IRS announces crackdown on syndicated conservation easements
The IRS recently announced the implementation of significant enforcement action with respect to syndicated conservation easement transactions, calling them “a priority compliance area.”
The agency said in a news release that “coordinated examinations” are now underway. What this means is that the IRS has different divisions working on the different aspects of transactions of this genre that they have already identified: The Small Business and Self-Employed Division is examining taxpayers that have taken deductions emanating from these transactions, the Large Business and International Division is examining partnerships that have syndicated the transactions and allegedly marketed them, and the Tax Exempt and Government Entities Division is examining the nonprofits involved in accepting the easement donations. Moreover, the IRS said that its Criminal Investigation division is separately examining these transactions, from a criminal angle.
What is the scale of this IRS activity? The IRS said that the examinations “cover billions of dollars of potentially inflated deductions as well as hundreds of partnerships and thousands of investors.” They further stated that they are “litigating cases where necessary, with more than 80 currently docketed cases in the Tax Court.”
IRS Commissioner Chuck Rettig says in the release, “We will not stop in our pursuit of everyone involved in the creation, marketing, promotion and wrongful acquisition of artificial, highly inflated deductions based on these aggressive transactions. Every available enforcement option will be considered, including civil penalties and, where appropriate, criminal investigations that could lead to a criminal prosecution.”
He further pointed out that they are using “innovation labs” that have developed “new, more extensive enforcement tools that employ advanced techniques.”
Syndicated conservation easements are specifically enumerated as an “abusive tax shelter,” i.e., a tax scam that the IRS cautions taxpayers to avoid.
In the IRS’ view, the syndicated easements result in what is considered a “gross overstatement” of the value of the easement, which, after it is donated to a charity, results in a gross overdeduction for the partners of the partnership syndicating the easement donation. Moreover, the IRS has found that these donations often fail to comply with contemporaneous receipt rules that are required for them to qualify as deductible charitable contributions. Importantly, the IRS said in its release that it “has prevailed in many cases involving these basic requirements and has now established a body of law that the IRS believes supports disallowance of the deduction in a significant number of pending conservation easement cases.” They said that they will soon be asking the Tax Court “to invalidate the claimed deductions in all cases where the transactions fail to comply with the basic requirements, leaving only the final penalty amount to be determined.”
For more information, see Notice 2017-10 [lnks.gd], which describes syndicated conservation easement transactions in more detail.
Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.
InsightMassachusetts rules on taxing capital gains of out-of-state corporationCindy Galamgam, Marissa McClainThe Supreme Judicial Court of Massachusetts ruled that the Massachusetts Department of Revenue Commissioner did not have the statutory right to tax the capital gain. Read more.
InsightHow to integrate: 6 things to do immediately after an acquisitionAlex Castelli, Asael Meir, Kim Clark PakstysEvery transaction is scrutinized for how it performs afterward. Read how to prepare in 6 key areas: Tax, technology, culture, and more.
InsightConnecticut bill provides $600 million in tax cutsCindy Galamgam, Marissa McClainA recently passed bill in Connecticut could provide $600 million in tax cuts. We detail what this means for taxpayers. Learn more.
InsightLife at CohnReznick: Open Access community development finance fellowshipIn this Q&A, Ty Thomas discusses his experience with CohnReznick’s Affordable Housing team as a 2022 Open Access fellow.