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The IRS has launched a new campaign aimed at the investigation and penalization of those who participate in syndicated conservation easement transactions. Recently, IRS Commissioner Chuck Rettig announced that the IRS would be heightening its focus on these transactions, which could potentially involve thousands of investors and billions of dollars in inflated tax deductions.

Since November 2019, the IRS has increased its enforcement actions, stating that every available option would be considered – including both civil penalties and criminal investigations. The IRS Criminal Investigation Division has begun its investigation into potential offenders. IRS divisions, including Small Business, Self-Employed, Large Business, International, Tax Exempt, and Government Entities, are also conducting examinations.

What Is A Syndicated Conservation Easement?

Taking a step back, this issue stems from a problem related to conservation easements and tax deductions. A conservation easement is an easement (a restriction on land use) that prevents the land from being developed in the future. Because the property cannot be developed, it loses its value. The U.S. Tax Code allows a charitable contribution deduction for the difference in the fair market value of the property, pre- and post-easement. The amount of the deduction is large because the fair market value of the property has declined to almost zero.

Conservation easements are legal, however, the syndicated conservation easement promoters have developed a means for taxpayers to benefit from the charitable deduction — in a way not envisioned by the US Tax Code. With a syndicated conservation easement, taxpayers invest in a partnership that owns real property. The partnership then places a conservation easement on that property, and then deducts the fair market value of the property — but with the pre-easement value often overstated. Taxpayers who invest in syndicated easements typically save a significant amount of money on their income taxes. The IRS views these transactions as illicit tax shelters, and are attempting to shut syndicated conservation easement transactions down. 

IRS To End Syndicated Conservation Easements?

Last year, the IRS added syndicated conservation easements to its list of Dirty Dozen Scams To Avoid, calling these transactions a legitimate tax-planning tool that is now improperly distorted to produce benefits too good to be true. While the IRS and its divisions continue to search for and investigate syndicated conservation easements, this government campaign is also gaining traction in the US Tax Court. The IRS has already won several cases related to syndicated conservation easements, and there are dozens more still pending in court.

Consult An Experienced Tax Attorney

With the IRS stepping up its enforcement, taxpayers who are engaged in syndicated conservation easement transactions should consult with an experienced tax attorney. The IRS has stated that taxpayers may avoid penalties relating to improper tax deductions if they come forward prior to an audit and timely file an amended tax return (without the contribution deduction). 

If you know about a possible tax violation or have more questions about syndicated conservation easement transactions, please contact Wiggam & Geer at (404) 609-1300 or by visiting our website. One of our experienced Atlanta tax lawyers or Atlanta tax settlement attorneys would be happy to speak with you. Our firm represents individuals in matters before the Internal Revenue Service, the Georgia Department of Revenue, and other state tax departments. We are dedicated to helping resolve client tax issues and putting minds at ease.