We would like to share our thoughts on Notice 2017-10 and how it applies to land trusts. We believe that the Notice as written is problematic for land trusts (and for many others). We've been critical of the Notice in a recent article in Law 360 (https://www.law360.com/articles/879088/print?section=environmental ) and in several media interviews. But the focus there has not been on land trusts. Fundamentally, we believe the IRS should rescind the Notice and get any additional information it needs by expanding the Form 8283.
When the IRS slipped the Notice under our tree on December 23, the initial thought was that the land trust community would not be directly affected. Land trusts were exempted from classification as a “participant” (typically, an investor) in a listed transaction under Treas. Reg. §1.6011-4 and from an excise tax imposed under IRC §4965. Unfortunately, a closer reading reveals that there is nothing in Notice 2017-10 that exempts land trusts from being classified as “material advisors” under Treas. Reg. §301.6111-3(b).
The question for a land trust is whether or not it provided a "tax statement" that benefitted an investor, or that benefitted the entity through which the investment was made or another material advisor. A "tax statement" is broadly defined, as any statement—written or oral—regarding any tax aspect of the transaction that caused it to become a listed transaction. It is unclear what those “aspects” might encompass. We plan to be blogging about these and other issues in coming days.
There is an argument that a Form 8283, a Baseline Report, conservation easement deeds (which land trusts often participate in drafting) or other reports or data provided to substantiate the donation or the conservation value could be a tax statement. The Form 8283 is particularly troubling, because the land trust signs it and the land cost and claimed value are stated on it. Additionally, the conservation easement deed often states that conservation easement property satisfies one or more conservation purposes. Moreover, some land trusts work closely with others who may be material advisors. It is possible that an ongoing relationship, and particularly communications between them, might be characterized as tax statements that would bring a land trust within the definition of material advisor.
Finally, land trusts should be aware that material advisors filing their Form 8919 may choose to identify the land trust as a material advisor in their disclosure, regardless of the land trust's self-characterization. Those material advisors may feel compelled to list the land trust because their filing may be deemed incomplete if it does not disclose all other material advisors of which they are aware. The draconian penalties for filing an incomplete Form 8919 may tilt material advisors toward caution and inclusion of the land trust on the form.