In the IRS IR-2024-174, the IRS announced that is mailing out a limited time settlement offer for taxpayers that participated in Syndicated Conservation Easement.
How does the Syndicated Conservation Easement work?
This is an overvalued conservation easement that is claimed as charitable contributions that promoters will target to high income taxpayers. The target will invest in pieces of land (i.e. long vacant piece of land) and then an appraiser (in some cases, connected or linked to the promoter) will value the land several times higher due to the potential opportunity for residential or industrial use. Then, the high-income taxpayer will be able to deduct as charitable contributions four to six times his/her investment and the promoter will get millions in fees. You can read the ProPublica article below for more details on this tax evasion scheme.
*This is a similar principle as a charitable contribution for art pieces where they are bought by the taxpayer at relatively low values and then, donated at higher appraised value to a non for profit entity.
Based on Jurisprudence (listed below and in the IR-2024-174), the IRS has consistently disallowed the tax benefits generated by this tax evasion scheme, so potentially a settlement might be a good idea if there is a high probably of losing the case.
“… The U.S. Tax Court has also issued many opinions, including the following:
- Plateau Holdings, LLC v. Commissioner, T.C. Memo. 2020-93,
- TOT Property Holdings, LLC v. Commissioner, T.C. Docket No. 5600-17 (unpublished bench op., Nov. 22, 2019),
- Mill Road 36 Henry, LLC v. Commissioner, T.C. Memo. 2023-129,
- Oconee Landing Property, LLC v. Commissioner, T.C. Memo. 2024-25,
- Savannah Shoals, LLC v. Commissioner, T.C. Memo. 2024-35, and
- Buckelew Farm, LLC v. Commissioner, T.C. Memo. 2024-52) in which the true value of the easement was found to be a small fraction of the claimed value.”
Link IRS 2023 Proposed regulations – Treasury, IRS propose regulations implementing disallowance of deductions for certain conservation easement contributions by partnerships, S corporations
ProPublica 2023 article – How Congress Finally Cracked Down on a Massive Tax Scam