IRS Notice 2017-47: Listed Transaction Disclosures

The Internal Revenue Service has identified certain syndicated conservation easement transactions as “listed transactions,” a formal declaration that the IRS views the arrangement as a tax avoidance scheme. This designation imposes specific and mandatory reporting obligations on the individuals and entities involved. In October 2024, the Treasury Department and the IRS issued final regulations that formally identify these arrangements as listed transactions, confirming the IRS’s long-standing position.

The Transaction of Interest

The transaction targeted by the IRS involves a structure designed to generate substantial tax deductions for investors. It begins with a promoter who either forms a pass-through entity, such as a partnership or an S corporation, to acquire property or identifies an existing entity that already holds real estate. The promoter then solicits investors, offering them the chance to purchase interests in this entity with the promise of a significant charitable contribution deduction.

After investors have bought into the entity, an appraisal is obtained that values a conservation easement on the property at an amount substantially higher than the property’s value. The entity then donates this conservation easement to a tax-exempt organization. This donation generates a large tax deduction, which is then passed through the entity to the individual investors.

The defining characteristic of this transaction is the disproportionate size of the tax benefit relative to the investment. The IRS specifically targets transactions where promotional materials suggest to prospective investors that they could receive a charitable contribution deduction equal to or exceeding two and a half times their initial investment. Congress has also taken steps to curb these arrangements, and the SECURE 2.0 Act of 2022 generally disallows a charitable deduction for a qualified conservation contribution if the amount exceeds 2.5 times the sum of each partner’s or shareholder’s relevant basis in the entity.

Identification as a Listed Transaction

The classification of a transaction as “listed” is a formal action by the IRS to identify an arrangement it considers a tax avoidance scheme and subject to heightened scrutiny. This designation automatically triggers specific compliance duties for all participants. Taxpayers who have engaged in a listed transaction must disclose their participation to the IRS.

The penalty for failing to disclose a listed transaction is 75% of the tax decrease claimed as a result of the transaction. For an individual, the penalty is capped at $100,000 and has a minimum of $5,000. The statute of limitations for the IRS to assess tax may also be extended for non-disclosure.

Disclosure Requirements for Participants

For individuals who have participated in a syndicated conservation easement transaction, the primary action required is the filing of Form 8886, Reportable Transaction Disclosure Statement. This form must be completed and filed for each taxable year of participation, which includes any year a tax benefit from the transaction, such as a carryforward of the charitable deduction, is claimed.

The filing process for Form 8886 is twofold. A participant must attach a completed copy of the form to their federal income tax return for every year they are involved in the transaction. Concurrently, for the initial year of disclosure, an identical copy of that same Form 8886 must be sent separately to the IRS Office of Tax Shelter Analysis (OTSA).

The original notice had retroactive implications, applying to transactions entered into on or after January 1, 2010. The final deadline for these past disclosures was October 2, 2017.