View a Section
- Tax Legislation and Regulations: Overview
- Internal Revenue Code Section 170(h)
- Pension Protection Act, August 2006
- Internal Revenue Code with Legislative Changes
- US Code of Federal Regulations, Section 1.170A-14
- IRS Notice 2004-41, Charitable Contributions and Conservation Easements, July 2004
- IRS Notice 2005-19, Settlement Initiative, October 2005
- IRS Notice 2006-25, "Dirty Dozen Tax Scams", February 2006
- IRS Notice 2006-96, Appraisal Standards, November 2006
- IRS Form 8283 Instructions, December 2006
- IRS Publication 561, Determining the Value of Donated Property, April 2007
- IRS Publication 526, Charitable Contributions
- Letter of IRS Commissioner Mark Everson to Senate Finance Committee, March 2005
- Correspondence to IRS, December 2007 and Response of IRS Commissioner, March 2008
- IRS Chief Counsel Memorandum 200738013, August 2007
- 2009 IRSAC Report
Tax Legislation and Regulations: Overview
The resources contained in this "Tax Legislation and Regulations" Section consist of the principal Internal Revenue Code section providing an incentive for contribution of a historic preservation easement (Section 170(h)) and the principal regulation under that section (Section 1.170A-14). Also included are documents (notices, publications and correspondences) issued by the IRS concerning historic preservation easements that may be of interest to a person considering donating an preservation easement. The materials contained in this section are provided only for ease of reference. They do not purport to be a complete review of all regulatory activity, which is continually evolving, but rather a summary.
Capitol Historic Trust does not provide legal or tax advice regarding the effects of an easement donation. Each prospective donor should consult with its own professional legal and tax advisors regarding the specific requirements of claiming a tax deduction for donation of a historic preservation easement. Also see the "News & Issues" section for a review of recent developments regarding the federal historic preservation tax incentive program.
Internal Revenue Code Section 170(h)
The section of the Internal Revenue Code that provides for a charitable contribution for donation of a historic preservation easement is Section 170(h), reproduced below. To see Section 170, Charitable Contributions and Gifts, in its entirety, please click on the pdf at the end of this section.Section 170 (h) Qualified conservation contribution.—
(1) In general.—For purposes of subsection (f)(3)(B)(iii), the term "qualified conservation contribution" means a contribution—
(A) of a qualified real property interest,
(B) to a qualified organization,
(C) exclusively for conservation purposes.
(2) Qualified real property interest.—For purposes of this subsection, the term "qualified real property interest" means any of the following interests in real property:
(A) the entire interest of the donor other than a qualified mineral interest,
(B) a remainder interest, and
(C) a restriction (granted in perpetuity) on the use which may be made of the real property.
(3) Qualified organization.—For purposes of paragraph (1), the term "qualified organization" means an organization which—
(A) is described in clause (v) or (vi) of subsection (b)(1)(A), or
(B) is described in section 501(c)(3) and—
(i) meets the requirements of section 509(a)(2), or
(ii) meets the requirements of section 509(a)(3) and is controlled by an organization described in subparagraph (A) or in clause (i) of this subparagraph.
(4) Conservation purpose defined
(A) In general.—For purposes of this subsection, the term "conservation purpose" means—
(i) the preservation of land areas for outdoor recreation by, or the education of, the general public,
(ii) the protection of a relatively natural habitat of fish, wildlife, or plants, or similar ecosystem,
(iii) the preservation of open space (including farmland and forest land) where such preservation is—
(I) for the scenic enjoyment of the general public, or
(II) pursuant to a clearly delineated Federal, State, or local governmental conservation policy, and will yield a significant public benefit, or
(iv) the preservation of an historically important land area or a certified historic structure.
(B) Special Rules with Respect to Buildings in Registered Historic Districts. In the case of any contribution of a qualified real property interest which is a restriction with respect to the exterior of a building described in subparagraph (C)(ii), such contribution shall not be considered to be exclusively for conservation purposes unless—
(i) such interest—
(I) includes a restriction which preserves the entire exterior of the building (including the front, sides, rear, and height of the building), and
(II) prohibits any change in the exterior of the building which is inconsistent with the historical character of such exterior,
(ii) the donor and donee enter into a written agreement certifying, under penalty of perjury, that the donee—
(I) is a qualified organization (as defined in paragraph (3)) with a purpose of environmental protection, open space preservation, or historic preservation, and
(II) has the resources to manage and enforce the restriction and a commitment to do so, and
(iii) in the case of any contribution made in a taxable year beginning after the date of the enactment of this subparagraph, the taxpayer includes with the taxpayer’s return for the taxable year of the contribution—
(I) a qualified appraisal (within the meaning of subsection (f)(11)(E)) of the qualified property interest,
(II) photographs of all the entire exterior of the building; and
(III) a description of all restrictions on the development of the building.
(C) Certified historic structure. For purposes of subparagraph (A)(iv), the term certified historic structure means:
(i) any building, structure or land area which is listed in the National Register, or
(ii) any build
Section 170 Charitable Contributions and Gifts
Can't open this file? Download Adobe Reader.
Pension Protection Act, August 2006
Public Law 109-280 was signed into law on August 17, 2006 as the Pension Protection Act of 2006 (the “Act”). The sections of the Act that relate to historic preservation easements are highlighted below:
Increase of Annual Deduction Limitations and Carryover. Section 1206 of the Bill, regarding encouragement of contributions for conservation purposes, increases the donation available to use in a given year and also increases the number of years any excess may be carried over. This change provides a significant enhancement to the charitable conservation deduction.
Under the prior law, a donor of a qualified conservation contribution was entitled to a charitable contribution deduction that was generally limited (together with other charitable deductions) to 30 percent of the taxpayer’s adjusted gross income for the year in which the donation is made, with any excess carried forward for up to five additional years.
Under Section 1206 of the Act, the deduction limitation for individual taxpayers is increased from 30 percent of adjusted gross income to 50 percent of adjusted gross income. Also, the carryover period is extended from 5 years to 15 years. These modifications will be in effect only for donations made through December 31, 2007.
On May 22, 2008, the Food, Conservation and Energy Act (P.L. 110-246), also referred to as the Farm Bill, was passed into law. The Farm Bill extends the incentives described above to qualified historic preservation easement donations made between January 1, 2008 and December 31, 2009.
Easement to Cover Entire Facade. Section 1213 of the Act permits a deduction for the contribution of an easement on a building in a registered historic district only if the easement includes a restriction to preserve the “entire exterior” of the building, including the front, side, rear, and height of the building. The easement must prohibit any change to the exterior of the building inconsistent with its historical character. These provisions are effective for donations made after July 25, 2006.
Easement Holder Certification. Section 1213 of the Act requires the donor and the easement-holding organization to enter into a written agreement certifying, under penalty of perjury, that the organization is a “qualified organization” entitled to receive such donations and that the organization has the resources and commitment to manage and enforce the easement’s restrictions. This provision is effective for donations made after July 25, 2006.
New Substantiation Requirements. Effective January 1, 2007, Section 1213 of the Act requires a taxpayer claiming a donation for an easement contribution on a building in a registered historic district to include with his or her tax return a qualified appraisal, photographs of the exterior of the building, and a description of all restrictions on the development of the building (in addition to previously required documents).
Filing Fee. Effective 180 days after passage of the Act (February 13, 2007), Section 1213 requires a taxpayer to include with his or her tax return a new $500 filing fee if the charitable deduction is over $10,000.
Penalties and Appraisals. The Bill lowers the threshold for imposing accuracy-related penalties for misstatements of easement valuations for taxpayers and appraisers and strengthens appraiser required qualifications.
To view the entire chapter from the Act related to charitable contributions, which chapter includes the sections summarized above, please click below on "Legislation Excerpt".
Legislation Excerpt
Can't open this file? Download Adobe Reader.
Internal Revenue Code with Legislative Changes
To read the text of the Internal Revenue Code section changed by the August 17, 2006 legislation, with the new changes highlighted in the text, please click below on "Changes to Internal Revenue Code August 2006"
To see a more complete text of the Internal Revenue Code and Regulations sections regarding deductions for historic preservation easements, see "Internal Revenue Code Section 170(h)" and "Pension Protection Act, August 2006" above.
Changes to Internal Revenue Code, August 2006
Can't open this file? Download Adobe Reader.
US Code of Federal Regulations, Section 1.170A-14
The US Code of Federal Regulations, Section 1.170A-14, contains the IRS regulations promulgated under Section 170(h) of the Internal Revenue Code regarding easement donations. The following are excerpted paragraphs from this Regulations Section that highlight the areas of particular interest.To review the Regulations regarding Charitable Contributions in their entirety, please click on the pdf document below.
§1.170A-14. Qualified conservation contributions
(a) Qualified conservation contributions.—A deduction under Section 170 is generally not allowed for a charitable contribution of any interest in property that consists of less than the donor's entire interest in the property other than certain transfers in trust (see Sec. 1.170A-6 relating to charitable contributions in trust and Sec. 1.170A-7 relating to contributions not in trust of partial interests in property). However, a deduction may be allowed under section 170(f)(3)(B)(iii) for the value of a qualified conservation contribution if the requirements of this section are met. A qualified conservation contribution is the contribution of a qualified real property interest to a qualified organization exclusively for conservation purposes. To be eligible for a deduction under this section, the conservation purpose must be protected in perpetuity.
(b) Qualified organization.
(1) Eligible donee. To be considered an eligible donee under this section, an organization must be a qualified organization, have a commitment to protect the conservation purposes of the donation, and have the resources to enforce the restrictions. A conservation group organized or operated primarily or substantially for one of the conservation purposes specified in section 170(h)(4)(A) will be considered to have the commitment required by the preceding sentence. For purposes of this section, the term qualified organization means: (iii) A charitable organization described in section 501(c)(3) that meets the public support test of section 509(a)(2).
***
(c) Qualified Organization
***
(2) Transfers by donee. A deduction shall be allowed for a contribution under this section only if in the instrument of conveyance the donor prohibits the donee from subsequently transferring the easement (or, in the case of a remainder interest or the reservation of a qualified mineral interest, the property), whether or not for consideration, unless the donee organization, as a condition of the subsequent transfer, requires that the conservation purposes which the contribution was originally intended to advance continue to be carried out. Moreover, subsequent transfers must be restricted to organizations qualifying, at the time of the subsequent transfer, as an eligible donee under paragraph (c)(1) of this section.
(d) Conservation purposes
***
(5) Historic preservation
(i) In general. The donation of a qualified real property interest to preserve a historically important land area or a certified historic structure will meet the conservation purposes test of this section. When restrictions to preserve a building or land area within a registered historic district permit future development on the site, a deduction will be allowed under this section only if the terms of the restrictions require that such development conform to appropriate local, State, or Federal standards for construction or rehabilitation within the district. See also, Section 1.170A-14(h)(3)(ii).
***
(iii) Certified historic structure. The term certified historic structure, for the purposes of this section, means any building, structure or land area which is:
1. Listed in the National Register, or
2. Located in a registered historic district (as defined in Section 4
Regulations Sections 1.170A-1 to A-14
Can't open this file? Download Adobe Reader.
IRS Notice 2004-41, Charitable Contributions and Conservation Easements, July 2004
On July 12, 2004, the IRS published notice stating that participants in transactions that transfer an easement on real property to a charitable organization may be improperly claiming charitable contribution deductions under Section 170 of the Internal Revenue Code and that, in appropriate cases, the IRS intended to disallow such deductions and may impose penalties and excise taxes.
In the section on conservation easements, the notice states that if all requirements of Section 170 are satisfied and a deduction is allowed, the amount of the deduction may not exceed the fair market value of the contributed easement on the date of the contribution. The notice goes on to cite the requirements already set forth in the regulations under Section 170 regarding easement valuation.
To view IRS Notice 2004-41, please click below. For more information, please see the IRS website at www.irs.gov.
IRS Notice 2004-41, Charitable Contributions and Conservation Easements
Can't open this file? Download Adobe Reader.
IRS Notice 2005-19, Settlement Initiative, October 2005
On October 27, 2005, the IRS announced a settlement initiative under which taxpayers could resolve the tax treatment of a list of 21 identified transactions. The initiative would provide participants in the program, who had until January 23, 2006 to come forward, with certain penalty relief and other features.
One of the 21 transactions was "certain abusive charitable contributions and conservation easements," including "easements with no or de minimis value." This transaction was the only one to incorporate a footnote stating that the IRS did not consider easement donations inappropriate when taxpayers "have complied with the requirements for such deductions" and that "§170 is intended to encourage charitable giving."
To view IRS Notice 2005-19, please click below. For more information, please see the IRS website at www.irs.gov.
IRS Notice 2005-19, Settlement Initiative, October 2005
Can't open this file? Download Adobe Reader.
IRS Notice 2006-25, "Dirty Dozen Tax Scams", February 2006
In February 2006, the IRS issued Notice IR-2006-25 with their annual list of potential tax scams. In the notice, the IRS identifies the potential for taxpayers to take overvalued tax deductions with respect to donations of façade conservation easements. The notice is specific as to the potential overvaluation being on properties already subject to local historic preservation laws that prohibit alteration to the building"s façade.
IRS Notice 2006-25, "Dirty Dozen Tax Scams", February 2006
Can't open this file? Download Adobe Reader.
IRS Notice 2006-96, Appraisal Standards, November 2006
In November 2006, the IRS issued Notice 2006-96 providing appraisal standards for historic preservation easement donations.
IRS Notice 2006-96, Appraisal Standards, November 2006
Can't open this file? Download Adobe Reader.
IRS Form 8283 Instructions, December 2006
IRS Form 8283 is used to report information about noncash charitable contributions, including preservation easement donations. The IRS revised the Form 8283 Instructions in December 2006; such revisions included the instructions for reporting easement donations.
IRS Form 8283 Instructions (Rev. December 2006)
Can't open this file? Download Adobe Reader.
IRS Publication 561, Determining the Value of Donated Property, April 2007
This publication is designed to help donors and appraisers determine the value of property (other than cash) that is given to qualified organizations. It also explains what kind of information taxpayers must have to support the charitable contribution deduction they claim on their return.
In April 2007, the IRS issued an updated version of Publication 561 containing a section specifically focused on valuation of qualified conservation contributions.
IRS Publication 561, Determining Value of Donated Property, April 2007
Can't open this file? Download Adobe Reader.
IRS Publication 526, Charitable Contributions
This publication explains how to claim a deduction for charitable contributions. It discusses organizations that are qualified to receive deductible charitable contributions, the types of contributions taxpayers can deduct, how much they can deduct, what records to keep, and how to report charitable contributions.
IRS Publication 526 - Charitable Contributions
Can't open this file? Download Adobe Reader.
Letter of IRS Commissioner Mark Everson to Senate Finance Committee, March 2005
Letter of IRS Commissioner Mark Everson to Senate Finance Committee, March 2005
Can't open this file? Download Adobe Reader.
Correspondence to IRS, December 2007 and Response of IRS Commissioner, March 2008
Correspondence between the IRS Commissioner and the National Trust
Can't open this file? Download Adobe Reader.
IRS Chief Counsel Memorandum 200738013, August 2007
In August 2007, the IRS released Chief Counsel Memorandum 200738013, concerning the IRS”s requirements for the valuation of historic preservation easements.
IRS Chief Counsel Memorandum 200738013, August 2007
Can't open this file? Download Adobe Reader.
2009 IRSAC Report
On November 19, 2009, the Internal Revenue Service Advisory Council (IRSAC), an organized public forum established to discuss relevant tax administration issues, released its 2009 report.
IRSAC has noted that "“There is a belief that the current program, in which the IRS takes a very strict view regarding the value of these [historic preservation easement] donations, is having the effect of diluting the intent of Section 170(h) of the Internal Revenue Code, which provides for a tax incentive by means of a charitable deduction for the donation of an historic easement. The current IRS audit effort strains the agency’s resources and may fail to distinguish between a legitimate deduction authorized by statute and an abusive tax shelter” and added that there is a perception that “the IRS is overreaching on this issue." The 2009 IRSAC Report contains six recommendations to the IRS concerning historic preservation easements.
2009 IRSAC Report
Can't open this file? Download Adobe Reader.