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IRS Makes Limited Settlement Offers to Syndicated Conservation Easements Participants

S.J. Steinhardt
Published Date:
Jun 28, 2024

The IRS has offered a time-limited settlement deal to certain taxpayers who participated in syndicated conservation easements (SCEs) and substantially similar transactions that are being audited by its Large Business & International and Small Business and Self-Employed divisions, the agency announced.

SCEs are considered to be tax avoidance schemes by the IRS, CPA Practice Advisor reported. As such, they have been included in the IRS’s annual Dirty Dozen list for years, including this year.

Generally, taxpayers may claim a charitable contribution deduction for the fair market value of a conservation easement—a restriction on the use of real property—if it is transferred to a charity and that transfer meets Internal Revenue Code section 170 requirements, according to the IRS.

In abusive arrangements, promoters are syndicating conservation easement transactions that tell the investor that he or she may claim charitable contribution deductions and corresponding tax savings that “significantly exceed the amount the investor invested,” in the words of the IRS. These arrangements generate high fees for promoters and “grossly inflated tax deductions.”

In December 2022, Congress passed the SECURE 2.0 Act, which applies to contributions of property made after Dec. 29, 2022, to help curb SCE abuse by limiting deductions for certain charitable contributions under Internal Revenue Code Section 170.

Last November, the Treasury Department and the IRS issued proposed regulations that disallowed deductions for SCE transactions “made by a partnership or an S corporation after Dec. 29, 2022, if the amount of the contribution exceeds 2.5 times the sum of each partner's or S corporation shareholder's relevant basis.”

The IRS said that it will notify eligible taxpayers by letter with the applicable terms and timelines to respond, and that the settlement offer “requires substantial concession of the income tax benefits and the application of penalties.” Those taxpayers who receive a letter but choose not to participate will continue to face IRS enforcement actions, “including potential full disallowance of charitable contributions associated with the SCE and the imposition of all applicable penalties,” it said.

“The IRS encourages taxpayers and their advisors to carefully review the settlement offer,” it said. “The settlement offer is the most effective and efficient way for taxpayers to bring finality to the transactions and achieve tax certainty.”

Taxpayers who don't receive a letter, and those with cases pending in the United States Tax Court, are not eligible for this settlement offer.

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