Tax Court Splits Over Conservation Easement Tax Penalty Process

Published date01 March 2020
Date01 March 2020
Bruce R. Hopkins’ Nonpr ofit Counsel DOI:10.10 02/n pc
The IRS, on January 6, issued its “Internal Revenue
Service Progress Update” for fiscal year 2019. This docu-
ment includes the IRS’s 2018–2022 Strategic Plan, articu-
lating its vision of becoming a more “taxpayer-centric
and modern agency.” This plan has three goals, one of
which is “[p]rotect[ing] the integrity of the tax system
by encouraging compliance through administering and
enforcing the tax code.”
In its efforts to increase compliance, the IRS is focusing
on abusive tax shelters. The report states that the IRS “is
committed to pursuing those who promote and make use
of such schemes.” It observes that the IRS is “especially
concerned about three major variations” of tax scams,
one of which is syndicated conservation easements. The
report summarizes these schemes, “which purport to give
investors the opportunity to obtain charitable deduc-
tions, even though the tax benefits the investors receive
significantly exceed the amount they have invested.”
As discussed in the January 2020 issue, the IRS has
launched significant enforcement actions in opposi-
tion to syndicated easement promotions and transac-
tions. The agency is devoting considerable investigative
resources in this context in auditing the entities and
individuals involved, speaking out on this issue at confer-
ences, and aggressively litigating cases in this area in the
US Tax Court. [10.15(c)]
The US Tax Court, in the fall of 2018, held that a donor
was not entitled to a charitable contribution deduction
for the gift of a conservation easement because of the
donor’s failure to attach a fully completed appraisal
summary to the tax return involved (Belair Woods, LLC
v. Commissioner) (opinion summarized in the December
2018 issue).
The case returned to the court, this time to address
the question whether, as to the four penalties assessed
by the IRS, the requisite timely written supervisory
approval was secured (in accordance with IRC § 6751(b)
(1)). The court, albeit deeply divided over that issue, basi-
cally agreed that this law is, in the characterization of a
dissent, “imprecise.” The core problem with this statute
is that it references the requirement of an “initial deter-
mination” of an “assessment.” This phraseology, accord-
ing to the court majority, does not appear anywhere else
in the Code (and thus is what scholars of ancient Greek
term a hapax legomenon). (One cannot, at least not in
the parlance of the tax law, determine an assessment.)
The court majority (eight judges) held, in a decision
dated January 6, that a letter and summary report inviting
the donor to a conference to discuss proposed adjust-
ments inherently did not satisfy the statutory require-
ments, the requirements were satisfied with respect to
three of the penalties, and the requirements as to the
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