IRS Increasing Enforcement of Syndicated Conservation Easements

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Jason B. Freeman

Jason B. Freeman

Managing Member

214.984.3410
jason@freemanlaw.com

Mr. Freeman is the founding member of Freeman Law, PLLC. He is a dual-credentialed attorney-CPA, author, law professor, and trial attorney.

Mr. Freeman has been named by Chambers & Partners as among the leading tax and litigation attorneys in the United States and to U.S. News and World Report’s Best Lawyers in America list. He is a former recipient of the American Bar Association’s “On the Rise – Top 40 Young Lawyers” in America award. Mr. Freeman was named the “Leading Tax Controversy Litigation Attorney of the Year” for the State of Texas for 2019 and 2020 by AI.

Mr. Freeman has been recognized multiple times by D Magazine , a D Magazine Partner service, as one of the Best Lawyers in Dallas, and as a Super Lawyer by Super Lawyers, a Thomson Reuters service. He has previously been recognized by Super Lawyers as a Top 100 Up-And-Coming Attorney in Texas.

Mr. Freeman currently serves as the chairman of the Texas Society of CPAs (TXCPA). He is a former chairman of the Dallas Society of CPAs (TXCPA-Dallas). Mr. Freeman also served multiple terms as the President of the North Texas chapter of the American Academy of Attorney-CPAs. He has been previously recognized as the Young CPA of the Year in the State of Texas (an award given to only one CPA in the state of Texas under 40).

IRS Increasing Enforcement of Syndicated Conservation Easements

A recent IRS press release announced a significant increase in enforcement actions focused on syndicated conservation easement transactions. The IRS announced that these transactions are a “priority compliance area for the agency.” The enforcement actions are directed as “coordinated examinations” across various divisions of the IRS.

The Criminal Investigation Division has initiated separate investigations as well. All told, the investigations and audits cover billions of dollars of deductions that the government believes may have been inflated, including thousands of investors and hundreds of partnerships. The IRS has indicated that it believes many syndicated conservation easements fail to comply with the basic requirements necessary to claim a charitable deduction for a donated easement.

The IRS Commissioner issued a clear warning: “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, our innovation labs are continually developing new, more extensive enforcement tools that employ advanced techniques. If you engaged in any questionable syndicated conservation easement transaction, you should immediately consult an independent, competent tax advisor to consider your best available options. It is always worthwhile to take advantage of various methods of getting back into compliance by correcting your tax returns before you hear from the IRS. Our continued use of ever-changing technologies would suggest that waiting is not a viable option for most taxpayers.”

The IRS has announced that it is investigating appraisers, tax return preparers, promoters, and other professionals involved in syndicated conservation easements. Taxpayers and professionals may be subject to penalties for gross and substantial valuation misstatements attributable to incorrect appraisals, penalties forpromoting abusive tax shelters, and penalties for understatement of liability.

The Dirty Dozen and DOJ Complaint

There are currently more than 80 conservation easement cases pending in Tax Court, and the IRS has publicly committed to pursuing more conservation easement cases. Taxpayers and professionals who have engaged in aggressive syndicated conservation easement transactions should consult an independent, competent tax advisor to consider their available options to decrease civil or criminal exposure.

The IRS has warned taxpayers of abusive tax avoidance schemes and those individuals who are engaged in promoting them. There are three primary variations of abusive conservation easement schemes – abusive syndicated conservation easements, abusive trusts, and abusive micro-captive insurance shelters. These schemes are featured in the IRS’s Dirty Dozen list.

Last year, the Department of Justice filed a complaint to stop individuals from selling, promoting, or organizing “allegedly abusive syndicated conservation easement transactions.

In conjunction with the DOJ’s enforcement actives, the Tax Division’s Principal Deputy Assistant Attorney General warned, “The Department of Justice is working with our partners in the Internal Revenue Service to shut down fraudulent conservation easement shelters, which in this case were based on willfully false valuations, individuals investing in these schemes with benefits that seem too good to be true should ensure they are paying their proper federal income tax liability.”

In light of the government’s aggressive enforcement action, taxpayers and professionals involved with syndicated conservation easements and related tax benefits should consult a qualified tax attorney.