The IRS can and should do more to curb abusive tax schemes and schemers, the Government Accountability Office (GAO) found in a recently issued report.

The report noted that the IRS conducted hundreds of investigations that resulted  tens of millions of dollars in penalties in the past two fiscal years, and that the agency is aware of more than  40 types of abusive tax schemes involving promoters.

One such promotion, syndicated conservation easements, was addressed by the omnibus spending bill passed by Congress in December. According to the IRS, "In these transactions, investors typically acquire an interest in a partnership that owns land and then claim an inflated charitable contribution deduction based on a grossly overvalued appraisal when the partnership donates a conservation easement on the land." Such transactions have been the target of “thousands of audits, threats of hefty penalties and criminal prosecutions,” but these measures have not succeeded in shutting them down, ProPublica reported. That was why Congress enacted the legislation, which will cap taxpayers’ deductions to two and a half times their investment. In doing so, Congress sought to eliminate the profits that drive these deals while still allowing for traditional conservation easements.

Every year, the IRS compiles a list of its Dirty Dozen tax schemes, one of its key communications tools to alert the public. This annual publication does not include information on how to report these schemes and their promoters, so the GAO recommended adding instructions to the list on how to submit such information.

The GAO had previously recommended that IRS develop a consolidated, online referral submission tool, as few of its referral forms allow for online submissions.

The IRS created the Office of Promoter Investigations (OPI) in 2021 to coordinate the agency’s response to promoters. While the GAO acknowledged this office’s development of its strategic mission, it recommended finalization of outcome-oriented goals and performance measures.

“The goal of the OPI is to protect taxpayer rights and equitably enforce the tax laws," wrote Melanie Krause, acting deputy commissioner for services and enforcement at the IRS, in a response to the GAO report, included in its appendix. "We want to proactively provide taxpayers and other stakeholders with information on how to protect themselves against feud schemes and abusive tax avoidance efforts. The IRS is committed to identifying and stopping abusive tax schemes and abusive promoters and preparers as soon as possible. The IRS relies on help from the tax practitioner community and the public to identify 'too good to be true' abusive tax transactions."