What Is the Charitable Conservation Easement Program Integrity Act?

A charitable conservation easement allows a landowner to receive a tax deduction for voluntarily placing permanent development restrictions on their property, encouraging the preservation of natural habitats and open spaces. However, this provision was exploited for years through abusive tax shelters known as syndicated conservation easements. In these schemes, promoters sold partnership interests to investors and then donated an easement based on a grossly inflated appraisal, allowing investors to claim deductions that were many times their initial investment.

In response, Congress passed the Charitable Conservation Easement Program Integrity Act as part of the SECURE 2.0 Act of 2022. This legislation enacted targeted rules to shut down the profitability of these syndicated schemes by addressing the mechanics that generated inflated deductions. The Act aims to stop abuse while protecting legitimate conservation efforts.

Key Provisions of the Act

The Charitable Conservation Easement Program Integrity Act amends the Internal Revenue Code to introduce a disallowance rule for certain contributions made by pass-through entities like partnerships and S corporations. This rule targets situations where the claimed charitable deduction is disproportionately large compared to the actual investment made by the participants.

The provision states that a deduction for a qualified conservation contribution is disallowed if the amount claimed by the entity exceeds 2.5 times the sum of each partner’s or shareholder’s “relevant basis.” Relevant basis is a partner’s investment in the portion of the partnership’s assets related to the real property. This 2.5x limitation prevents the massive write-offs that characterized abusive deals.

For example, if an investor contributes $50,000 to a partnership, their relevant basis is $50,000. Under the Act, the maximum charitable deduction that could be allocated to this investor from an easement donation would be $125,000 (2.5 times $50,000). If the partnership obtained an inflated appraisal and attempted to allocate a $300,000 deduction to that investor, the entire $300,000 deduction would be disallowed, not just the amount exceeding the limit.

The Act provides specific exceptions to this disallowance rule to ensure it does not penalize legitimate conservation donations. One exception applies if the contribution meets a three-year holding period. If the partnership or S corporation has owned the property for more than three years before the contribution, the 2.5x basis limitation does not apply. Another exception is for contributions made by family partnerships and S corporations, allowing families who conduct farming or ranching operations to donate easements without being subject to the limitation. A third exception exists for contributions made to preserve a certified historic structure.

Requirements for a Qualified Contribution

Any conservation easement donation must meet fundamental requirements established long before the Integrity Act. The donation must be a “qualified real property interest,” which is a perpetual restriction on the use of the property. This means the development limitations must last forever, binding all future owners.

The donation must be made to a “qualified organization,” which includes governmental units or public charities that have a stated conservation mission and the resources to enforce the easement’s restrictions in perpetuity.

Every valid easement must be made for a specific “conservation purpose,” and the Internal Revenue Code outlines four recognized categories:

• The preservation of land for outdoor recreation by, or the education of, the general public.
• The protection of a relatively natural habitat for fish, wildlife, or plants.
• The preservation of open space, including farmland and forest land, for scenic enjoyment or pursuant to a governmental conservation policy.
• The preservation of a historically important land area or a certified historic structure.

Substantiating the donation with the correct documentation is a required step. For any easement deduction valued over $5,000, the taxpayer must obtain a “qualified appraisal” from a “qualified appraiser.” This is a detailed report that establishes the fair market value of the donated easement, typically calculated as the difference in the property’s value before and after the restrictions are imposed. The appraiser must be independent and meet specific professional standards.

Tax Reporting and IRS Scrutiny

A taxpayer claiming a conservation easement deduction must attach the fully completed Form 8283, Noncash Charitable Contributions, to their federal income tax return. This form requires detailed information about the property, the donor’s basis, the appraised value, a signed declaration from the appraiser, and a signed acknowledgment from the donee organization. For deductions exceeding $500,000, a complete copy of the qualified appraisal report itself must also be filed with the return.

The IRS has intensified its enforcement, identifying abusive syndicated conservation easements as “listed transactions.” This designation means the IRS views these as tax avoidance schemes. Taxpayers who have participated in a listed transaction, as well as their material advisors, face heightened reporting obligations. This includes filing Form 8886, Reportable Transaction Disclosure Statement, which provides the IRS with details about the transaction and flags the return for close examination.

The consequences for a transaction that runs afoul of the Integrity Act or is otherwise deemed abusive are serious. The primary penalty is the complete disallowance of the claimed tax deduction, leading to a significant tax liability plus interest. The IRS can also impose substantial accuracy-related penalties. For listed transactions, the penalty is typically 40% of the underpayment of tax, and the defense of “reasonable cause” is not available to waive it. Furthermore, the promoters, appraisers, and other advisors who facilitate abusive easement transactions can face their own penalties.