What Is a Conservation Easement?
If you have taken a deduction for a conservation easement and are concerned about the IRS’s crackdown on these transactions or are already in litigation, Wiggam & Geer can help assess your options and respond to any IRS actions.
A conservation easement is an agreement where a landowner, group of landowners or company donates land to a trust or government agency and the use of the land is permanently limited to preserve its conservation value. It usually qualifies as a charitable deduction.
What Is a Syndicated Conservation Easement Deduction?
While conservation easements are legal, promoters have been syndicating ownership interests in these properties through partnerships and then turning the sale of the interests into large charitable deductions. These are known as syndicated conservation easements. Here is how they work:
- Investors buy in at low prices.
- When the land is donated, the investors then take the charitable deduction at a higher fair market value.
- The higher fair market value is based on the property being developed at its best use, even though promoters allegedly didn’t sell or intend for it ever to be developed as such.
The IRS has been targeting these deals that use marketing materials to promote a conservation easement deduction, where the promised deduction ranges from the value of the investment to as high as two and half times the investment amount.
How Is the IRS Cracking Down on Conservation Easements?
The IRS has been cracking down on taxpayers’ use of syndicated conservation easements as deductions. The agency sees these transactions as abusive tax avoidance and has been actively pursuing both those who set them up and those who invest in them.
Among the IRS agencies investigating syndicated conservation easements for potential offenders are:
- Criminal Investigation Division
- Small Business
- Large Business
The IRS has been successful in its pursuit, winning millions and millions of dollars in disallowed deductions in U.S. Tax Court. Investors who lose end up owing large sums in penalties and interest as well.
What Is a Syndicated Conservation Easement Settlement Offer?
In mid-2020, the IRS began offering settlements to those who were already in litigation over a syndicated conservation easement. Then in October 2020, the agency issued Notice CC-2021-001, Settlement of Syndicated Conservation Easement Transaction in Cases Docketed Before the U.S. Tax Court, which provided additional details on these efforts.
At the same time that it issued CC-2021-001, the IRS noted that national fraud counsel in the Office of Fraud Enforcement had begun working with examining agents and attorneys in the IRS’s Office of Chief Counsel to canvas cases for additional fraud considerations. These might include assertion of the 75% civil fraud penalty or referral to Criminal Investigation, according to the agency.
If you are already in litigation with the IRS over a syndicated conservation easement and have received a settlement letter, you should consult one of our experienced tax attorneys to review all alternatives prior to settlement.
If you have invested in a syndicated conservation easement and are not in litigation, you should still consider consulting one of our tax attorneys in light of the IRS’s continued crackdown and its new coordinated efforts to pursue what it deems to be abusive transactions. Our team of experienced tax attorneys can help you evaluate all your options and represent you. Give us a call today at (404) 609-1300 to get started.
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