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Meadows, Collier, Reed, Cousins, Crouch & Ungerman, L.L.P.

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Dallas, TX 75202

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The IRS Offers a Settlement Opportunity to Abusive Easement Cases

By Joel N. Crouch and Michael A. Villa, Jr. on June 29, 2020

In an unexpected development on June 25th, the IRS announced a time-limited settlement offer to certain taxpayers with pending docketed Tax Court cases involving syndicated conservation easement transactions. The settlement offer is surprising because on June 18th, IRS SB/SE Division Commissioner, Eric Hylton, stated that the IRS was not considering a resolution program for syndicated conservation easements similar to the microcaptive insurance settlement offer.

Taxpayers eligible for the settlement offer will be notified by mail and the offer comes on the heels of several government wins in conservation easement cases in the Tax Court.  The settlement offer terms include: (1) Disallowance of the deduction for the contributed easement; (2) All partners must agree to the settlement; (3) the tax, penalty and interest before the settlement is finalized; (4) “Investor” partners can deduct their cost of acquiring their partnership interests and pay a reduced penalty of 10% to 20% ; and (5) Partners who provided services in connection with any syndicated conservation easement transaction will pay the maximum penalty, likely 40%, with no deduction for costs.

The different treatment of “investor” partners versus “service” partners could reduce the number of settlements because all partners must agree to the settlement.  There is no carrot for “service” partners to settle, so it is likely they will be more interested in rolling the dice in Tax Court than “investor” partners.  This creates a potential conflict between “investor” partners and “service” partners and an “investor” partner should consult an independent tax advisor regarding the proposed settlement.  

The IRS also warned that Taxpayers should note the U.S. Tax Court has held in the government's favor in several opinions and orders in syndicated conservation easement cases.  A recent example can be found in Plateau Holdings v. Commissioner, T.C. Memo 2020-93 (June 23, 2020)

Additional decisions are located in the following links: TOT Property Holdings LLC v. Commissioner , Oakbrook Land Holdings, LLC v. Commissioner , and Coal Property Holdings, LLC v. Commissioner.

For any questions on this or any other tax-related matter, please feel free to contact Joel Crouch at (214) 749-2456 or jcrouch@meadowscollier.com or Mike Villa at (214) 749-2405 or mvilla@meadowscollier.com.