IRS Getting More Aggressive About Syndicated Easements Enforcement

• Date: 01 January 2020
• Published date: 01 January 2020
• DOI: http://doi.org/10.1002/npc.30671

Bruce R. Hopkins’ NONPROFIT COUNSEL

4 January 2020 THE LAW OF TAX-EXEMP T ORGANIZATIONS MONTHLY

Bruce R. Hopkins’ Nonpr ofit Counsel DOI:10.10 02/n pc

clause, which it (and other courts) have consistently

declined to enforce.

The LLC argued that this provision was merely a

“permitted interpretation provision.” This view was

rejected by the court because “there is nothing that

needs interpretation; the terms of [the deed] are clear

and unambiguous.” The court ended its analysis with

this: “Rather than interpreting an ambiguous provision,

the text to which [the LLC] refers purports to counter-

mand the effect of an unambiguous provision, but only

in the event of an adverse future occurrence,” with the

provision being a “classic ‘condition subsequent’ savings

clause, and [thus] we decline to give it effect.” [9.31] ◆

IRS GETTING MORE

AGGRESSIVE ABOUT

SYNDICATED EASEMENTS

ENFORCEMENT

The IRS announced, on November 12, a “significant

increase in enforcement actions for syndicated conser-

vation easement transactions” (IR-2019-182). Coor-

dinated examinations are being conducted across the

IRS, covering “billions of dollars of potentially inflated

deductions as well as hundreds of partnerships and

thousands of investors.” The IRS’s “comprehensive com-

pliance efforts” are focused on the abusive syndicated

conservation easement transactions described in Notice

2017-10 (summarized in the March 2017 issue). The IRS

recognized that “there are many legitimate conservation

easement transactions.”

The IRS stated that it is “fully committed to putting

an end” to these abusive transactions and “holding

accountable the individuals and entities who promoted,

assisted with or participated in these schemes.” The IRS

is “committing significant examination and investigative

resources to vigorously audit the entities and individuals

involved,” including those who failed to properly disclose

their participation. The agency is litigating cases in this

area, with over 80 docketed cases in the US Tax Court.

Two issues are at play here. One is the matter of

“gross overstatement” of the value of the easement

involved. The other is the failure of the transactions to

comply with the “basic requirements” for claiming a

charitable deduction for a contributed easement. The IRS

is of the view that it has established a body of law that

it believes supports “disallowance of the deduction in a

significant number of pending conservation easement

cases.” The IRS said that it will “soon be moving the Tax

Court to invalidate the claimed deductions in all cases

where the transactions fail to comply with the basic

requirements, leaving only the final penalty amount to

be determined.”

The IRS commissioner stated: “Abusive syndicated

conservation easement transactions undermine the pub-

lic’s trust in private land conservation and defraud the

government of revenue. Putting an end to these abusive

schemes is a high priority for the IRS.” [10.15(c)] ◆

OTHER CONSERVATION

EASEMENT DEVELOPMENTS

Remarks made by IRS officials at an American Insti-

tute of Certified Public Accountants conference make

clear the fact that the IRS, as part of its crackdown on

syndicated promotions, is examining tax-exempt organi-

zations involved in the deals. Deputy Commissioner for

Services and Enforcement Sunita Lough said that the

agency has a “dozen or more” exempt organizations

under audit on this issue. IRS Commissioner Charles

Rettig said: “We appreciate the value of conservation

easements. We don’t appreciate the activities that have

gone on with respect to the syndicated conservation

easements and artificial appraisals,” adding that the IRS

is “not going to stand down” (Bloomberg Law, Daily Tax

Report (November 15)).

An IRS official stated at another conference that the

agency is crafting guidance concerning conservation

easement transactions, although details as to the con-

tent of this guidance were not provided (Bloomberg Law,

Daily Tax Report (November 18)).

The Congressional Research Service, in a report

dated November 1, updated its analysis of charitable

conservation contributions (“Charitable Conservation

Contributions: Potential for Abuse?” (IN11141)). The

report summarizes the law as to these types of gifts, pro-

vides data as to the deductions, and discusses the matter

of syndicated conservation easement transactions. As to

the data (for 2016), the CRS reports that the amount

deducted in connection with these contributions was

$4.2 billion, with 3,540 donors claiming these deduc-

tions, involving 4,518 easements. [9.7, 10.15(a)] ◆

NONPROFIT ORGANIZATION

HELD TO BE INDIVIDUAL’S

ALTER EGO FOR PENALTY

PURPOSES

It will be recalled that one James Tarpey was found

liable by a federal district court for the tax shelter penalty

(IRC § 6700) for engaging in an abusive tax transaction

involving an ostensible tax-exempt charitable organiza-

tion by the name of Donate For Cause (opinion sum-

marized in the June 2019 issue). The DFC solicited and