IRS Loses Conservation Easement Battle in U.S. Tax Court
The Internal Revenue Service was found guilty by the Tax Court for violating public feedback requirements of the Administrative Procedure Act.
The U.S. Tax Court ruled this week that the Internal Revenue Service violated the public feedback requirements of the Administrative Procedure Act when it issued Notice 2017-10, which identified syndicated conversation easements as “listed transactions” that are potentially abusive and required that they be disclosed to the agency.
The court’s 15-2 opinion struck down the guidance and rejected penalties the IRS sought to impose on four North Carolina partnerships.
The IRS had disallowed conservation easement deductions claimed by Green Valley Investors LLC, Vista Hill Investments LLC, Big Hill Partners LLC and Tick Creek Holding LLC which the agency claimed failed to meet statutory requirements. The IRS was also seeking penalties under the Internal Revenue Code for failing to disclose the transactions as required by Notice 2017-10.
While the IRS argued that it was empowered to issue listed transaction notices without applying the APA’s notice-and-comment procedures, the Tax Court disagreed.
“We remain unconvinced that Congress expressly authorized the IRS to identify a syndicated conservation easement transaction as a listed transaction without the APA’s notice-and-comment procedures, as it did in Notice 2017-10,” the opinion said.
