The IRS issued final regulations (T.D. 9999) Monday that provide guidance on the application of a rule enacted by the SECURE 2.0 Act of 2022, which disallows deductions for certain qualified conservation contributions by partnerships or S corporations after Dec. 29, 2022.
The final regulations amend the regulations under Secs. 170 and 706 to implement provisions of Sections 605(a) and 605(b) of the SECURE 2.0 Act, which was enacted as Division T of the Consolidated Appropriations Act, 2023, P.L. 117-328.
Under the disallowance rule in Sec. 170(h)(7), added by Section 605(a) of the SECURE 2.0 Act, a qualified conservation contribution is disallowed if the amount is more than 2.5 times the sum of each partner's or shareholder's relevant basis (as defined in Sec. 170(h)(7)(B)) in the partnership or S corporation.
Statutory exceptions to the new disallowance rule include one for family partnerships and S corporations, a second for contributions made outside a three-year holding period, and a third for qualified conservation contributions the conservation purpose of which is the preservation of a certified historic structure.
The final regulations provide guidance regarding the disallowance rule, including definitions, appropriate methods to calculate the relevant basis of a partner or an S corporation shareholder, the three statutory exceptions to the rule, and related reporting requirements.
The final regulations also include reporting requirements for partners and S corporation shareholders that receive a distributive share or pro rata share of any noncash charitable contribution made by a partnership or S corporation, regardless of whether the contribution is a qualified conservation contribution (and regardless of whether the contribution is of real property or other noncash property).
The final regulations are effective upon their publication in the Federal Register, which is scheduled for June 28.
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