In a news release, IR-2019-82, the IRS announced a significant increase in enforcement actions for syndicated conservation easement transactions. The enforcement actions are being conducted as coordinated examinations across multiple IRS divisions, including Small Business and Self-Employed, Large Business and International, and Tax Exempt and Government Entities. The Criminal Investigations division has initiated separate investigations. This enforcement action is focused on the abusive transactions and not the many legitimate conservation easement transactions in which taxpayers frequently engage.
On Dec. 23, 2016, the IRS issued Notice 2017-10 designating certain syndicated conservation easements as listed transactions. These are transactions entered into on or after Jan. 1, 2010, where an investor receives promotional materials, either oral or written, that offer prospective investors in a pass-through entity the possibility of a charitable contributions deduction that equals or exceeds an amount that is two and a half times (250%) their initial investment. Transactions that are substantially similar are also listed transactions.
In addition to committing significant resources to examinations, the IRS is litigating cases; there are more than 80 syndicated conservation easement cases currently on the Tax Court’s docket. According to the IRS, syndicated conservation easements often fail to comply with the basic requirements for claiming a charitable deduction for a donated easement, and the IRS intends to leverage this failure to invalidated claimed deductions, leaving only the final penalty amount to be determined.
The IRS is also investigating promoters, appraisers, tax return preparers and other professionals involved in syndicated conservation easements. These professionals may face penalties including substantial and gross valuation misstatements attributable to incorrect appraisals, penalties for promoting abusive tax shelters and penalties for understatement of taxpayer’s liability by a tax return preparer.
Next steps and minimizing risk
IRS Commissioner Rettig urges taxpayers that engaged in questionable syndicated conservation easement transactions to consult an independent and competent tax advisor to explore available options to become compliant.
Taxpayers may avoid penalties for an improper contribution deduction by fully removing the improper contribution and related benefits from their returns by timely filing an amended return or timely administrative adjustment request.