Conservation Easements: Federal Safe Harbor Language for Extinguishment and Boundary Line Adjustments
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Conservation Easements: Federal Safe Harbor Language for Extinguishment and Boundary Line Adjustments

Brownstein Client Alert, June 12, 2023

On Dec. 29, 2022, the United States Congress passed the SECURE 2.0 Act of 2022 (SECURE Act 2.0). Section 605(d) of the SECURE Act 2.0 gave conservation easement donors a safe harbor to amend provisions relating to extinguishment and boundary line adjustment. Historically, these suspect clauses have been heavily included in syndicated easements that have been used as fraudulent tax shelters. These problematic provisions arguably have two major effects: (1) overly donor-favorable extinguishment provisions could deprive land trusts from receiving adequate compensation in the event a subsequent unexpected change renders the continued use of the property for conservation purposes to be impossible or impractical, and (2) boundary line adjustment provisions could undermine the requirement that the restrictions on the use of real property subject to conservation easements must be perpetual. In recent years, the Internal Revenue Service (IRS) has targeted donors whose conservation easements include these two provisions in an effort to limit these fraudulent tax shelters—but with potentially wide-reaching effects.

Notice 2023-30

The SECURE Act 2.0 required the IRS to provide guidance relating to the amendment of conservation easements with questionable extinguishment and boundary line adjustment provisions. In connection with this requirement, the IRS issued Notice 2023-30, 2023-17 I.R.B. 766 (Notice 2023-30), which sets forth specific language that the IRS will not challenge with respect to the extinguishment and boundary land adjustment provisions and the process through which donors may utilize the safe harbor concept for the extinguishment and boundary line adjustment provisions.

In the notice, the IRS sets forth the requirements under the Internal Revenue Code of 1986, as amended (I.R.C.) and Treasury Regulations relevant to determining the portion of the proceeds that must be paid over to the land trust—i.e., generally, if a change in conditions gives rise to the extinguishment of a perpetual conservation restriction, the donee organization, on a subsequent sale, exchange or involuntary conversion of the subject property, must be entitled to a portion of the proceeds at least equal to that proportionate value of the perpetual conservation restriction. In addition, the IRS notes that neither the I.R.C. nor the Treasury Regulations specifically address boundary line adjustments, but the I.R.C. does require that the restriction the donor grants on the use of the real property subject to the conservation easement must be made in perpetuity.

Notice 2023-30, which became effective on April 24, 2023, allows donors to remedy extinguishment and boundary line adjustment provisions that are noncompliant with the existing requirements identified in Notice 2023-30 by recording an amendment before July 24, 2023. Notice 2023-30, § 3.01(1). Once recorded, the IRS will treat the amended conservation easement as being effective as of the date the original conservation easement was recorded.

Who Does the SECURE Act 2.0 and Notice 2023-30 Impact?

The safe harbor only applies to conservation easement donors with extinguishment and/or boundary line adjustment clauses that do not comport with the requirements of Notice 2023-30. Additionally, the amendment is optional, meaning that donors are not required to amend problematic extinguishment and boundary land adjustment provisions, but could risk audit by the IRS.

To benefit from the safe harbor language, donors must have: (1) conservation easements that contain problematic language in the extinguishment and/or boundary line adjustment provisions and (2) submitted the conservation easement for federal tax deductions under Section 170 of the I.R.C. Donors whose conservation easements do not contain problematic language or who did not claim deductions for the contribution of their conservation easements will receive no benefit from the safe harbor concept in Notice 2023-30. Additionally, it is unlikely that donors whose conservation easement donations are outside the window for IRS audit will receive any benefit from amending their conservation easements with the safe harbor language.

What Does the SECURE Act 2.0 and Notice 2023-30 Require?

To qualify for amendment, the conservation easement must be eligible, meaning that the conservation easement:

  • Must not be treated as part of a reportable transaction;
  • Must be treated as a qualified conservation contribution;
  • Cannot be the subject of a disallowed deduction by the Secretary of the Treasury in a matter where the donor is contesting the disallowance in a case that is docketed on a date before the date the amendment is recorded; and
  • Cannot have given rise to a claimed deduction that resulted in an underpayment to which a penalty under § 6662 or § 6663 applies and the penalty has been (i) finally determined administratively or (ii) concluded by a decision or judgment that has become final.

If the conservation easement is eligible to benefit from the safe harbor language, the amendment must include the language in Section 4.01 and 4.02 of Notice 2023-30 (or substituted terms if those terms have the same meaning as the terms in Notice 2023-30), be signed by the donor and donee, and be recorded before July 24, 2023.

What Else Should Conservation Easement Donors Consider?

Although Notice 2023-30 appears to be relatively simple, there are several other considerations that conservation easement donors should be aware of.

First, the 90-day window for recordation gives donors and land trusts little time to amend affected conservation easements. This is particularly true for any conservation easements where third-party approval, such as governmental entities or mortgagees, is required for amendments.

Second, the amendment applies only to the extinguishment and boundary line adjustment provisions. It does not support the amendment of any other provisions in conservation easements, even provisions that have been historically targeted by the IRS.

Third, it is unclear how the IRS will treat amendments where the original donor or donee is no longer party to the conservation easement, meaning that it is unclear whether the signatures of successor donors and donees will have the same effect as those of original donors and donees.

Fourth, the impact of such amendment on any pending state credits or other tax claims is uncertain.

Fifth, it is unclear whether Notice 2023-30’s onerously strict requirement that boundary line adjustments to the real property subject to the restrictions “may be made only pursuant to a judicial proceeding to resolve a bona fide dispute regarding a boundary line’s location” would be upheld in court.

Sixth, the relevant statute of limitations that would determine whether a taxpayer should consider an amendment will vary taxpayer to taxpayer, depending on numerous factors such as the magnitude of the donation deduction and for what purpose the donation deduction was claimed (for example, income or estate tax).

Finally, it is uncertain whether amendment of a conservation easement would increase the risk of an audit by the IRS or other state taxing authority, or whether such amendments will have to be reported to the IRS.

Final Thoughts

The novel approach set forth in SECURE ACT 2.0 and Notice 2023-30 gives conservation easement donors the unique opportunity to correct what the IRS views as defects in existing conservation easements. However, conservation easement donors must be aware of the different considerations relating to amendment and should consult with an attorney or tax professional prior to amending existing conservation easements.


This document is intended to provide you with general information regarding recent conservation easement regulation. The contents of this document are not intended to provide specific legal advice. If you have any questions about the contents of this document or if you need legal advice as to an issue, please contact the attorneys listed or your regular Brownstein Hyatt Farber Schreck, LLP attorney. This communication may be considered advertising in some jurisdictions.
The information in this article is accurate as of the publication date. Because the law in this area is changing rapidly, and insights are not automatically updated, continued accuracy cannot be guaranteed.

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