July 5-18, 2023 - Page 27 www.crej.com spencerfane.com © 2020 Spencer Fane LLP | The choice of a lawyer is an important decision and should not be based solely on advertisements. Spencer Fane LLP 1700 Lincoln Street, Suite 2000 | Denver, CO 80203 Phone: 303.839.3800 | Fax: 303.839.3838 Where your business leaders work with our business leaders The Real Estate attorneys at Spencer Fane are experienced in helping real estate owners and developers purchase, sell, exchange, develop, build and nance properties through both private and public funds. Jamie Cotter Nicole Detweiler Russ Dykstra Wendy Harring Jacob Hollars James Jacobson Ken Kramer Jim Kurtz-Phelan Charlie Leder Larry Martinez Lisa Mayers Gil McNeish Michael Miller Robin Nolan David O’Leary Sarah Sicotte Adam Veltri Kelly Vos John Watson Law & Accounting O n Dec. 29, 2022, the U.S. Congress passed the SECURE 2.0 Act of 2022 (SECURE Act 2.0), which, in part, gave con- servation easement donors a safe harbor to amend problematic provisions relating to extinguish- ment and boundary line adjust- ment. Historically, these clauses have been included in syndicated easements that have been used as fraudulent tax shelters, and they have had two major effects: 1. They deprive land trusts from receiving adequate compensation if the continued use of the prop- erty for conservation purposes becomes impossible or impracti- cal; and 2. They undermine the perpet- ual restrictions on the use of real property subject to conservation easements. Because of these effects, the Internal Revenue Service has tar- geted donors whose conservation easements include these two pro- visions. Following adoption of the SECURE Act 2.0, the IRS issued Notice 2023-30, 2023-17 I.R.B. 766 (Notice 2023-30), which became effective on April 24, 2023. Notice 2023-30 includes the following: 1. Language the IRS will not challenge with respect to the extinguishment and boundary land adjustment provisions and the amend- ment process. 2. The notice also addresses the require- ments under the Internal R e v e n u e Code of 1986, as amended, and Treasury Regulations relevant to determining the portion of the proceeds to be paid to the land trust upon extinguishment, and notes that boundary line adjustments are tied to the requirement that the use of the real property subject to the conservation easement must be made in perpetuity. In short, Notice 2023-30 allows donors to remedy defective extin- guishment and boundary line adjustment provisions by record- ing an amendment before July 24, 2023. Notice 2023-30, § 3.01(1). Once recorded, the IRS will treat the amended conservation ease- ment as being effective as of the date the original conservation easement was recorded. n Who does the legislation impact? The safe harbor applies to conservation easement donors with extinguishment and/or boundary line a d j u s t m e n t clauses that do not com- port with the requirements of Notice 2023-30. Addi- tionally, the amendment is optional, meaning that donors are not required to amend problematic provisions, but could risk audit by the IRS. To benefit from the safe har- bor language, donors must have: (1) conservation easements that contain nonconforming language in the extinguishment and/or boundary line adjustment pro- visions and (2) submitted the conservation easement for fed- eral tax deduction. Donors whose conservation easements do not meet these two requirements will receive no benefit from the safe harbor amendments. Additional- ly, it is unlikely that donors whose conservation easement donations are outside the window for IRS audit will receive any benefit from utilizing the safe harbor lan- guage. n What does the SECURE Act 2.0 and Notice 2023-30 require? To qualify for amendment, the conservation easement must be eligible under Notice 2023-30. If the conservation easement is eligible, the amendment must include the language in Section 4.01 and 4.02 of Notice 2023-30 (or equivalent terms), be signed by the donor and donee, and be recorded before July 24, 2023. n What else should conser- vation easement donors con- sider? Although Notice 2023-30 appears to be relatively simple, there are several considerations that conservation easement donors should be aware of. 1. The 90-day window for recordation provides little time to amend affected conservation easements, particularly if third- party approval, such as govern- mental entities or mortgagees, is required; 2. The safe harbor concept applies only to the extinguish- ment and boundary line adjust- ment provisions, and it does not support the amendment of any other provisions, even those his- torically targeted by the IRS; 3. It is unclear how the IRS will treat amendments where the original donor and/or donee is no longer party to the conserva- tion easement; 4. The impact of amendment on any pending state credits or other tax claims is uncertain; 5. It is unclear whether Notice 2023-30’s onerously strict bound- ary line requirement would be upheld in court; 6. The relevant statute of limi- tations that would determine whether a taxpayer should con- sider an amendment will vary taxpayer to taxpayer, depending on numerous factors; and 7. It is uncertain whether amend- ment of a conservation easement would increase the risk of an audit, or whether such amendment will have to be reported to the IRS. The novel approach set forth in SECURE ACT 2.0 and Notice 2023-30 gives conservation ease- ment donors the unique opportu- nity to correct what the IRS views as defects in existing conserva- tion easements. However, con- servation easement donors must be aware of the many consid- erations relating to amendment and should consult with an attor- ney or tax professional prior to amending existing conservation easements. s kmadden@bhfs.com toldak@bhfs.com Novel conservation easement safe-harbor language Kate Madden Shareholder, Brownstein Hyatt Farber Schreck LLP Tenley Oldak Shareholder, Brownstein Hyatt Farber Schreck LLP