In Notice 2017-29, issued April 27, the IRS modified the filing requirements for conservation easement transactions treated as “listed transactions.” Notice 2017-10, issued December 23, 2016, made certain conservation easement transactions “listed transactions” under IRC sections 6111-6112. Filings with the IRS are required of “participants” and “material advisors” in these transactions to avoid certain penalties. The filings are required for transactions closed during several past years.
Notice 2017-29 (the “New Notice”) was issued on April 27, 2017 just two “government days” before the looming May 1, 2017 disclosure deadline for material advisors to file Form 8918. Notice 2017-29 (click here) contains important changes to the filing requirements dictated by Notice 2017-10 (the “Old Notice”):
- First, the New Notice extends the deadline for investors “participating” in such listed transactions in tax years prior to 2016 (but not for 2016 participation). That deadline is extended from June 21, 2017 to October 2, 2017. That is the “good.”
- Second, the New Notice exempts doneesin these transactions (generally land trust recipients of the conservation easements) from being classified as material advisors under IRC § 6111. This means that land trusts that were about to file Forms 8918 protectively in large numbers will not do so. Many land trusts will have devoted substantial resources to prepare numerous Forms 8918 that now will not be needed. Notwithstanding, this part of the New Notice will be well received by the land trust community.
- Third, the New Notice purports to leave unchanged the filing deadline for participants in a listed conservation easement transaction during the 2016 tax year. Unfortunately, the IRS made a serious error in the text of the New Notice. This is the "bad." It states that the due date for participants in a listed conservation easement transaction claiming deductions on a 2016 tax return “is unchanged” from the deadline in the Old Notice and “remains May 1, 2017.” This is not accurate (and the "ugly"). Here is why:
- The disclosure deadline for participation during 2016 is governed by Treas. Reg. § 1.6011-4(e)(1). The regulation says a participant's filing (on Form 8886) must be filed with OTSA at the same time the investor files his federal income tax return. The instructions to Form 8886 similarly instruct a participant to file Form 8886 with OTSA “when you file the form with your tax return.”
- The Old Notice specified that Form 8886 should be filed by May 1, 2017, but only “if, under § 1.6011-4(e), a participant is required to file a disclosure statement . . . prior to May 1, 2017.” If the investor gets an extension to file its income tax return beyond May 1, 2017 (typically until Oct. 15, 2017), then the investor would be required to file the Form 8886 whenever the tax return is filed within the extension period. Thus, there is no fixed May 1 deadline in this situation.
- So contrary to the language in the New Notice 2017-29, an investor extends the filing date for Form 8886 with OTSA by timely extending the due date of the investor's 2016 tax return. The statement in the New Notice that May 1, 2017 is the disclosure deadline relating to 2016 tax returns is simply wrong.
- We have spoken with Maxine Woo-Garcia, principal author of Notice 2017-29 and Notice 2017-10, and she confirmed this text specifying the May 1, 2017 date was incorrect and was not intended as it relates to the due date for Forms 8886 with respect to deductions claimed in 2016 (relating to listed transactions described in Notice 2017-10). She confirmed by phone that 2016 participants in listed conservation easement transactions must attach Form 8886 to their 2016 tax return and file Form 8886 with OTSA at the same time that they file their tax returns for 2016. That is what we have been advising.
- Ms. Woo-Garcia indicated that a “fix” for the mistaken date is in the works. But she didn't know if it would be released prior to May 1, 2017. Oy!
- We already are getting calls about this obvious mistake, so we are putting this blog entry out as quickly as we can to help clear up the confusion.
If you have questions about the new Notice 2017-29 and how it impacts Notice 2017-10, call us.