Notice 2017-54: Listed Transaction Requirements
Examine the compliance framework created by IRS Notice 2017-54, which defines specific reporting obligations for parties in listed easement transactions.
The Internal Revenue Service (IRS) classifies certain arrangements as “listed transactions” to identify and deter tax avoidance strategies. IRS Notice 2017-10 addresses syndicated conservation easements, a designation that triggers mandatory disclosure requirements for those involved. The notice’s purpose is to gather information about tax strategies the IRS considers to have a potential for tax avoidance.
Notice 2017-10 has a notable legal history. In 2022, courts invalidated the notice because the IRS failed to follow required notice-and-comment procedures. In late 2024, the Treasury Department and the IRS issued final regulations that reaffirmed the classification of syndicated conservation easement transactions as “listed transactions.” These regulations carry over the substantive rules and disclosure requirements from the original notice.
The Transaction Identified in the Notice
Notice 2017-10 targets a specific type of conservation easement transaction. In a standard conservation easement, a landowner donates development rights over property to a qualified organization and receives a charitable contribution deduction. The transaction becomes syndicated when a promoter organizes a pass-through entity to acquire land and sell interests to investors, who then receive a share of the deduction.
A syndicated conservation easement is identified as a listed transaction if promotional materials suggest a charitable contribution deduction worth two and a half times (250%) or more of the investor’s contribution. This 2.5-times rule is the primary marker used by the IRS. The transaction involves an investor buying an interest in the entity, which then donates the easement and allocates the tax deduction among the investors.
The IRS focuses on these arrangements because the appraisal of the easement, which determines the tax deduction, is often significantly higher than the amount investors paid. This structure is what the IRS has identified as having the potential for tax avoidance, prompting the heightened reporting obligations.
Disclosure Requirements for Participants
Taxpayers engaged in a transaction identified by Notice 2017-10 are called “participants” and have reporting duties. A participant is an investor who purchased an interest in the pass-through entity and was allocated a portion of the charitable contribution deduction. They must disclose their involvement to the IRS.
Participants must file Form 8886, Reportable Transaction Disclosure Statement, for each taxable year of their involvement. This includes any year a tax deduction is carried forward from the initial donation. The form requires information about the transaction, the tax benefits received, and the identity of any material advisors.
On Form 8886, the participant must identify the arrangement as a “listed transaction” and provide the notice number, 2017-10. The completed form must be attached to the participant’s federal income tax return for every year of participation. For the first year of disclosure, a separate copy must also be sent to the IRS Office of Tax Shelter Analysis (OTSA).
Obligations for Material Advisors
The reporting requirements also apply to professionals who structure and promote these transactions, known as “material advisors.” A material advisor can be a promoter, appraiser, or tax professional who provides assistance with the transaction and receives a minimum fee for their services.
Material advisors must file Form 8918, Material Advisor Disclosure Statement, directly with the IRS Office of Tax Shelter Analysis (OTSA). On this form, the advisor discloses information about the transaction, including its structure and expected tax treatment.
Material advisors are also required to maintain a list of all participants in the transaction. This list must be provided to the IRS upon request.
Penalties for Non-Compliance
Failure to comply with the disclosure requirements results in financial penalties for both participants and material advisors. These penalties are outlined in the Internal Revenue Code to enforce the reporting rules for listed transactions.
Participants who fail to file Form 8886 face a penalty of 75% of the tax decrease resulting from the transaction. For listed transactions, the law sets a minimum penalty of $5,000 for individuals and $10,000 for entities. The maximum penalty is $100,000 for individuals and $200,000 for entities.
Material advisors face separate penalties for non-compliance. Failing to file Form 8918 for a listed transaction results in a penalty of $200,000 or 50% of the gross income derived from the activity, whichever is greater. Not providing the required investor list upon request incurs a penalty of $10,000 for each day of failure after the 20th business day following the request.