On July 30, 2021, the Office of Chief Counsel of the Internal Revenue Service (IRS) released a Chief Counsel Advice Memorandum 202130014 on the requirements of I.R.C. Section 170(h) and Treas. Reg. Section 1.170A014(g)(6)(ii) for an extinguishment proceeds clause in a conservation easement.  Citing PBBM-Rose Hill, Ltd. v. Commissioner and Coal Property Holdings, LLC v. Commissioner, the Memorandum states that extinguishment proceeds clauses must closely adhere to the language in the Treasury Regulations and may not provide for a reduction of the donee’s proceeds for the value of post-donation improvements or any post-donation increase in the value of improvements.

The Memorandum further provides sample conservation easement language for proceeds clauses as follows:

Donor agrees that the donation of the perpetual conservation restriction described in this deed gives rise to a property right, immediately vested in the donee organization, with a fair market value that is at least equal to the proportionate value that the perpetual conservation restriction, at the time of the gift, bears to the fair market value of the property as a whole at that time.  For purposes of this paragraph, the proportionate value of the organization’s property rights shall remain constant.

On a subsequent sale, exchange, or involuntary conversion of the subject property, the donee organization will be entitled to a portion of the proceeds at least equal to that proportionate value of the perpetual conservation restriction.

All of the donee organization’s proceeds from a subsequent sale or exchange of the property must be used by the donee organization in a manner consistent with the conservation purposes of the original contribution.

 

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Photo of Melinda Beck Melinda Beck

Melinda Beck is a real estate and land use attorney who has more than two decades of experience.  Melinda’s conservation law expertise includes the donation and purchase and sale of conservation easements to land trusts and local governments by private landowners throughout Colorado

Melinda Beck is a real estate and land use attorney who has more than two decades of experience.  Melinda’s conservation law expertise includes the donation and purchase and sale of conservation easements to land trusts and local governments by private landowners throughout Colorado and nationally. She represents land trusts and private landowners regarding all issues related to conservation easement transactions and stewardship, including obtaining discretionary approvals and amendments to conservation easements. She is an emeritus member of the Land Trust Alliance Conservation Defense Advisory Council. Melinda has a degree in Economics from Pomona College and a law degree from the University of Denver, Sturm College of Law.