Over the past several years, one specific loophole in the tax code has troubled IRS agents and federal actors above most others. The Department of Justice has ramped up efforts to target those who abuse syndicated conservation easements to seek illicit deductions on their taxes.
Syndicated conservation easements are schemes where investors can buy cheap stakes in manufactured land development projects that get assessed at much higher values and donated to charity, thereby claiming a substantial charitable deduction on their tax returns. The government is aware of these schemes and is taking aggressive steps to root out their promoters.
If you have been involved in a conservation easement strategy in your past or present investments and have concerns about your filings, schedule a reduced rate case evaluation from the Tax Law Offices of David W. Klasing by calling (800) 681-1295 today.
What is a Syndicated Conservation Easement?
A syndicated conservation easement uses a charitable tax break that Congress established to encourage preservation of open land. Under standard conservation easements, landowners who give up development rights for their acreage, usually by donating those rights to a nonprofit land trust, get a charitable deduction in return.
When conservation easements are used as intended, both the public and the owner of the property benefit. A piece of pristine land is preserved, sometimes as a park that the public can use, and the donor gets a tax break.
The syndicated versions are different. Instead of seeking to protect a bucolic reserve for wildlife or humans, profit-seeking intermediaries have turned the likes of abandoned golf courses or remote scrubland into high-return investment vehicles. These promoters snatch up vacant land that till then was worth little. Then they hire an appraiser willing to declare that it has huge, previously unrecognized development value.
How Big of an Issue Are Syndicated Conservation Easements for the IRS?
By the IRS’ most recent reckoning, the use of syndicated easements grew from 249 deals in 2016, generating $6 billion in charitable deductions, to 296 deals in 2018, producing $9.2 billion in deductions. By contrast, more than 2,000 non-syndicated easement deductions have resulted in about $1 billion in annual deductions.
A bipartisan group of influential lawmakers has tried. Democratic Senator Ron Wyden of Oregon and Republican Senator Charles Grassley of Iowa, who is also the finance committee’s ranking Republican, jointly released a 151-page investigative report in 2020 that referred to syndicated easements as a “dollar machine” for wealthy taxpayers. “You simply insert the dollar bill and then watch the Dollar Machine return two-dollar bills to you,” the report explained. “But it was not the promoters who gave back the two dollars; it was the Federal government by way of foregone tax revenue, and the only risk involved was whether or not the transaction would lead to an audit.”
What is the Government Doing About Syndicated Conservation Easements?
The practice of using conservation easements to claim tax deductions has a number of vocal enemies in Washington. Among the several outspoken politicians on the subject who join Wyden and Grassley are Senators Debbie Stabenow and Steve Daines, as well as House members Mike Thompson and Mike Kelly.
Support in Congress is critical to fixing the problem according to IRS Commissioner Charles Rettig. “We have not had an impact on essentially slowing the volume of these transactions that we receive currently,” Rettig testified in a hearing in front of the Senate Subcommittee on Financial Services and General Government last month. “We need Congressional help. We need a statute to help us curb this activity.”
Passing New Legislation
Together, several of these lawmakers introduced the Charitable Conservation Easement Program Integrity Act of 2017. The legislation has been reintroduced in updated form eight times since it was originally proposed, most recently a year ago.
The package aims to put an end to syndicated deals by eliminating their profitability, with a bar on taxpayers claiming easement deductions that exceed two and a half times their investments. Closing this loophole would generate $12 billion in additional tax revenue through 2027, according to the Office of Management and Budget.
Unable to move their Easement Program Integrity Act through a divided Congress, supporters managed late last year to get its language included in the “Build Back Better” provisions passed by the House Ways and Means Committee. Since then, President Joe Biden, signaling his support, has included the measure in his proposed 2023 budget in a section entitled “close loopholes.”
Investigatory Efforts
In 2020, after warning that it planned to audit every taxpayer return claiming a deduction for a syndicated easement, the IRS announced a “limited-term” settlement offer, allowing individual investors to pay back taxes with a reduced penalty. Few took the agency up on its offer. In an internal IRS management review last year, agency officials lamented the poor response, noting, “Many taxpayers are undeterred and are opting for litigation, clogging up the Tax Court.” One reason taxpayers are willing to fight: syndicated easement deals routinely set aside $500,000 or more in advance to handle lengthy audits and tax court fights.
The IRS is now examining the returns of 28,000 investors in syndicated easements, challenging $21 billion in deductions claimed between 2016 and 2018, according to testimony by Rettig.
Criminal investigations of industry practices are reportedly underway in three states. The crackdown’s most sensational case became public in February, when a federal grand jury in Atlanta indicted North Carolina developer Jack Fisher, a major syndication deal promoter and owner of Inland Capital Management.
Talk to a Dual Licensed Tax Attorney and CPA About Your Tax Concerns Today
Before you put yourself in a difficult position, reach out to the Tax Law Offices of David W. Klasing at (800) 681-1295 to schedule a first-time reduced rate case assessment. Our Dual Licensed Tax Attorneys and CPAs have the experience and resources necessary to protect you from IRS action.
As long as a taxpayer that has willfully committed tax avoidance (potentially including the illegal use of conservation easements) self-reports the tax noncompliance through a domestic or offshore voluntary disclosure before the IRS has started an audit or criminal tax investigation / prosecution, the taxpayer can ordinarily be successfully brought back into tax compliance and receive a nearly guaranteed pass on criminal tax prosecution and simultaneously often receive a break on the civil penalties that would otherwise apply.
It is imperative that you hire an experienced and reputable criminal tax defense attorney to take you through the voluntary disclosure process. Only an Attorney has the Attorney Client Privilege and Work Product Privileges that will prevent the very professional that you hire from being potentially being forced to become a witness against you, especially where they prepared the returns that need to be amended, in a subsequent criminal tax audit, investigation or prosecution.
Moreover, only an Attorney can enter you into a voluntary disclosure without engaging in the unauthorized practice of law (a crime in itself). Only an Attorney trained in Criminal Tax Defense fully understands the risks and rewards involved in voluntary disclosures and how to protect you if you do not qualify for a voluntary disclosure.
As uniquely qualified and extensively experienced Criminal Tax Defense Tax Attorneys, Kovel CPAs and EAs, our firm provides a one stop shop to efficiently achieve the optimal and predictable results that simultaneously protect your liberty and your net worth. See our Testimonials to see what our clients have to say about us!
If you have failed to file a tax return for one or more years or have taken a position on a tax return that could not be supported upon an IRS or state tax authority audit, eggshell audit, reverse eggshell audit, or criminal tax investigation, it is in your best interest to contact an experienced tax defense attorney to determine your best route back into federal or state tax compliance without facing criminal prosecution.
