Tax Court Splits Over Conservation Easement Tax Penalty Process

• DOI: http://doi.org/10.1002/npc.30694
• Published date: 01 March 2020
• Date: 01 March 2020

Bruce R. Hopkins’ NONPROFIT COUNSEL

2 March 2020 THE LAW OF TAX-EXEMP T ORGANIZATIONS MONTHLY

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

IRS RESTATES ITS FOCUS ON

SYNDICATED CONSERVATION

EASEMENTS

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)] ◆

TAX COURT SPLITS OVER

CONSERVATION EASEMENT

TAX PENALTY PROCESS

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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