Subpoenas issued to six: Senate Finance Committee Chairman Chuck Grassley (R-Iowa) and Ranking Member Ron Wyden (D-Ore.) have issued subpoenas for documents in their bipartisan probe of syndicated conservation-easement transactions. Generally, conservation easements are a legitimate tax tool to promote land conservation, but some of them in recent years may have allowed some taxpayers to profit from gaming the law—depriving the government of billions in revenue. Update
- From the AJC: Six Georgians, including a former state senator, were served subpoenas for documents this week from a powerful U.S. Senate panel conducting a bipartisan probe into potential abuse of tax-advantaged land preservation deals.
In context: This is an update to keep on your news radar as Rome in particular is considered a “hot bed” for conservation activity. This latest enforcement upgrade by the Internal Revenue Service is the most direct statement yet from the federal government on its expanding investigation. The Rome connection was spotlighted in a separate release from the U.S. Senate Committee on Finance in March as well as in early publications. You can read that story here.
Among those mentioned in the Senate finding was Bryan Kelley, chief executive officer of Webb Creek Management Group, a “unique real estate and business consulting firm” based in Rome. Webb Creek, on its website, issued a response to the Senate statement as well as additional updates.
Media release: The Internal Revenue Service announces a significant increase in enforcement actions for syndicated conservation easement transactions, a priority compliance area for the agency.
Coordinated examinations are being conducted across the IRS in 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. These audits and investigations cover billions of dollars of potentially inflated deductions as well as hundreds of partnerships and thousands of investors.
“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 IRS Commissioner Chuck Rettig.
“Our innovation labs are continually developing new, more extensive enforcement tools that employ advanced techniques. If you engaged in any questionable syndicated conservation easement transaction, you should immediately consult an independent, competent tax advisor to consider your best available options. It is always worthwhile to take advantage of various methods of getting back into compliance by correcting your tax returns before you hear from the IRS. Our continued use of ever-changing technologies would suggest that waiting is not a viable option for most taxpayers.”
In December 2016, the IRS issued Notice 2017-10 (PDF), which designated certain syndicated conservation easements as listed transactions. Specifically, the Notice listed transactions 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 is significantly higher than 250 percent of the investment. 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,” Rettig said. “Putting an end to these abusive schemes is a high priority for the IRS.”
Taxpayers may avoid the imposition of penalties relating to improper contribution deductions if they fully remove the improper contribution and related tax benefits from their returns by timely filing a qualified amended return or timely administrative adjustment request.
The IRS’s comprehensive compliance efforts are focused on the abusive syndicated conservation easement transactions described in Notice 2017-10, recognizing that there are many legitimate conservation easement transactions.
The IRS is fully committed to putting an end to abusive syndicated conservation easement transactions, and holding accountable the individuals and entities who promoted, assisted with or participated in these schemes. The IRS is committing significant examination and investigative resources to vigorously audit the entities and individuals involved in this scheme, including those who failed to properly disclose their participation as required. Additionally, the IRS is also litigating cases where necessary, with more than 80 currently docketed cases in the Tax Court.
In addition to grossly overstating the value of the easement that is purportedly donated to charity, these transactions often fail to comply with the basic requirements for claiming a charitable deduction for a donated easement. The IRS has prevailed in many cases involving these basic requirements and has now established a body of law that the IRS believes supports disallowance of the deduction in a significant number of pending conservation easement cases. Where it hasn’t done so already, the IRS will soon be moving the Tax Court to invalidate the claimed deductions in all cases where the transactions fail to comply with the basic requirements, leaving only the final penalty amount to be determined.
In addition to auditing participants, the IRS is pursuing investigations of promoters, appraisers, tax return preparers and others. Further, the IRS is evaluating numerous referrals of practitioners to the IRS Office of Professional Responsibility. The IRS will develop and assert all appropriate penalties, including penalties for participants (40 percent accuracy-related penalty), appraisers (penalty for substantial and gross valuation misstatements attributable to incorrect appraisals), promoters, material advisors, and accommodating entities (penalty for promoting abusive tax shelters and penalty for aiding and abetting understatement of tax liability), as well as return preparers (penalty for understatement of taxpayer’s liability by a tax return preparer).
In December 2018, the Department of Justice filed a complaint seeking to stop several individuals and an entity from organizing, promoting or selling allegedly abusive syndicated conservation easement transactions. The IRS continues to work with the Department of Justice in this area and reminds taxpayers that continued disclosure of syndicated conservation easement transactions is required under Notice 2017-10.