Missing notice of a preexisting use may defeat a conservation deduction

Plain-English summary

Chief Counsel considered how a preexisting use of property affects a deduction for a qualified conservation contribution. The advice distinguished the requirement that property be used exclusively for conservation purposes from the separate requirement that the conservation purpose be protected in perpetuity. A preexisting use might not by itself defeat the exclusive-purpose test under Treasury Regulation Section 1.170A-14(e)(3). However, if the donor exercises or continues a reserved right that may adversely affect the conservation interests without first notifying the donee in writing, Counsel suggested the deduction may be disallowed under the perpetuity rule in Section 1.170A-14(g)(5)(ii). The email presents that conclusion as the author's reading and asks the recipient for thoughts.

Ruling snapshot

• Question: Can a preexisting use, coupled with a failure to notify the donee before continuing it, disqualify a conservation contribution deduction?
• Outcome: Advice given, lack of notice may support disallowance under the protected-in-perpetuity requirement
• Key authorities: Treas. Reg. § 1.170A-14(a), (e)(3), and (g)(5)(ii)

Full text (IRS public release)

ID:      CCA_2021090213553948
UILC:    170.14-00

Number: 202141022
Release Date: 10/15/2021
From: ------------------
Sent: Thursday, September 2, 2021 1:55:39 PM
To: --------------
Cc: ---------------------------
Bcc:
Subject: re: pre-existing use quote from reg.


1.170A-14(a) sets out that “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.”

1.170-14(e) is under the heading of “Exclusively for conservation purposes.”

1.170-14(g)(5)(ii), which requires notification, is under the heading of “Enforceable in
perpetuity.”
   • This subsection states that “[T]he donor must agree to notify the donee, in
      writing, before exercising any reserved right […] which may have an adverse
      impact on the conservation interests associated with the qualified real property
      interest.”

The language you quoted under (e)(3) might allow a preexisting use not to disqualify the
deduction under “solely for conservation purposes” grounds, but my reading is that a
lack of notification for exercising/continuing a preexisting use may be grounds for
disallowance under “protected in perpetuity” grounds under (g)(5)(ii).

Thoughts?