Syndicated Easements as Abusive Transactions The IRS is concerned about abuses of syndicated conservation easements. The abuse can take several forms, Published on February 13, 2020 Edit article View stats call firstStatus is online call first Speaker, author expert witness at VEBA LLC 187 articles Syndicated Easements as Abusive Transactions The IRS is concerned about abuses of syndicated conservation easements. The abuse can take several forms, including:
excessive charitable deductions based on inflated property valuations and appraisals; failing to preserve the property under the easement; the easement holder permitting modifications to and violations of the terms of the easement; and claiming a deduction for a façade preservation easement when the taxpayer was already prohibited under local zoning ordinances from altering the façade. In fact, in Notice 2017-10, the IRS identified certain syndicated conservation easements and substantially similar transactions as “listed transactions” that must be disclosed on a taxpayer’s return, as well as by material advisors. The guidance specifically covers transactions where investors in passthrough entities are offered charitable contribution deductions worth at least two and a half times their investment.
The IRS also included syndicated conservation easements on its 2019 “Dirty Dozen” list of tax scams to avoid. In addition to grossly overstating the value of the easement donated to charity, these transactions often failed to comply with the basic requirements for claiming a charitable deduction for a donated conservation easement.
Increased IRS Enforcement Actions Against Syndicated Easements In November 2019, the IRS announced that it is increasing enforcement actions against abusive syndicated conservation easements with more audits and investigations. In fact, the increase in enforcement in a priority compliance area for the IRS.
“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.
The IRS currently has more than 80 docketed cases in the Tax Court. Moreover, there is sufficient precedent to move the Tax Court to invalidate the claimed deductions in all these cases, leaving only the final penalty to be determined. Those penalties could include:
the 40% accuracy-related penalty for participants; appraiser penalties for substantial and gross valuation misstatements attributable to an incorrect appraisal; promoter, material advisor, and accommodating entity penalties for promoting abusive tax shelters and penalties for aiding and abetting understatement of tax liability; and return preparer penalties for understatement of tax liability. Remedies for Taxpayers in Easement Syndications Taxpayers involved in easement syndications may be able to avoid penalties if they quickly file amended returns or an administrative adjustment request to reverse improper charitable deductions. However, this remedy would appear to be limited to taxpayers who are not currently in litigation. The IRS encourages taxpayers to immediately consult an independent, competent tax advisor to consider their best available options.
Report this Published by call firstStatus is online call first Speaker, author expert witness at VEBA LLC Published • now
Syndicated Easements as Abusive Transactions The IRS is concerned about abuses of syndicated conservation easements. The abuse can take several forms,
ReplyDeletePublished on February 13, 2020
Edit article
View stats
call firstStatus is online
call first
Speaker, author expert witness at VEBA LLC
187 articles
Syndicated Easements as Abusive Transactions
The IRS is concerned about abuses of syndicated conservation easements. The abuse can take several forms, including:
excessive charitable deductions based on inflated property valuations and appraisals;
failing to preserve the property under the easement;
the easement holder permitting modifications to and violations of the terms of the easement; and
claiming a deduction for a façade preservation easement when the taxpayer was already prohibited under local zoning ordinances from altering the façade.
In fact, in Notice 2017-10, the IRS identified certain syndicated conservation easements and substantially similar transactions as “listed transactions” that must be disclosed on a taxpayer’s return, as well as by material advisors. The guidance specifically covers transactions where investors in passthrough entities are offered charitable contribution deductions worth at least two and a half times their investment.
The IRS also included syndicated conservation easements on its 2019 “Dirty Dozen” list of tax scams to avoid. In addition to grossly overstating the value of the easement donated to charity, these transactions often failed to comply with the basic requirements for claiming a charitable deduction for a donated conservation easement.
Increased IRS Enforcement Actions Against Syndicated Easements
In November 2019, the IRS announced that it is increasing enforcement actions against abusive syndicated conservation easements with more audits and investigations. In fact, the increase in enforcement in a priority compliance area for the IRS.
“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.
The IRS currently has more than 80 docketed cases in the Tax Court. Moreover, there is sufficient precedent to move the Tax Court to invalidate the claimed deductions in all these cases, leaving only the final penalty to be determined. Those penalties could include:
the 40% accuracy-related penalty for participants;
appraiser penalties for substantial and gross valuation misstatements attributable to an incorrect appraisal;
promoter, material advisor, and accommodating entity penalties for promoting abusive tax shelters and penalties for aiding and abetting understatement of tax liability; and
return preparer penalties for understatement of tax liability.
Remedies for Taxpayers in Easement Syndications
Taxpayers involved in easement syndications may be able to avoid penalties if they quickly file amended returns or an administrative adjustment request to reverse improper charitable deductions. However, this remedy would appear to be limited to taxpayers who are not currently in litigation. The IRS encourages taxpayers to immediately consult an independent, competent tax advisor to consider their best available options.
Report this
Published by
call firstStatus is online
call first
Speaker, author expert witness at VEBA LLC
Published • now