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.
Insight2019 year-end tax planning considerations for developersLast year at this time we were all scrambling to fully understand the impact of the Tax Cuts and Jobs Act on Low Income Housing Tax Credit (LIHTC) deals. The most important decision to be made with respect to the 2018 tax return was to make the real property trade or business (RPTOB) election or not.
InsightEight key estate-planning tips you can take to the bankAs 2019 nears the end, it’s time to get your finances and your estate in shape. The federal exemption from estate taxes has never been higher, and income taxes are relatively low. Before the holidays arrive to eat up your time and money, here are eight estate-planning tips you can take to the bank, or your financial advisor.
On-demandYear-end tax planning considerations for businesses and individualsStephanie Perez, Gurmeher Allagh, Daniel KingJoin members of our National Tax Practice as we cover year-end tax planning and take your questions to help you get through the end of 2019.
InsightGILTI raises issues with downward attribution and complianceThe global intangible low-taxed income (GILTI) regime applies to 10% or more U.S. shareholders in controlled foreign corporations (CFCs) – entities in which these U.S. shareholders own more than 50% of the stock by vote or value. The law generally requires them to include their share of the net income of that CFC as taxable income.