ABA Tax Section Submits Comments on Proposed Group Exemption Rules

Published date01 November 2020
Date01 November 2020
Bruce R. Hopkins’ Nonpr ofit Counsel DOI:10.10 02/n pc
shelter from the IRS, with no economic risk.” The “gen-
eral outcome” of these transactions is the same: for
every dollar an individual pays to a promoter to become
an investor in one of these transactions, “he or she com-
monly purchases a little more than four dollars’ worth of
tax deductions.” Thus, the report concludes that these
transactions are designed 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 bulk of this report consists of sections (1) dis-
cussing the relevant federal tax law for understanding
and critiquing syndicated conservation easement trans-
actions, (2)discussing how these easement promotions
work, (3)discussing the law history of these syndications,
(4) analyzing how the promoters of these transactions
“took a seemingly complicated transaction and distilled
it down to a very simple proposition to would-be taxpay-
er-investors,” (5)examining the email traffic between the
promoters and their “taxpayer-investors,” (6)discussing
the “engine of every syndicated conservation-easement
transaction: an inflated appraisal,” and (7)detailing some
of the specific syndicated conservation-easement trans-
actions that have been promoted over the last decade.
Based on the content of this report, the Finance Com-
mittee leadership concluded the “IRS has strong reason for
taking enforcement action against syndicated conserva-
tion-easement transactions as it has to date.” They believe
“Congress, the IRS, and the Department of the Treasury
should take further action to preserve the integrity of the
conservation-easement deduction.” [10.15(d)]
The Section of Taxation of the American Bar Association,
by letter dated September 9, submitted comments on the
IRS’s proposed substantial revisions of the group exemption
rules (summarized in the July 2020 issue). This submission
states the section’s belief that the proposal “might create
or exacerbate more difficulties than it ameliorates.” It is
said that the proposal “would oblige both central organi-
zations and their subordinates to comply with a number of
requirements without increasing the central organization’s
ability to exercise oversight over the subordinates.” The
proposal, the section writes, in some instances, “would
make such oversight more difficult to exercise properly.”
In the section’s view, the proposal “also would increase
the Service’s caseload, with thousands of organizations
submitting applications for [recognition of] exemption
that would not otherwise have needed to do so.”
The section encourages the IRS to adopt “practical
definitions” of the terms affiliation, general supervision,
and control. It is noted that the concept of affiliation is
proposed to be determined “based on the entirety of the
information submitted” by central organizations. Asking
for a definition of the term that is “both broad and
flexible,” the section states that “it is appropriate to set
the bar for affiliation fairly low in the group exemption
context,” particularly when the term is applied in addi-
tion to the other two terms. The section recommends a
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