg. § 1.170A-13(f) (effective for
contributions made on or after December 16, 1996 and on or before July 30,
2018) and Treas. Reg. § 1.170A-16(a) (effective for contributions made after
July 30, 2018).
(12)See also Section 155 of the Deficit Reduction Act of 1984 (DEFRA), Pub. L. 98369, 98 Stat. 691, Treas. Reg. § 1.170A-13(c)(2)(i)(B) (effective for contribution
made after December 31,1984, and on or before July 30, 2018) and Treas.
Reg. § 1.170A-16(c)-(e) (effective for contributions made after July 30, 2018).

I. Amount of Deduction
(1) Factors that may affect the amount a taxpayer may claim as a charitable
contribution deduction for a conservation easement include:
• FMV
• Quid pro quo and charitable intent
• Bargain sale

21

• Type of property (ordinary income, short-term capital gain, long-term
capital gain)
• Basis
• Percentage limitations
• Type of donee organization
(2) See Chapter 8 and Publication 526, Charitable Contributions (PDF) for
additional guidance on specific limitations on charitable contributions.

III. Qualified Conservation Contribution
A. Overview
(1) Section 170(h)(1) defines a qualified conservation contribution as a contribution
of a qualified real property interest to a qualified organization to be used
exclusively for conservation purposes.

B. Qualified Real Property Interest
(1) A qualified real property interest is any of the following interests in real property:
• The entire interest of the donor, other than a qualified mineral interest.
• A remainder interest.
• A restriction on the use of the real property granted in perpetuity (often
referred to as a conservation easement).
(2) See IRC § 170(h)(2).

C. Qualified Organization
(1) The recipient of a deductible conservation easement donation must be a
qualified organization and also an eligible donee. IRC §§ 170(h)(1)(B) and
170(h)(3); Treas. Reg. § 1.170A-14(c)(1).
(2) Qualified organizations include:
• The federal government, a United States (U.S.) possession, the District of
Columbia, a state government, or any political subdivision of a state or
U.S. possession.
• An organization described in IRC § 170(b)(1)(A)(vi).
• A charity described in IRC § 501(c)(3) that meets the public support test of
IRC § 509(a)(2).
• An IRC § 501(c)(3) organization that meets the requirements of IRC §
509(a)(3) and is controlled by one of the organizations described above.
(3) Note: See Treas. Reg. § 1.170A-14(c)(1) for the requirements to qualify as an
eligible donee.
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(4) See IRC § 170(h)(3) and Chapter 4 for additional information on qualified
organizations.

D. Conservation Purpose
(1) Section 170(h)(4)(A) defines “conservation purpose” as one of the following:
• Preservation of land for outdoor recreation by, or the education of, the
general public.
• Protection of a relatively natural habitat of fish, wildlife, or plants, or similar
ecosystem.
• Preservation of open space (including farmland and forest land) either for
the scenic enjoyment of the general public or pursuant to a clearly
delineated governmental conservation policy (both purposes must yield a
significant public benefit).
• Preservation of a historically important land area or a certified historic
structure.
(2) The easement must be created by deed and be exclusively for conservation
purposes. Donations of conservation easements may meet more than one
conservation purpose.
(3) See Chapter 5 for additional information on conservation purpose.

E. Perpetuity
(1) A deductible conservation easement must be made in perpetuity, permanently
restricting the use of the property. Section 170(h)(2)(C) requires that the interest
in real property be subject to a use restriction granted in perpetuity, and IRC §
170(h)(5)(A) requires that the conservation purpose be protected in perpetuity.
See also Treas. Reg. §§ 1.170A-14(b)(2) and 1.170A-14(g)(1).
(2) This means that the deed of conservation easement must indicate that the
restriction remains on the property forever and is binding on current and future
owners of the property.
(3) If a deed of conservation easement does not meet the perpetuity requirements,
the contribution of a conservation easement is not deductible.
(4) If the conservation easement deed imposes restrictions for a specific period
such as ten years, it is not in perpetuity and is not deductible. An easement is
not enforceable in perpetuity if it ends after a period of years or if it can revert to
the donor or to another private party. However, if a remote future event, like an
earthquake, can extinguish the easement, the donation could nevertheless be
treated as enforceable in perpetuity. Treas. Reg. § 1.170A-14(g)(3).
(5) In Carpenter v. Commissioner, T.C. Memo. 2012-1, a conservation easement
was not enforceable in perpetuity because it allowed for the extinguishment of
the easement by mutual consent of the parties if circumstances arose in the
23

future that would render the purpose of the conservation easement impossible
to accomplish.
(6) In Belk v. Commissioner, 140 T.C. 1 (2013), motion for reconsideration denied,
T.C. Memo. 2013-154, aff’d 774 F.3d 1243 (4th Cir. 2014), the deed of
easement allowed the taxpayers and donee to change the property subject to
the easement by substituting other property owned by the taxpayers for the
property originally subject to the easement. The tax court ruled that the
provision caused the easement to fail the requirements of IRC § 170(h)(2)(C),
as the donated property interest was not subject to a use restriction granted in
perpetuity.
(7) In Pine Mountain Preserve, LLLP v. Commissioner, 151 T.C. 247 (2018), and
Pine Mountain Preserve, LLLP v. Commissioner, 116 T.C. Memo. 214, rev’d in
part, aff’d in part, vacated and remanded, 2020 WL 6193897 (11th Cir. Oct. 22,
2020), the 2005 deed of easement set out boundaries for ten building areas, but
allowed the boundaries to be modified by mutual agreement of the donor and
NALT, the donee. The 2006 deed of easement allowed the designation of six
building areas within the conservation area, but with no other restriction on
location except that the locations must be approved in advance by NALT. The
tax court, following Belk, ruled that these provisions caused the easement to fail
the grant in perpetuity requirements of IRC § 170(h)(2)(C). In so doing, the
court explicitly rejected the holding in BC Ranch II, L.P. v. Commissioner, 867
F.3d 547 (5th Cir. 2017), where the Fifth Circuit ruled that the so-called floating
homesites did not defeat perpetuity. The Eleventh Circuit, in Pine Mountain,
ruled that the moveable building areas do not violate the “granted in perpetuity”
requirement under § 170(h)(2)(C), but remanded the issue of whether they
violate the “protected in perpetuity” requirement under § 170(h)(5)(A). The
Eleventh Circuit agreed with the tax court that the amendment clause did not
violate the protected in perpetuity requirement of IRC § 170(h)(5)(A). Lastly, the
Eleventh Circuit held that when determining the fair market value of the
easement, the tax court should value the easement using the standards set
forth in the governing regulations.
(8) Agents should note that under Golsen v. Commissioner, 54 T.C. 742, 756-57,
aff’d, 445 F.2d 985 (10th Cir. 1971), the tax court is bound by an appellate
court’s opinions in cases appealable to that appellate court’s circuit. We
recommend that all floating homesite/moveable building area clause cases and
amendment clause cases be referred to the assigned LB&I and SB/SE
Counsel.

E.1. Reserved Rights
(1) In Hoffman Props. II, LP v. Commissioner, 956 F.3d 832 (6th Cir. 2020), a
façade easement case, the Sixth Circuit Court of Appeals affirmed the tax
court’s holding that the automatic approval clause in the deed rendered the
easement nondeductible because the clause was inconsistent with the
easement being enforceable in perpetuity under IRC § 170(h)(5)(A). The clause
24

reserved to the donor rights to modify the building façade if the donor obtained
the prior approval of the easement holder, but if the holder failed to respond to a
request for approval within 45 days, the request was automatically considered
approved. The court of appeals explained that a failure of the donee to act
within 45 days would foreclose its ability to prevent the proposed modification.
For a CCA containing an acceptable “constructive denial” clause, see CCA
202002011 (released Jan. 10, 2020).

E.2. Recording Easements
(1) The deed of conservation easement must be recorded in the appropriate
recordation office. See generally Treas. Reg. § 1.170A-14(g)(1).
(2) In a federal tax controversy, state law controls the determination of a taxpayer’s
interest in property while the tax consequences are determined under federal
law. United States v. Nat’l Bank of Commerce, 472 U.S. 713, 722 (1985);
Woods v. Commissioner, 137 T.C. 159, 162 (2011). An easement is not
enforceable in perpetuity before it is recorded.
(3) In addition to the deed, all exhibits or attachments to the deed, such as a
description of the easement restrictions, maps, and lender agreements, may
need to be recorded. In Herman v. Commissioner, T.C. Memo. 2009-205, the
taxpayer recorded a “Declaration of Restrictive Covenant” for a donation of
unused development rights above a building in New York City. The covenant
referred to an attached architectural drawing, which described the easement
restrictions, but the drawing was not recorded. The court ruled that because the
attached drawing was not recorded, it could not bind subsequent purchasers,
did not protect the conservation purpose of preserving the building “in
perpetuity,” and failed to meet the requirements of IRC § 170(h)(5)(A). But see
Butler v. Commissioner, T.C. Memo. 2012-72, holding that documents
incorporated into the deed by reference do not have to be recorded with the
deed under Georgia law.

E.3. Amendment Clauses in Easement Deeds
(1) The restriction on the use of the real property must be enforceable in perpetuity,
meaning that it lasts forever and binds all future owners. An easement deed
may fail the perpetuity requirements of IRC § 170(h)(2)(C) and (h)(5)(A) if it
allows any amendment or modification that could adversely affect the perpetual
duration of the deed restriction.
(2) In Pine Mountain Preserve, LLLP v. Commissioner, 151 T.C. 247 (2018), rev’d
in part, aff’d in part, vacated and remanded, 2020 WL 6193897 (11th Cir. Oct.
22, 2020), the deed of easement allowed the donor and the donee to amend
the deed by agreement so long as the amendment was not inconsistent with the
conservation purposes. The tax court ruled that such an amendment clause
does not violate the enforceable in perpetuity requirements of IRC §

25

170(h)(5)(A). See discussion of amendment clauses and the Pine Mountain
case above under the heading “Perpetuity.”
(3) The issue of Amendment Clauses is different than the issue of Reserved
Rights. See Chapter 12 for information on Reserved Rights in an easement
deed.

E.4. Subordination of Mortgages in Lender Agreements
(1) If the property has a mortgage or lien in effect at the time the easement is
recorded, the easement contribution is not deductible unless the mortgagee or
lien holder subordinates its rights in the property to the rights of the donee
organization to enforce the conservation purposes of the easement in
perpetuity. Treas. Reg. § 1.170A-14(g)(2).
(2) The subordination agreement must be recorded in a timely manner.
(3) In Minnick v. Commissioner, T.C. Memo. 2012‐345, aff’d, 796 F.3d 1156 (9th
Cir. 2015), the tax court held that petitioners were not entitled to a charitable
contribution deduction because they failed to meet the subordination
requirements (i.e., the mortgagor and petitioners had not entered into a
subordination agreement at the time the easement was donated, rather, it was
entered into after the donation). See also Mitchell v. Commissioner, 138 T.C.
324 (2012), supplemented by T.C. Memo. 2013-204, aff’d, 775 F.3d 1243 (10th
Cir. 2015); RP Golf, LLC v. Commissioner, T.C. Memo. 2016‐80, aff’d 860
F.3d1096 (8th Cir. 2018); Palmolive Building Investors v. Commissioner, 149
T.C. 380 (2017).

E.5. Extinguishment
(1) Treas. Reg. § 1.170A-14(g)(6)(i) generally provides that if a subsequent
unexpected change in the conditions surrounding the property that is the
subject of a donation can make impossible or impractical the continued use of
the property for conservation purposes, the conservation purpose can
nonetheless be treated as protected in perpetuity if the restrictions are
extinguished by judicial proceeding and all of the donee’s proceeds (determined
under Treas. Reg. § 1.170A-14(g)(6)(ii)) from a subsequent sale or exchange of
the property are used by the donee organization in a manner consistent with the
conservation purposes of the original contribution.

E.6. Allocation of Proceeds in Deed and Lender Agreements
(1) In order to claim a charitable contribution deduction for the donation of a
conservation easement, the donor, at the time of the gift, must agree that the
donation of the perpetual conservation restriction gives rise to a property right,
immediately vested in the donee organization, with a FMV that is at least equal
to the proportionate value that the perpetual conservation restriction at the time
of the gift bears to the value of the property as a whole. The proportionate value
26

of the donee’s property rights must remain constant. The donee organization
must be entitled to a portion of the proceeds at least equal to that proportionate
value of the perpetual conservation restriction. The requirements of Treas. Reg.
§ 1.170A-14(g)(6)(i) and (ii) are strictly construed. If a grantee is not absolutely
entitled to the proportionate share of extinguishment proceeds, then the
conservation purpose of the contribution is not protected in perpetuity. The only
exception is if state law provides that the donor is entitled to the full proceeds
from the conversion without regard to the terms of the prior perpetual
conservation restriction. Treas. Reg. § 1.170A-14(g)(6)(ii) (last clause).
(2) Treas. Reg. § 1.170A-14(g)(6)(ii) requires the donee’s proportionate interest
upon extinguishment of a conservation easement to be a percentage
determined by (1) the FMV of the conservation easement on the date of the gift
(numerator), over (2) the FMV of the property as a whole on the date of the gift
(denominator).
(3) In Carroll v. Commissioner, 146 T.C. 196 (2016), petitioners’ deed of
conservation easement instead used a ratio of the charitable contribution
deduction allowable over the value of the property as a whole on the date of the
gift. Thus, the deed failed to satisfy Treas. Reg. § 1.170A- 14(g)(6)(ii) because it
did not guarantee the donee a proportionate share of the extinguishment
proceeds based on the FMV of the conservation easement at the time of the
gift.
(4) In PBBM-Rose Hill, Ltd. v. Commissioner, 900 F.3d 193 (5th Cir. 2018), the
deed of easement provided that in case of extinguishment, the donee would
receive the proportionate value required by the regulation less the expenses of
the sale and the amount attributable to improvements constructed after the
easement. The court disallowed the deduction because any reduction to the
proportionate value required by the regulation failed to satisfy its requirements.
(5) In Coal Property Holdings, LLC v. Commissioner, 153 T.C. 126 (2019), the
deed of easement provided that in case of extinguishment, the donee would
receive the proportionate value required by the regulation “after the satisfaction
of prior claims” and less any increase in value attributable to improvements.
The court, following PBBM-Rose Hill, disallowed the deduction because any
reduction to the proportionate value required by the regulation failed to satisfy
its requirements.
(6) See also Plateau Holdings, LLC v. Commissioner, T.C. Memo. 2020-93; Belair
Woods, LLC v. Commissioner, T.C. Memo. 2020-112; Village at Effingham, LLC
v. Commissioner, T.C. Memo. 2020-102; Riverside Place, LLC v.
Commissioner, T.C. Memo. 2020-103; Maple Landing, LLC v. Commissioner,
T.C. Memo. 2020-104; Englewood Place, LLC v. Commissioner, T.C. Memo.
2020-105; Hewitt v. Commissioner, T.C. Memo. 2020-89; Woodland Property
Holdings, LLC v. Commissioner, T.C. Memo. 2020-55; Oakbrook Land
Holdings, LLC v. Commissioner, T.C. Memo. 2020-54; Cottonwood Place, LLC
v. Commissioner, T.C. Memo. 2020-115; Red Oak Estates, LLC v.
27

Commissioner, T.C. Memo. 2020-116; Smith Lake, LLC v. Commissioner, T.C.
Memo. 2020-107; Lumpkin One Five Six, LLC v. Commissioner, T.C. Memo.
2020-94.
(7) Examiners should contact Counsel for assistance in review of deeds and lender
agreements to determine if the documents satisfy the allocation of proceeds
requirements of Treas. Reg. § 1.170A-14(g)(6)(ii).

IV. Qualified Organization
A. Overview
(1) A taxpayer must transfer the conservation easement to an eligible donee to
qualify for a contribution deduction. An eligible donee:
• Is a qualified organization,
• Must have the commitment to protect the conservation purpose(s) of the
donation, and
• Must have the resources to enforce the conservation restrictions.
(2) See IRC § 170(h)(3); Treas. Reg. § 1.170A-14(c)(1).

B. Qualified Organization
(1) A qualified organization is one of the following:
• A governmental unit, including the U.S. government, a U.S. possession,
the District of Columbia, a state government, or any political subdivision of
a state or U.S. possession so long as the contribution is made for
exclusively public purposes.
• A public charity described in IRC § 501(c)(3) that meets the public support
test of IRC § 509(a)(2) or a public charity described in 170(b)(1)(A)(vi).
• A public charity described in IRC § 501(c)(3) that meets the requirements
of IRC § 509(a)(3) and is controlled by one of the organizations described
above. Treas. Reg. § 1.170A-14(c)(1).

C. Commitment and Resources
(1) The qualified organization must have the commitment to protect the
conservation purpose(s) of the donation Treas. Reg. § 1.170A- 14(c)(1). An
entity organized or operated for one of the conservation purposes in IRC §
170(h)(4)(A) is considered to have the commitment required to protect the
conservation purposes of the donation. Treas. Reg. § 1.170A-14(c)(1).
(2) Qualified organizations that accept easement contributions and are committed
to conservation will generally have an established monitoring program, such as
annual property inspections to ensure compliance with the conservation
easement terms and to protect the easement in perpetuity. The terms of the
28

easement contribution must permit the qualified organization access to the
property for inspection. Treas. Reg. § 1.170A-14(g)(5)(ii).
(3) The qualified organization must also have the resources to enforce the
restrictions of the conservation easement. Resources do not necessarily mean
cash. Treas. Reg. § 1.170A-14(c)(1). Resources may be in the form of the
volunteer services of lawyers who provide legal services or conservationists
who inspect the property and prepare monitoring reports.
(4) See Chapter 12 for suggestions on how to evaluate the organization’s
commitment and resources.

D. Special Rules for Buildings in a Registered Historic District
(1) For a contribution made after July 25, 2006, of a qualified real property interest
with respect to a building in a registered historic district, an additional
requirement must be met to satisfy the commitment and resources test. Section
170(h)(4)(B)(ii) requires the taxpayer and the donee organization to execute a
written agreement certifying, under penalty of perjury, that the donee is a
qualified organization with a purpose of environmental protection, land
conservation, open space preservation, or historic preservation, and that the
donee has the resources to manage and enforce the restriction and a
commitment to do so. The taxpayer is also required to attach to its return a
copy of the qualified appraisal for the qualified property interest, photos of the
entire exterior of the building and a description of all restrictions on the
development of the building. IRC § 170(h)(4)(B)(iii)(I-III).
(2) Note: This special rule does not apply to properties listed on the National
Register.
(3) See Chapter 5 for a complete discussion of the special rules for buildings in
registered historic districts.

E. Cash Contributions
(1) A common practice for qualified organizations is to request a cash contribution
(sometimes referred to as a “stewardship fee”) from donors of conservation
easements. To be deductible as a charitable contribution, the cash payment
must be a voluntary transfer made with charitable intent to a qualified
organization. IRC § 170 (a) and (c). All cash contributions, regardless of
amount, must be substantiated with a bank record or a receipt from the donee.
The record or receipt must show the name of the donee, the date of the
contribution, and the amount of the contribution. IRC § 170(f)(17); Treas. Reg.
§ 1.170A-15.
(2) Charitable intent exists if the transfer is made without the receipt of, or the
expectation of receiving, a quid pro quo for the transfer. Generally, if the
benefits the transferor receives or expects to receive are substantial, rather
than incidental to the transfer, the transfer does not satisfy the charitable intent
29

requirement under IRC § 170. Hernandez v. Commissioner, 490 U.S. 680, 691
(1989); United States v. American Bar Endowment, 477 U.S. 105, 117-118
(1986); Wendell Falls Development, LLC v. Commissioner, T.C. Memo. 201845, at *10-13; Singer Co. v. United States, 196 Ct. Cl. 90, 106 449 F.2d 413,
422-423 (1971).
(3) If a direct or indirect economic benefit (other than a tax deduction) is received or
is expected to be received as a result of making a contribution, the deduction
may be limited or disallowed. See generally § 1.170A-1(h)(3), which was
published on June 13, 2019. A state or local tax credit is a direct or indirect
economic benefit that reduced the amount of a taxpayer’s charitable
contribution deduction.

E.1. Quid Pro Quo Contribution
(1) A quid pro quo contribution is a transfer of money or property made to a
qualified organization partly in exchange for goods or services in return from the
charity or a third party. A quid pro quo may also be in the form of an indirect
benefit from a third party.
• Example: A land developer agrees to grant a conservation easement to
the county or other qualified organization in exchange for the approval of a
proposed subdivision. See Triumph Mixed Use Investments III, LLC v.
Commissioner, T.C. Memo. 2018-65. *31-42.
(2) If a taxpayer receives a quid pro quo, the transfer to the charity may be
deductible as a charitable contribution, but only to the extent the amount
transferred exceeds the FMV of the quid pro quo, and only if the excess amount
was transferred with charitable intent. United States v. American Bar
Endowment, 477 U.S. 105, 117 (1986).
(3) The burden is on the taxpayer to show that all or part of a payment is a
charitable contribution or gift. Treas. Reg. § 1.170A-1(h)(1) and (2); United
States v. American Bar Endowment, 477 U.S. 105, 116-118 (1986); and Rev.
Rul. 67-246, 1967-2 C.B. 104.

V. Conservation Purpose
A. Overview
(1) A contribution of a conservation easement to a qualified organization must be
made for one of the following conservation purposes:
• Preservation of land areas for outdoor recreation by, or the education of,
the general public.
• Protection of a relatively natural habitat for fish, wildlife, or plants, or a
similar ecosystem.
• Preservation of open space for the scenic enjoyment of the general public,
or pursuant to a federal, state, or local governmental conservation policy,
both yielding a significant public benefit.
30

• Preservation of historically important land area or certified historic building.
(2) IRC § 170(h)(4)(A).
(3) The conservation easement must be transferred by deed (or other legal
instrument as appropriate under the law of the relevant State) and recorded
where the property is located, be exclusively for conservation purposes,
protected in perpetuity, and meet at least one of the above conservation
purposes.
(4) Any required access to the land by the general public depends on the
conservation purpose of the conservation easement. If the claimed
conservation purpose is for the preservation of open space under IRC §
170(h)(4)(A)(iii), the contribution must yield a significant public benefit which is
usually by visual access from a public highway. Treas. Reg. § 1.170A14(d)(4)(ii)(B).
(5) The deed of conservation easement must prohibit inconsistent use of the
property that could permit destruction of a significant conservation interest,
even if the easement accomplishes an enumerated conservation purpose.
Treas. Reg. § 1.170A-14(e)(2).
(6) A baseline study is used to identify the conservation attributes and to establish
the condition of the property at the time of the conservation easement donation.
Treas. Reg. § 1.170A-14(g)(5).

B. Land for Outdoor Recreation or Education
(1) This category includes the donation of a qualified real property interest to
preserve land for outdoor recreation by, or for the education of, the general
public. IRC § 170(h)(4)(A)(i).
(2) Substantial and regular physical access by the general public to the preserved
land is required. Treas. Reg. § 1.170A-14(d)(2)(ii).
• Examples: A donation to preserve a lake for use by the general public for
boating or fishing, or to preserve land for a hiking trail.
(3) See Treas. Reg. § 1.170A-14(d)(2) for additional guidance.
(4) See also PPBM-Rose Hill, Limited v. Commissioner, 900 F.3d 193 (5th Cir.
2018). In denying the charitable contribution deduction because the taxpayer
failed to comply with the extinguishment clause requirements in Treas. Reg. §
1.170A-14(g)(6)(ii), the Fifth Circuit Court of Appeals reversed the tax court on
the issue of whether the conservation easement met the outdoor recreation
conservation purpose. The court determined that the easement met the outdoor
recreation conservation purpose because the terms of the deed stated that the
property was being protected for outdoor recreation “for use by the general
public.”

C. Relatively Natural Habitat or Ecosystem
31

(1) This conservation purpose is satisfied if the conservation easement protects a
significant relatively natural habitat of fish, wildlife or plants, or similar
ecosystem. IRC § 170(h)(4)(A)(ii). An ordinary tract of land where a common
fish, wildlife or plant community, or similar ecosystem normally lives does not
satisfy this conservation purpose. Treas. Reg. § 1.170A- 14(d)(3)(ii).
(2) Significant habitats and ecosystems include, but are not limited to:
• Habitats for rare, endangered, or threatened species.
• Natural areas that are relatively intact and are considered high quality
examples of land or aquatic communities.
• Natural areas that are in or contribute to the ecological viability of a park,
preserve, wildlife refuge, wilderness area, or other similar conservation
area.
(3) For this conservation purpose, limitations on public access are allowable. For
example, a restriction on all public access to the habitat of a threatened native
animal species would not defeat the claimed deduction. Treas. Reg. § 1.170A14(d)(3)(iii). The taxpayer’s documentation, called a baseline report, as required
by Treas. Reg. § 1.170A-14(g)(5)(i), should clearly describe and identify the
relative natural habitat or ecosystem being protected on the property.
(4) The determination of what specifically meets this conservation purpose test is
based on the facts and circumstances of the specific case. In Glass v.
Commissioner, 124 T.C. 258 (2005), aff’d, 471 F.3d 698 (6th Cir. 2006), the
taxpayer donated two easements that restricted the development of a fraction of
a 10-acre parcel of residential property. The tax court held that the conservation
purpose of natural habitat was satisfied because the conservation easements
were placed on property that had possible places to create or promote a
relatively natural habitat of plants or wildlife.
(5) In Atkinson v. Commissioner, T.C. Memo. 2015-236, taxpayer claimed
deductions for conservation easements encumbering non-contiguous tracts of
land on and adjacent to golf courses located in a gated and guarded residential
community. The tax court distinguished the Glass case and held that the
easements did not protect a relatively natural habitat. In so holding, the tax
court reasoned, among other things, that the golf courses’ use of pesticides
could destroy the ecosystem of the encumbered property. The tax court’s
reliance on the Service’s expert reports and testimony in Atkinson demonstrates
the importance of expert evidence in “protecting natural habitat” cases.
(6) In Champions Retreat Golf Founders, LLC. v. Commissioner, T.C. Memo. 2018146, taxpayer claimed a deduction for an easement on approximately 350 acres
that encumbered most of a golf course scattered among houses in a gated
residential community. Taxpayer argued the easement satisfied conservation
purposes by preserving habitat for "species of conservation concern," and
providing open space for scenic enjoyment of the general public and pursuant
to a clearly delineated governmental policy. The court sustained the
32

disallowance, finding that that the easement failed to satisfy either the habitat
purpose or the open space purpose. The court held there was an insufficient
presence of rare, endangered, or threatened species, and the encumbered land
was in a non-natural state. Finally, the court held that open space conservation
purpose was not met because there was insufficient physical and visual access
for the public to enjoy the encumbered land in the gated community. Moreover,
the court held that the easement did not satisfy a clearly delineated
governmental policy since the state statute cited by the taxpayer did not support
a determination that the encumbered property was a part of an “identified
conservation project.” As in the Atkinson case, the tax court relied on expert
reports and testimony to determine that the taxpayer failed to satisfy the
conservation purposes of IRC § 170(h). On appeal, the Eleventh Circuit Court
of Appeals disagreed with the tax court and vacated and remanded the tax
court opinion. Champion’s Retreat Golf Founders, LLC v. Commissioner, 959
F.3d 1033 (11th Cir. 2020). A Motion to Amend the Opinion, filed in the 11th
Circuit Court of Appeals on behalf of the Commissioner, is currently pending.

D. Open Space
(1) The donation of a qualified real property interest to protect open space
(including farmland and forest land) must be (1) for the scenic enjoyment of the
general public, or (2) pursuant to a clearly delineated federal, state, or local
governmental conservation policy. This type of conservation easement must
preserve open space and must yield a significant public benefit. IRC §
170(h)(4)(A)(iii).

D.1. Scenic Enjoyment
(1) Preservation of open space may be for the scenic enjoyment of the general
public if development of the property would impair the scenic character of the
local rural or urban landscape or interfere with a scenic panorama that can be
enjoyed by the public. Treas. Reg. § 1.170A- 14(d)(4)(ii)(A).
(2) Whether the easement provides scenic enjoyment to the general public is
evaluated based on all the facts and circumstances. The burden of proof is on
the taxpayer to show the scenic characteristics of the property.
(3) Treas. Reg. § 1.170A-14(d)(4)(ii)(A) lists factors to consider:
• The compatibility of the land use with other land in the vicinity.
• The degree of contrast and variety provided by the visual scene.
• The openness of the land (which would be a more significant factor in an
urban or densely populated setting or in a heavily wooded area).
• Relief from urban closeness.
• The harmonious variety of shapes and textures.

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• The degree to which the land use maintains the scale and character of the
urban landscape to preserve open space, visual enjoyment and sunlight
for the surrounding area.
• The consistency of the proposed scenic view with a methodical state
scenic identification program, such as a state landscape inventory.
• The consistency of the proposed scenic view with a regional or local
landscape inventory made pursuant to a sufficiently rigorous review
process, especially if the donation is endorsed by an appropriate state or
local governmental agency.
(4) A conservation easement preserving open space for the scenic enjoyment of
the general public does not require physical access by the public. Visual access
to or across the property by the general public is sufficient. Although the entire
property need not be visible to the public in order to qualify for a deduction, the
public benefit from the donation may be insufficient to qualify if only a small
portion of the property is visible to the public. Treas. Reg. § 1.170A14(d)(4)(ii)(B).
(5) In Turner v. Commissioner, 126 T.C. 299 (2006), the conservation purpose of
open space was not met because the easement deed did not protect the views
of the property. The taxpayer was not entitled to a deduction because the
conservation easement did not satisfy one of the required conservation
purposes in IRC § 170(h)(4)(A).
(6) See Treas. Reg. § 1.170A-14(d)(4)(ii) for additional guidance.

D.2. Governmental Conservation Policy
(1) Conservation purpose includes the preservation of open space where such
preservation is pursuant to a clearly delineated federal, state, or local
government conservation policy. IRC § 170(h)(4)(A)(iii)(II).
(2) A broad declaration by a single official or legislative body that the land should
be conserved is not sufficient. The donation must further a specific, identified
conservation project. The fact that the donation was accepted by a government
agency is not sufficient to satisfy this requirement. The more rigorous the review
process by the governmental agency, the more the acceptance of the easement
tends to establish the requisite clearly delineated governmental policy. Treas.
Reg. § 1.170A-14(d)(4)(iii)(B).
(3) The government need not fund the conservation program, but it must involve a
significant commitment by the government with respect to the conservation
project.
(4) Public access is not required if the conservation purpose would be undermined
or frustrated by the public access. Treas. Reg. § 1.170A-14(d)(4)(iii)(C).

D.3. Significant Public Benefit
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(1) A conservation purpose based on the preservation of open space, whether for
scenic enjoyment or pursuant to a governmental conservation policy, must yield
a significant public benefit. IRC § 170(h)(4)(A)(iii).
(2) A determination of whether a conservation easement provides a significant
public benefit must be based on all facts and circumstances. Treas. Reg. §
1.170A-14(d)(4)(iv) lists a number of factors that may be considered:
• Uniqueness of the property to the area.
• Intensity of land development in the area.
• Consistency of the proposed open space use with public programs for
conservation in the region.
• Consistency of proposed open space use with existing private
conservation programs in the area, evidenced by other protected land held
by a qualified organization in close proximity to the property.
• Likelihood the property would be developed in the absence of the
easement.
• Opportunity of the public to appreciate the property's scenic values.
• Importance of the property to preserve a landscape or resource that
attracts tourism or commerce.
• Likelihood of the donee acquiring substitute property or property rights.
• Cost of enforcing the terms of the conservation restrictions.
• Population density in the area.
• Consistency of open space use with a legislatively mandated program
identifying particular parcels of land for future protection.
(3) The preservation of an ordinary tract of land would not, in and of itself, yield a
significant public benefit. Treas. Reg. § 1.170A-14(d)(4)(iv)(B). A charitable
contribution will not be allowed if an easement does not impose new or
expanded restrictions on the property. A conservation easement that merely
limits the number of lots that the acreage is divided into does not necessarily
satisfy the open space requirement of IRC § 170(h). Turner v. Commissioner,
126 T.C. 299 (2006).
(4) The legislative history underlying IRC § 170(h) shows that Congress did not
intend for every easement to qualify for a deduction. A deduction is not allowed
unless there is an assurance that the public benefit furthered by the contribution
would be substantial enough to justify the allowance of a deduction. S. Rep. 961007, at 9-10 (1980), reprinted in 1980 U.S.C.C.A.N. 6736, 6744-45.
• Example: Significant public benefit includes the preservation of a unique
natural land formation for the enjoyment of the general public or the
preservation of woodland along a well-traveled public highway to preserve
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the appearance of the area so as to maintain the scenic view from the
highway.

E. Historically Important Land or Structure
(1) This category includes the donation of a qualified real property interest to
preserve a historically important land area or a certified historic structure. IRC §
170(h)(4)(A)(iv).

E.1. Historically Important Land
(1) Historically important land includes:
• An independently significant land area that meets the National Register
Criteria for Evaluation.
• Land within a registered historic district and buildings on the land area that
is reasonably considered as contributing to the significance of the district.
• Land where the physical or environmental features contribute to the
historic or cultural importance and continuing integrity of certified historic
structures.
(2) See Treas. Reg. § 1.170A-14(d)(5)(ii) for additional guidance.
(3) Under the Pension Protection Act (IRC § 170(h)(4)(C)), a “certified historic
structure” includes a land area listed in the National Register of Historic Places.
The National Register is part of a national program administered by the National
Park Service (NPS) to identify, evaluate and protect historic and archeological
resources worthy of preservation. A list of properties in the National Register
can be found on the NPS Web page.

E.2. Certified Historic Structure
(1) A certified historic structure is:
• Any building, structure, or land area listed on the National Register, or
• Any building located in a registered historic district and certified by the
Secretary of the Interior as being of historic significance to the district.
(2) A certified historic structure may be a commercial property or a personal
residence.
(3) The NPS Technical Preservation Services administers the certification program
for the Department of the Interior. This certification application is submitted
through the taxpayer’s State Historic Preservation Office, which makes a
recommendation to the NPS regarding the application. The certification must be
done at the time the easement is donated or by the due date (including
extensions) of the return for the year of the donation. Treas. Reg. § 1.170A14(d)(5)(iii).

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(4) The term “registered historic district” includes a district described in IRC §
47(c)(3)(B) and includes:
• Any district listed in the National Register, and
• Any district:
• designated under a statute of the appropriate state or local
government, if such statute is certified by the Secretary of the
Interior as containing criteria which will substantially achieve the
purpose of preserving and rehabilitating buildings of historic
significance to the district, and
• that is certified by the Secretary of the Interior as meeting
substantially all of the requirements for the listing of districts in the
National Register.
(5) A building in a local historic district will not meet the definition of a certified
historic structure unless both the structure and the district have been certified in
accordance with IRC § 47.

E.3. Special Rules for Buildings in Registered Historic Districts
(1) Section 170(h)(4)(B) imposes additional requirements for contributions of
conservation easements on the exterior of a building in a registered historic
district. Note: These requirements do not apply to properties listed in the
National Register.
(2) To qualify, all of the following additional requirements must be met:
• The entire exterior of the building, including the front, sides, rear, and
height, must be restricted, and no changes can be made to the exterior
that are inconsistent with the historical character of the exterior.
• The donor must enter into a written agreement with the donee certifying,
under penalty of perjury, that the donee is a qualified organization with a
purpose of environmental protection, land conservation, open space
preservation, or historic preservation, and that the donee has the
resources to manage and enforce the restrictions and the commitment to
do so.
• Donors must attach to the return a qualified appraisal as defined in IRC §
170(f)(11)(E), photographs of the entire exterior of the building, and a
description of all restrictions on the development of the building.
• Donors must pay a $500 filing fee to the U.S. Treasury if a deduction of
more than $10,000 is claimed. IRC § 170(f)(13).
(3) Some visual access by the public to the building, structure or land area is
required. The terms of the easement must be such that the general public is
given the opportunity on a regular basis to view the characteristics and features
37

of the property. Factors to be considered in determining the type of access for
historic properties include:
• Historical significance of the property;
• The nature and features that are the subject of the easement;
• The remoteness or accessibility of the site of the donated property;
• The possibility of physical hazards to the public visiting the property;
• The extent to which public access would be an unreasonable intrusion on
any privacy interests of individuals living on the property;
• The degree to which public access would impair the preservation interests
which are the subject of the donation; and
• The availability and opportunities for the public to view the property by
means other than visits to the site.
(4) See Treas. Reg. § 1.170A-14(d)(5)(iv) for additional guidance.

F. Public Access
(1) Public access (either physical or visual) to the property is generally required for
the conservation easement to be deductible except with respect to protection of
a relatively natural habitat or ecosystem or pursuant to specified governmental
policies. The type of access depends on the claimed conservation purpose.
(2) If physical access is required, access must be substantial and on a regular
basis.
(3) If only visual access is required, the entire property need not be visible to the
public for a donation to qualify. However, the public benefit from the donation is
insufficient to qualify for a deduction if only a small portion of the property is
visible to the public.
(4) See Treas. Reg. § 1.170A-14(d) for specific access requirements.

G. Inconsistent Uses
(1) A donation must be exclusively for conservation purposes, and generally the
deed of conservation easement must prohibit inconsistent uses. An inconsistent
use allows for the destruction or potential destruction of significant conservation
interests in conflict with a conservation purpose.
(2) However, some inconsistent uses are permitted if necessary to protect the
conservation interests that are the subject of the easement.
(3) All conservation easements reserve some rights for the owner of the
encumbered property. Depending on the nature and extent of these reserved
rights, the claimed conservation purpose may be impaired to such a degree that
the contribution may not be allowable. A determination of whether the reserved
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rights defeat the conservation purpose must be determined based on all facts
and circumstances.
• Example: The conservation purpose of the easement as described in the
conservation easement deed was to protect the relatively natural habitat
for scrub jay, a threatened bird. The deed of easement allows the taxpayer
to use pesticides that would destroy the natural food source for the scrub
jay. The taxpayer is not entitled to a deduction because the allowed
activity is an inconsistent use.
(4) See Treas. Reg. § 1.170A -14(e)(2) and (e)(3) for additional guidance.

H. Baseline Study
(1) When a donor reserves a Taxright, the exercise of which may impair
conservation interests associated with the encumbered property, the donor
must provide the donee organization with documentation sufficient to establish
the condition of the property at the time of the donation. The donor must provide
baseline documentation to the donee prior to the time the donation is made.
Treas. Reg. § 1.170A-14(g)(5)(i). This documentation should provide specific
information about the conservation values of the property.
(2) The baseline documentation is generally prepared by a person with specific
training in the assessment of conservation values such as a biologist, botanist,
or historian. The baseline study may be prepared by a person affiliated with the
donee organization.
(3) This documentation may include:
• Survey maps from the U.S. Geological Survey, showing the property line
and other contiguous or nearby protected areas.
• A map of the area drawn to scale showing all existing man-made
improvements or incursions (such as roads, buildings, fences, or gravel
pits) and vegetation, and identification of flora and fauna (including, for
example, rare species locations, animal breeding and roosting areas, and
migration routes), land use history (including present uses and recent past
disturbances), and distinct natural features (such as large trees and
aquatic areas).
• An aerial photograph of the property.
• On-site photographs taken at appropriate locations on the property.
(4) The documentation must be accompanied by a statement signed by the donor
and a representative of the donee organization affirming that the documentation
is an accurate representation of the protected property at the time of the
transfer.
(5) See Treas. Reg. § 1.170A-14(g)(5)(i) for additional guidance.

VI. Substantiation
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A. Overview
(1) A charitable contribution is not deductible unless properly substantiated in
accordance with the Internal Revenue Code and applicable regulations,
including:
• IRC § 170(a)(1)
• IRC § 170(f)(8)
• IRC § 170(f)(11)
• IRC § 170(f)(13)
• Treas. Reg. § 1.170A-13
• Treas. Reg. § 1.170A-14
• Treas. Reg. § 1.170A-16
• Treas. Reg. § 1.170A-17
(2) These IRC sections and corresponding regulations describe the specific
substantiation and recordkeeping requirements for donors of noncash
contributions. Note that substantiation requirements for noncash contributions
made on or before July 30, 2018, are generally governed by Treas. Reg. §
1.170A-13, while substantiation requirements for noncash contributions made
after July 30, 2018, are generally governed by Treas. Reg. § 1.170A-16. Treas.
Reg. § 1.170A-16(g). Where appropriate, both regulations are cited below.
Treas. Reg. § 1.170A-17 is applicable to contributions made on or after January
1, 2019.
(3) The kind of documents required to substantiate a charitable contribution vary
depending on the amount, date of contribution, and type of property contributed.
(4) The burden is on the taxpayer to demonstrate that the property transferred to
the qualified organization is a deductible contribution. See Treas. Reg. §
1.170A-1(h)(1) and (2); United States v. American Bar Endowment, 477 U.S.
105, 116-118 (1986); and Revenue Ruling 67-246, 1967-2 C.B. 104.
(5) See Publication 1771, Charitable Contributions-Substantiation and Disclosure
Requirements (PDF), Publication 526, Noncash Contributions (PDF), and
Publication 561, Determining the Value of Donated Property (PDF), for
additional information.
(6) See Exhibit 6-1 for a summary of substantiation requirements.

B. Contemporaneous Written Acknowledgment
(1) A contemporaneous written acknowledgment (CWA) by the qualified donee
organization is required for all contribution deductions of $250 or more, whether
in cash or property.

40

(2) “Contemporaneous” means that the taxpayer must obtain the acknowledgment
by the earlier of the date on which the taxpayer files his or her tax return
claiming the charitable contribution deduction, or the due date (including
extensions) for the return. IRC § 170(f)(8); Treas. Reg. § 1.170A-13(f)(3); and
Publication 1771, Charitable Contributions-Substantiation and Disclosure
Requirements (PDF).
(3) This acknowledgment by the qualified donee organization must contain:
• Amount of any cash contribution,
• Description (but not the value) of the property contributed,
• Statement that no goods or services were provided by the organization in
return for the contribution (if this was the case),
• Description and good faith estimate of the value of goods or services, if
any, that an organization provided in return for the contribution, and
• A statement that goods or services (if any) that an organization provided in
return for the contribution consisted entirely of intangible religious benefits
(if this was the case).
(4) See Treas. Reg. § 1.170A-13(f)(2).
(5) Section 170(f)(8) requirements must be complied with for a deduction to be
allowed. See Addis v. Commissioner, 374 F.3d 881, 887 (9th Cir. 2004), aff’g,
118 T.C. 528 (2002) (“the deterrence value of section 170(f)(8)’s total denial of
a deduction comports with the effective administration of a self-assessment and
self-reporting system”), cited in Viralam v. Commissioner, 136 T.C. 151;
Schrimsher v. Commissioner, T.C. Memo. 2011-71.
(6) The following CWA does not meet the statutory requirement of IRC § 170(f)(8)
because it does not make an affirmative statement that no goods or services
were provided (or describe if goods or services were actually provided) in
exchange for the contribution.
• Example: “Thank you for your contribution by deed of a conservation
easement on XYZ property and $10,000 cash contribution for
maintenance of the easement that ABC Land Trust received on May 5,
2018.”
(7) A CWA is not required to take any particular form, and an easement deed may
qualify as a CWA under certain circumstances. Unless the deed expressly
states the total value of the goods or services received by the donor in
exchange for the contribution, the deed taken as a whole must provide that no
goods or services were received in exchange. Schrimsher v. Commissioner,
T.C. Memo. 2011-71. The tax court has held that a deed qualified as a CWA
when no valuable consideration was mentioned in the deed and the deed
contained a merger clause. Averyt v. Commissioner, T.C. Memo. 2012-198; RP
Golf, LLC v. Commissioner, T.C. Memo. 2012-282. A merger clause provides
41

that the particular deed sets forth the entire agreement of the parties regarding
the contribution of the conservation easement and supersedes all prior
discussions, negotiations, or agreements relating to the easement. French v.
Commissioner, T.C. Memo. 2016- 53, held that in the case of a deed without an
indication that there were no goods or services provided, unless there is a
merger clause, the deed cannot be taken as a whole to qualify as a CWA. In
such a case, the absence of a merger clause means that a donor could have
received consideration in exchange for the contribution even if the deed does
not mention that there was any valuable consideration transferred.
(8) Some deeds recite the amount of consideration as "$1.00 and other good and
valuable consideration." Numerous state courts have held that phrase is
inherently and intrinsically ambiguous. The phrase may mean that no real
consideration was given, that the consideration was nominal, or that the
consideration was substantial but was not disclosed. Nevertheless, in the
absence of any other evidence concerning the amount of consideration, the tax
court has held that a deed can satisfy the CWA requirements even if it
describes the consideration as “$1.00 and other good and valuable
consideration” as long as the deed contains a merger clause. 310 Retail, LLC v.
Commissioner, T.C. Memo. 2017-164, and Big River Dev., L.P. v.
Commissioner, T.C. Memo. 2017-166.
(9) If you have any questions about whether the deed language satisfies the
requirements for a CWA under IRC § 170(f)(8), consult with Counsel.
(10)In IRC § 170(f)(8)(D), Congress provided an exception to the CWA requirement.
Section 170(f)(8)(D) states that a CWA is not required if the donee organization
files a return on such form and in accordance with such regulations as the
Treasury Department may prescribe (donee reporting). In the Tax Cuts and
Jobs Act, Congress deleted subparagraph (D) and redesignated what had been
subparagraph (E) as subparagraph (D), effective for contributions made in tax
years beginning after December 31, 2016. Even before that effective date, the
IRC § 170(f)(8)(D) exception was not effective. 15 West 17th St. v.
Commissioner, 147 T.C. No. 19 (2016).
(11)Note: Taxpayers and return preparers frequently confuse the CWA requirement
with the filing of Form 8283, Noncash Charitable Contributions (PDF). This form
is not a substitute for the CWA; both are required. Failure to meet either
requirement may result in disallowance of the charitable contribution deduction.

C. Form 8283, Noncash Charitable Contributions
C.1. Generally
(1) Section B of Form 8283, Noncash Charitable Contributions (PDF), referred to in
the Deficit Reduction Act of 1984 and in Treas. Reg. § 1.170A-13(c)(4) as an
“appraisal summary,” must be fully completed and attached to the return for
noncash donations greater than $5,000.

42

(2) Note: If the donation originates from a flow-through entity (such as S
corporation or partnership), the partner or shareholder who receives an
allocation of the charitable contribution must attach a copy of the flow-through
entity’s appraisal summary (Form 8283) to the tax return on which the
deduction for the contribution is first claimed. Treas. Reg. § 1.170A13(c)(4)(iv)(G); Treas. Reg. § 1.170A-16(f)(4)(ii).
(3) Form 8283, Section B is often improperly completed. Common errors include:
• Inadequate description of the property
• Missing information
• Missing signatures
• Inconsistent dates
(4) The description of the property must have sufficient detail for a person
unfamiliar with the type of property to ascertain that the property being
appraised is the property that was contributed. Treas. Reg. § 1.170A13(c)(4)(ii)(B). A similar rule applies under Treas. Reg. § 1.170A-16(d)(3)(iv)(B).
(5) Form 8283, Section B, Part I, requests information regarding:
• Acquisition date of the property
• How the property was acquired by the donor
• Donor’s cost or adjusted basis
• Bargain sale amount received
• Appraised FMV of the easement
(6) For conservation easements, the instructions to Form 8283 also require a
statement that identifies the conservation purpose, shows FMV before and
after, states whether the donation was made in order to get an approval or was
required by contract, and whether the taxpayer or related person has any
interest in nearby property. This statement, described in the Instructions to the
Form 8283, must be attached to the Form 8283.
(7) See Instructions for Form 8283, Noncash Charitable Contributions (PDF), and
Treas. Reg. § 1.170A-13(c)(4); Treas. Reg. § 1.170A-16(d)(3) for detailed
discussion of the appraisal summary (Form 8283) requirements.
(8) In Belair Woods, LLC v. Commissioner, T.C. Memo. 2018-159, the tax court
held that the taxpayer’s Form 8283 appraisal summary did not comply with
Treas. Reg. § 1.170A-13(c)(4) when the taxpayer failed to include its cost basis
in the property on Form 8283 and the taxpayer’s explanation in the statement
attached to Form 8283 did not show that it was unable to provide such
information. The deduction was therefore disallowed.

C.2. Declaration of Appraiser
43

(1) Form 8283, Section B, Part III, Declaration of Appraiser, must be completed by
the qualified appraiser for donations in excess of $5,000. Treas. Reg. § 1.170A13(c)(4)(ii)(K) and (L); Treas. Reg. § 1.170A-16(d)(3)(iii) and (d)(4).

C.3. Donee Acknowledgment
(1) Form 8283, Section B, Part IV, Donee Acknowledgment, must be signed by an
official authorized to sign the tax or information returns of the donee
organization or a person specifically authorized by such official to sign Form
8283. Treas. Reg. § 1.170A-13(c)(4)(iii); Treas. Reg. § 1.170A-16(d)(5)(i).

C.4. Failure to Attach Form 8283
(1) For contributions made on or before July 30, 2018, the failure to file Form 8283
results in disallowance of the charitable contribution deduction for the
conservation easement unless:
• Such failure was due to a “good-faith omission,”
• The donor otherwise complied with Treas. Reg. § 1.170A-13(c)(3) and
(c)(4) (including completion of a timely qualified appraisal), and
• The IRS requests that the donor submit a fully completed form within 90
days of the request, and the donor complies. Treas. Reg. § 1.170A13(c)(4)(iv)(H).
(2) In rare and unusual circumstances in which it is impossible for the taxpayer to
obtain the signature of the donee, the taxpayer’s deduction will not be
disallowed for that reason provided that the taxpayer attaches a statement to
the Form 8283 explaining, in detail, why it was not possible to obtain the
donee’s signature. Treas. Reg. § 1.170A-13(c)(4)(iv)(C)(2).

D. Qualified Appraisal
(1) Qualified appraisals are required for all contribution deductions for conservation
easements valued at more than $5,000. IRC § 170(f)(11)(C).
(2) To be a qualified appraisal under IRC § 170(f)(11)(E), an appraisal of property
(1) must be treated as a qualified appraisal under regulations or other guidance
prescribed by the Secretary and (2) must be conducted by a qualified appraiser
in accordance with generally accepted appraisal standards and any regulations
or other guidance prescribed by the Secretary. See also Notice 2006-96, 20062 C.B. 902, for rules applicable to contributions made before January 1, 2019,
the effective date of Treas. Reg. § 1.170A-17.

D.1. Qualified Appraisal Under Regulations
(1) Treas. Reg. § 1.170A-13(c)(3) and Treas. Reg. § 1.170A-17(a)(3) define a
qualified appraisal as a document that, among other things: (1) relates to an
appraisal that is made not earlier than 60 days before the date of contribution of
the appraised property and no later than the due date (including extensions) of
44

the return on which a deduction is first claimed under IRC § 170; (2) is
prepared, signed, and dated by a qualified appraiser; (3) includes, among other
requirements, (a) a description of the property appraised; (b) the FMV of such
property and the specific basis for the valuation, (c) a statement that such
appraisal was prepared for income tax purposes; (d) the qualifications of the
qualified appraiser; and (e) the signature and taxpayer identification number of
such appraiser; and (4) does not involve an appraisal fee that violates certain
prescribed rules.

D.2. Generally Accepted Appraisal Standards
(1) Section 170(f)(11)(E) specifies that the qualified appraisal must be conducted
by a qualified appraiser in accordance with generally accepted appraisal
standards.
(2) If a charitable contribution deduction of more than $500,000 is claimed for a
noncash contribution, the taxpayer must attach a copy of a qualified appraisal of
the property to the return for the year of donation. IRC § 170(f)(11)(D).
(3) Special rule: For contributions of façade easements in registered historic
districts, a qualified appraisal must be attached to the return regardless of the
dollar amount claimed for the conservation easement. IRC § 170(h)(4)(B)(iii)(I).
Note: This special rule does not apply to properties listed on the National
Register.

D.3. Reasonable Cause
(1) If the taxpayer fails to obtain a qualified appraisal or fails to otherwise meet the
requirements of IRC § 170(f)(11)(B),(C), or (D), the deduction is not disallowed
if the failure was due to reasonable cause and not to willful neglect. IRC §
170(f)(11)(A)(ii)(II). A determination of whether or not the taxpayer acted
reasonably and not with willful neglect, requires an analysis of the relevant facts
and circumstances. If you have any questions or concerns, consult Counsel.
(2) See Chapter 7 for additional information on qualified appraisals.

E. Façade Easement Filing Fee (Registered Historic District Only)
(1) For deductions of more than $10,000, for a donation of an easement on a
building in a registered historic district, a donor must pay a $500 filing fee with
its return in the taxable year of the contribution. IRC § 170(f)(13). The fee is to
be used to enforce the provisions of IRC § 170(h).
(2) Payment is transmitted to the IRS using Form 8283-V, Payment Voucher for
Filing Fee under Section 170(f)(13) (PDF).

F. Baseline Study

45

(1) A donor that retains rights in property subject to a donated conservation
easement (nearly all donors) must make available to the qualified organization
documentation that establishes the condition of the property at the time of the
gift (baseline study). Treas. Reg. § 1.170A-14(g)(5)(i). The baseline study must
be signed by the donor and donee. The baseline study generally includes
maps, surveys, and photographs of the property and must be given to the
qualified organization prior to the time the donation is made.
(2) See Chapter 5 for additional information on baseline documentation.

G. Additional Donor Recordkeeping Requirements
(1) In addition to the substantiation requirements described above, Treas. Reg. §
1.170A-14(i) requires the donor of a qualified conservation easement who
claims a deduction to maintain written records of the FMV of the property before
and after the donation and the conservation easement purpose furthered by the
donation.

H. Exhibit 6-1 - Substantiation Requirements
Required Item
Contemporaneous
Written
Acknowledgment

Form 8283
(Appraisal
Summary)

Qualified Appraisal

Criteria

Due Date

≥ $250 or more

Earlier of return filing date
or due date (with
No
extensions)

> $500, ≤ $5,000 Return filing date
Part A
> $5,000 Part B

Attach to Return?

Yes
Also attach
conservation
easement
statement per Form
8283 Instructions

Must be made no earlier Yes, but only if >
than 60 days prior to date $500,000 or an
of contribution, but no later easement on a
than original/amended
building in a
return filing date
registered historic
district

>$5,000

All easements on
Façade Filing Fee of buildings in
registered historic
$500
districts >$10,000

46

Return filing date

No
Mail in with Form
8283-V

Baseline Study

Required to be
made available to
donee and signed Before time of donation
by donor and donee
to establish
condition of
property

No

VII. Qualified Appraisal Requirements
A. Overview
(1) Generally, noncash charitable contributions for which a deduction of more than
$5,000 is claimed must be substantiated with a qualified appraisal prepared by
a qualified appraiser in accordance with generally accepted appraisal
standards. IRC §§ 170(f)(11)(C) and (f)(11)(E)(i)(II).
(2) The Pension Protection Act of 2006 (PPA) amended IRC § 170(f)(11)(E) to
provide definitions of qualified appraisal and qualified appraiser. See Notice
2006-96, 2006-2 C.B. 902, for transitional rules. See Treas. Reg. § 1.170A-17
for contributions on or after January 1, 2019.
(3) Treas. Reg. § 1.170A-13(c)(3), which predates IRC § 170(f)(11)(E), sets forth
substantiation requirements that must be met for the appraisal to be considered
a qualified appraisal. Portions of Treas. Reg. § 1.170A-13(c)(3) are superseded
by IRC § 170(f)(11)(E).
(4) This chapter discusses the requirements for a qualified appraisal, a qualified
appraiser and generally accepted appraisal standards.
(5) See Publication 561, Determining the Value of Donated Property (PDF), Treas.
Reg. § 1.170A-13 and Treas. Reg. § 1.170A-17 for additional guidance on
qualified appraisal requirements.

B. Qualified Appraisal
(1) Section 170(f)(11) states that no deduction is allowed for any contribution of
property for which a deduction of more than $500 is claimed unless the
requirements of IRC § 170(f)(11)(B), (C), and (D) are met.
(2) Section 170(f)(11)(C) requires a qualified appraisal for property donations of
more than $5,000.
(3) Section 170(f)(11)(D) additionally requires the attachment of the qualified
appraisal to the return if the deduction claimed exceeds $500,000.
(4) For contributions of façade easements in registered historic districts, a qualified
appraisal must be attached regardless of the dollar amount claimed as a
deduction. IRC § 170(h)(4)(B)(iii)(I).
(5) Note: This special rule does not apply to properties listed on the National
Register.
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(6) Section 170(f)(11)(E) was amended in 2006 to include new definitions of the
terms “qualified appraisal” and “qualified appraiser.” Treas. Reg. § 1.170A-17
provides guidance relating to these definitions. For contributions prior to
January 1, 2019, taxpayers may rely on the transitional guidance and safe
harbors in Notice 2006-96.
(7) An appraisal is treated as a qualified appraisal within the meaning of IRC §
170(f)(11)(E) if the appraisal complies with all of the requirements of Treas.
Reg. § 1.170A-17. For contributions prior to January 1, 2019, an appraisal that
complies with all the requirements of Treas. Reg. § 1.170A-13(c) (except to the
extent the regulations are inconsistent with IRC § 170(f)(11)) is also treated as
a qualified appraisal. See Notice 2006-96.
(8) A qualified appraisal must:
• Be prepared, signed and dated by a qualified appraiser in accordance with
generally accepted appraisal standards.
• Meet the relevant requirements of Treas. Reg. § 1.170A-17(a).
• Be dated no earlier than 60 days before the date of contribution nor later
than:
• The due date (including extensions) of the tax return on which the
charitable contribution deduction is first claimed.
• In the case of a partnership or S corporation, the due date
(including extensions) of the return on which the deduction is first
reported; or
• In the case of a deduction first claimed on an amended return, the
date on which the amended return is filed.
• Not involve a prohibited appraisal fee, which, in general, means that the
appraisal fee may not be based on the appraised value of the property.
(9) Treas. Reg. § 1.170A-17(a)(3) outlines specific items that must be included in a
qualified report:
• A detailed description of the property.
• The property’s physical condition (for a contribution of real property or
tangible personal property).
• The date or expected date of the contribution.
• The valuation effective date, defined in Treas. Reg. § 1.170A-17(a)(5).
• The terms of any agreement relating to the property’s use, sale or other
disposition.
• The appraiser’s name, address, and taxpayer identification number, and
that of the appraiser’s employer or partnership.
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• The qualifications of the appraiser, including the appraiser’s background
experience, education and membership in professional appraisal
associations.
• A statement that the appraisal was prepared for income tax purposes.
• The signature of the appraiser and the date signed by the appraiser.
• The declaration by the appraiser set forth in Treas. Reg. § 1.170A17(a)(3)(vi).
• The appraised FMV of the property on the valuation effective date.
• The method of valuation used to determine the FMV.
• The specific basis for the valuation (such as specific comparable sales
transactions or statistical sampling, including a justification for using
sampling and an explanation of the sampling procedure used).
(10)An appraisal is not a qualified appraisal for a particular contribution if the donor
either failed to disclose or misrepresented facts, and a reasonable person
would expect that this failure or misrepresentation would cause the appraiser to
misstate the value of the donated property. Treas. Reg. § 1.170A-17(a)(6).
(11)Note that for contributions made before January 1, 2019, Treas. Reg. § 1.170A13(c)(5)(ii) states that an individual is not a qualified appraiser with respect to a
particular donation if the donor had knowledge of facts that would cause a
reasonable person to expect the appraiser falsely to overstate the value of the
donated property.
(12)See also Notice 2006-96, which provides guidance and safe harbors that
taxpayers can rely on for contributions prior to January 1, 2019.
(13)Audit Tip: Examiners must ensure that the appraisal describes exactly what is
being donated, an easement, and not a going concern and/or mineral or
property rights. In Costello v. Commissioner, T.C. Memo. 2015-87, the
appraisal did not describe or purport to value an easement. Rather, it stated
that “the property rights appraised comprise the fee simple interest in the
subject property.” For that and other reasons, the tax court concluded that the
appraisal was not a qualified appraisal under sec. 1.170A-13(c)(3)(i), the
predecessor of the currently applicable -17 regs.
(14)Audit Tip: Examiners should also consider whether the appraiser failed to
consider and analyze prior transfers of the properties. Generally, the appraisals
should mention prior transfers and try and reconcile any discrepancy in value.

B.1. Reasonable Cause Exception
(1) The charitable contribution deduction will not be denied for the donor’s failure to
comply with the requirements of IRC § 170(f)(11) if the failure was due to
reasonable cause and not willful neglect. IRC § 170(f)(11)(A)(ii)(II). Reasonable

49

cause requires that the taxpayer exercise ordinary business care and prudence
as to the challenged item, and thus the inquiry is inherently a fact-intensive one.
(2) A taxpayer’s reliance on the advice of a professional constitutes reasonable
cause and not willful neglect if the taxpayer can prove by a preponderance of
the evidence that: (1) the taxpayer reasonably believed the professional was a
competent tax adviser with sufficient expertise to justify reliance; (2) the
taxpayer provided necessary and accurate information to the advising
professional; (3) the taxpayer actually relied in good faith on the professional’s
advice. These determinations are very fact-specific. Compare Crimi v.
Commissioner, T.C. Memo. 2013-51 (donor met the reasonable cause
requirements) with Alli v. Commissioner, T.C. Memo. 2014-15 (donor did not
meet the reasonable cause requirements).

C. Qualified Appraiser
(1) The term “qualified appraiser” as defined in IRC § 170(f)(11)(E)(ii) means an
individual who:
• Has earned an appraisal designation from a recognized professional
appraiser organization or met minimum education and experience
requirements as set forth in the regulations,
• Regularly performs appraisals for which the individual receives
compensation, and
• Meets such other requirements as prescribed by the Secretary in
regulations or other guidance.
(2) An individual is not a qualified appraiser unless the individual:
• Demonstrates verifiable education and experience in valuing the type of
property subject to the appraisal, and
• Has not been prohibited from practicing before the IRS any time in the 3year period ending on the date of the appraisal. IRC § 170(f)(11)(E)(iii).
(3) Treas. Reg. § 1.170A-17 provides guidance on the qualified appraiser
requirements.
• If the appraiser is relying on an appraisal designation to meet the
education and experience requirements in Treas. Reg. § 1.170A-17(b)(2),
the designation from a recognized appraiser organization must be based
on the appraiser’s demonstrated competency.
• The appraiser is treated as having demonstrated education and
experience in valuing the type of property that is “verifiable” within the
meaning of IRC § 170(f)(11)(E)(iii) and Treas. Reg. § 1.170A-17(b)(4) if
the appraiser specifies, in the appraisal, the appraiser’s education and
experience in valuing the type of property and the appraiser makes a
declaration in the appraisal that, because of the appraiser’s experience
50

and education the appraiser is qualified to make appraisals of the type of
property being valued.
(4) Under Treas. Reg. § 1.170A-17(b)(5)(v)(C), an independent contractor who is
regularly used as an appraiser by any of the individuals described in Treas.
Reg. § 1.170A-17(b)(5) (ii), (iii), or (iv) and who does not perform a majority of
his or her appraisals for others during the taxable year is not a qualified
appraiser. In the syndicated conservation easement context, it may come to the
attention of the Tax Matters Partner or others that the appraiser may have
violated this provision because of his/her repetitive dealings with the facilitators
of the transaction. Examiners should contact Counsel to discuss whether an
appraiser’s conduct is contrary to Treas. Reg. § 1.170A-17(b).
(5) Also, an individual who is prohibited from practicing before the Internal Revenue
Service under 31 U.S.C. 330(c) (now 31 U.S.C. 330(d)) at any time during the
three-year period ending on the date the appraisal is signed by the individual is
not a qualified appraiser. Treas. Reg. § 1.170A-17(b)((5)(vi).
(6) A qualified appraisal must include the appraiser’s qualifications to value the
type of property being valued. Treas. Reg. § 1.170A-17(a)(3)(iii)(B). The
appraiser’s resume, which is typically included in the appraisal, may be included
to satisfy this requirement and provides a good starting point to assess whether
the appraiser is a qualified appraiser. The resume provides information on his
or her education and experience and professional designations. It will also
typically indicate in which jurisdictions the appraiser holds a license or
certification.
(7) License information regarding jurisdictions, history, and disciplinary actions can
be found on The Appraisal Foundation Web page at
http://www.appraisalfoundation.org. Some states also provide appraisal
licensing information online. Examiners or IRS appraisers can contact the
various state boards by telephone to determine if there are any past or pending
disciplinary actions against the appraiser. The Office of Professional
Responsibility (OPR) publishes a list of practitioners, including appraisers, who
have been subject to disciplinary actions by the IRS.

D. Generally Accepted Appraisal Standards
(1) Section 170(f)(11)(E)(i)(II) and Treas. Reg. § 1.170A-17 state that a qualified
appraisal is an appraisal conducted by a qualified appraiser in accordance with
generally accepted appraisal standards and any regulations or other guidance
prescribed by the Secretary.
(2) Treas. Reg. § 1.170A-17(a)(2) provides that “generally accepted appraisal
standards” means the substance and principles of the Uniform Standards of
Professional Appraisal Practice (USPAP), as developed by the Appraisal
Standards Board of The Appraisal Foundation.

D.1. Uniform Standards of Professional Appraisal Practice
51

(1) In 1989, The Appraisal Foundation, a nonprofit organization, adopted licensing
and appraisal standards for the appraisal industry. USPAP sets forth the
minimum acceptable appraisal standards for federally regulated transactions.
USPAP is recognized throughout the U.S. as the generally accepted standards
of professional appraisal practice.
(2) Although USPAP was intended for appraisals prepared for federally regulated
transactions, all states have adopted USPAP for real estate appraisals
completed by licensed or certified appraisers.
(3) In addition, various appraisal organizations such as the Appraisal Institute (AI),
National Association of Independent Fee Appraisers (NIAFA), American Society
of Appraisers (ASA), and American Society of Farm Managers and Rural
Appraisers (ASFMRA) have additional standards and ethics that their
membership (both designated and undesignated) is required to follow. For the
most part these organizations require adherence to USPAP.
(4) For contributions prior to January 1, 2019, IRC § 170(f)(11)(E)(i)(II) does not
specifically mandate compliance with USPAP but does require the appraisal to
be prepared in accordance with generally accepted appraisal standards. Notice
2006-96, section 3.02(2). Qualified real estate appraisers holding themselves
out to the public as appraisers generally would be required to comply with
USPAP by virtue of their appraisal licenses and professional designations. For
contributions on or after January 1, 2019, Treas. Reg. § 1.170A-17(a)(1) and (2)
require that appraisals be prepared in accordance with the substance and
principles of USPAP.
(5) In assessing whether an appraisal is a qualified appraisal, Examiners and IRS
Appraisers must consider whether the appraisal is prepared in accordance with
the substance and principles of USPAP. If not, it is not a qualified appraisal
under Treas. Reg. § 1.170A-17(a), which is applicable to contributions made on
and after January 1, 2019. For rules applicable to contributions made before
January 1, 2019, see IRC § 170(f)(11)(E) and Notice 2006-96.
(6) The USPAP rules of ethics provide that “[a]n appraiser must perform
assignments with impartiality, objectivity, and independence, and without
accommodation of personal interests. Further, it provides that, among other
things, an appraiser “must not perform an assignment with bias; must not
advocate the cause or interest of any party or issue; must not accept an
assignment that includes the reporting of predetermined opinions and
conclusions;… must not communicate assignment results with the intent to
mislead or to defraud;…[and] must not use or communicate a report or
assignment results known by the appraiser to be misleading or fraudulent…”
There may be grounds to challenge whether the appraisal is a qualified
appraisal if any of the above (or other improper conduct) is present. Examiners
should consult Counsel regarding these issues.
(7) Audit Tip: Examiners should work with the IRS Appraisers to consider whether
the appraiser complied with USPAP in substance. For example, Examiners
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should consider whether the appraiser used “extraordinary assumptions” and/or
improper “hypothetical conditions” as the basis for the appraisal.
(8) Audit Tip: Examiners may consider, in assessing whether the appraiser
satisfies the USPAP rules, the pattern of conduct between the appraiser and
the promoter/managing member of a partnership. For example, an appraiser’s
pattern of providing inflated appraisals to a promoter in other transactions may
suggest that the appraiser did not act independently in the transaction under
audit. If pattern evidence will form the basis for a position in any written
document to the taxpayer, it should be coordinated with Counsel.

E. Appraisal Fees
(1) Appraisal fees that a taxpayer pays to determine the FMV of donated property
are not deductible as charitable co

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Airs%3A8d3be01f02c1c5af. Public record. Not legal advice.