The Internal Revenue Service plans to significantly increase its enforcement of syndicated conservation easement transactions, which the agency calls a priority compliance area.
This stepped-up enforcement will involve the use of new technologies and coordinated efforts between multiple divisions within the IRS, including the Small Business and Self-Employed Division, Large Business and International Division and Tax Exempt and Government Entities Division. Separately, investigations have been initiated by the IRS’ Criminal Investigation division.
The IRS claims that the audits and investigations cover billions of dollars of potentially inflated deductions as well as hundreds of partnerships and thousands of investors.
The Internal Revenue Code allows a taxpayer to take a charitable donation deduction equivalent to the fair market value of a conservation easement, but only if certain requirements of the donated interest in property for conservation purposes are satisfied for the “qualified conservation contribution.”
According to the IRS, there are many legitimate conservation easement transactions. However, its compliance efforts are focused squarely on what it deems as abusive syndicated conservation easement transactions described in Notice 2017-10, where investors in pass-through entities receive promotional material offering the possibility of a charitable contribution deduction worth at least two and half times their investment.
In many transactions, the deduction taken was significantly higher than 250 percent of the investment and often failed to comply with the basic requirements for claiming a charitable deduction for a donated easement. Syndicated conservation easements are included on the IRS’s 2019 “Dirty Dozen” list of tax scams to avoid.
“Abusive syndicated conservation easement transactions undermine the public’s trust in private land conservation and defraud the government of revenue,” said IRS Commissioner Chuck Rettig said. “Putting an end to these abusive schemes is a high priority for the IRS.”
“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,” said Rettig.
It is recommended that those who engaged in any questionable syndicated conservation easement transactions consult an independent, competent tax advisor. To avoid penalties from improper contribution deductions, it is necessary to file a qualified amended return or timely administrative adjustment request before hearing from the IRS.