As if the onslaught of recent losses in Tax Court was not enough, investors in syndicated conservation easements now have more to worry about. On August 25, 2020, the Senate Finance Committee released a bipartisan report condemning syndicated conservation easements as abusive and encouraging the IRS to take further action to ferret out such abuses.
The Senate report is the culmination of a nearly 18-month investigation. The findings of that investigation are succinctly stated in the summary to the report:
This report finds syndicated conservation easement transaction to be transactions to provide tax deductions to high-income taxpayers by way of (1) inflated appraisals of undeveloped land through (2) partnership entities that appear to serve no non-tax business purpose for existing other than the provision of tax deductions.
The Senate report goes on to explain why the appraisals were inflated: “the report describes appraisals as inflated…because those appraisals value property at multiples of what transaction promoters or their investor paid to acquire ownership interest in that property.” The Senate report notes the “great lengths” the promoters took to make the transactions appear legitimate on paper, but found that “their emails tell a much different story, that the taxpayer-investors had no interest in a wide variety of land-investment possibility; they just wanted to buy tax deductions.” Included in the report were some noteworthy statistics: (i) that the IRS estimates between 2010 and 2017, syndicated conservation easement transactions generated $26.8 billion in deductions, (ii) the combined tax benefit to the investor taxpayers was an estimated $10.6 billion; (iii) that in the years 2015 through 2017, the IRS identified 662 different syndicated partnerships, and (iv) the IRS is auditing or plans to audit 84% of those partnerships.
The Senate report unambiguously concludes that the IRS has “strong reason for taking enforcement action” and that “Congress, the IRS, and the Department of Treasury should take further action to preserve the integrity of the conservation-easement tax deduction.” A full copy of the Senate report is linked here (Senate Report). This report provides further reason for investors to consider participating in an IRS settlement initiative to resolve their dispute with the IRS regarding a syndicated conservation easement.
If you have any questions about syndicated conservation easements, the 2020 IRS settlement initiative, or ways to mitigate IRS risks associated with such transactions, please do not hesitate to contact me at (214) 749-2464 or firstname.lastname@example.org.