The IRS has been cracking down on conservation easement transactions for over ten years. Nevertheless, taxpayers have continued to claim charitable contribution deductions attributable to the donation of conservation easements and promoters have continued to assemble investments utilizing conservation easement charitable deductions. The IRS began focusing on syndicated conservation easement transactions when it issued Notice 2017-10, designating syndicated conservation easement transactions as listed transactions. These syndicated investments involve the use of partnerships to raise funds from investors, who are allocated a share of a charitable contribution deduction attributable to conservation easements donated on land owned by the partnership. In fall of 2018, the IRS doubled down on its attacks of these investments when syndicated conservation easements were added to the list of LB&I compliance campaigns. While the IRS continues to crack down on these arrangements, taxpayers have continued litigating the finer points of these transactions. On the flipside, DOJ has begun cracking down on promoters who market these transactions. Below are details on the most recent developments.
Pine Mountain Preserve v. Comm’r
This case involves three conservation easements covering various portions of an assemblage of over 2,000 acres of land. The land was located in what sounds like a beautiful location in Alabama for development of recreational and horse properties. Over three years, three different easements were granted on various portions of 1,300 of the 2,000 acres. The first two easements reserved the right to allow for small parcels of development, in a location to be agreed upon between the property owner and the charity holding the easement.
Relying on its prior rulings in Belk v. Comm’r, 140 T.C. 1 (2013), supplemented by T.C. Memo. 2013-154, aff’d 774 F.3d 221 (4th Cir. 2014) and Bosque Canyon Ranch v. Comm’r, T.C. Memo. 2015-130, vacated and remanded sub nom. 867 F.3d 547 (5th Cir. 2017), the court determined that the first two easements did not a qualified real property interest due to the uncertainty created by the reservation to create pockets of development on the property subject to the conservation easement. [We note that the Tax Court was not persuaded by the Fifth Circuit opinion in Bosque Canyon and declined to follow it since this case is not appealable to the Fifth Circuit.] However, while the third easement contained a reservation for installing a water tower, it did not allow for the parties to choose after the easement areas for development within the easement area. Thus, the third easement was determined to be a qualified real property interest.
Valuation of the third easement was discussed in a Memorandum opinion issued simultaneously with the full Tax Court opinion addressing the validity of the easement. The court found the taxpayer’s expert overvalued the potential development of the property in determining the value of the easement but that the IRS expert undervalued the easement by ignoring the development potential of the property. The court went to great lengths to discuss in detail the misgivings of both valuation expert’s opinions but the
For those wishing to protect their captive, we’ll get you compliant. And for those facing an audit, we’ll be your defense.
Businesses have been creating captive insurance companies (CICs) for more than 100 years in order to manage risk while taking advantage of the tax benefits offered by the insurance arrangement.
However, the IRS has started to evaluate possible abuses surrounding CICs, and has begun examinations in the area. For those businesses who are unprepared when facing examination, there can be consequences.
designated syndicated conservation easement arrangements Published on February 18, 2020 Edit article View stats call firstStatus is online call first Speaker, author expert witness at VEBA LLC 188 articles The Internal Revenue Service today urged taxpayers involved in designated syndicated conservation easement arrangements to consult with their tax advisors following a recent U.S. Tax Court decision and agency plans to continue enforcement efforts in this area.
In late 2016, the Internal Revenue Service designated certain syndicated conservation easement arrangements as "listed transactions" in Notice 2017-10 (PDF).
On Dec. 13, 2019, the U.S. Tax Court entered its first decision on a syndicated conservation easement transaction. In TOT Property Holdings, LLC v. Commissioner, Docket No. 005600-17, the Tax Court sustained in its entirety the IRS's determination that all tax benefits from a syndicated conservation easement transaction should be denied and that the 40% gross valuation misstatement and negligence penalties applied. The Tax Court found that the transaction failed the legal requirements applicable to donations of land easements and, in imposing the gross valuation misstatement penalty, found that the actual value of the easement donation was less than 10 percent of what was originally reported on the tax return.
"In denying the deductions and upholding the 40% gross valuation misstatement penalty, the Tax Court confirmed that aggressive syndicated easement transactions simply will not survive scrutiny," said IRS Commissioner Chuck Rettig. "We will not stop in our coordinated pursuit of these abusive transactions while seeking the imposition of all available civil penalties and, when appropriate, various criminal options for those involved."
"If you engaged in any questionable syndicated conservation easement transaction, you should immediately consult an independent, competent tax advisor to consider your best available options," Rettig added.
Tax Court trials in four other syndicated easement cases were conducted earlier this year and more than 50 cases are pending. In other recent cases, the Tax Court has rejected arguments that various regulations taxpayers failed to comply with are invalid, essentially negating one of these taxpayers' main defenses.
"We are prepared to take each of these and all other cases being developed by the IRS to trial, although the substance of most cases can be resolved without trial because the transactions do not meet the basic requirements to claim the charitable contribution deduction," said IRS Chief Counsel Mike Desmond. "We encourage taxpayers and their advisors to see the writing on the wall and take immediate steps to resolve these matters."
Report this Published by call firstStatus is online call first Speaker, author expert witness at VEBA LLC Published • now
The IRS has been cracking down on conservation easement transactions for over ten years. Nevertheless, taxpayers have continued to claim charitable contribution deductions attributable to the donation of conservation easements and promoters have continued to assemble investments utilizing conservation easement charitable deductions. The IRS began focusing on syndicated conservation easement transactions when it issued Notice 2017-10, designating syndicated conservation easement transactions as listed transactions. These syndicated investments involve the use of partnerships to raise funds from investors, who are allocated a share of a charitable contribution deduction attributable to conservation easements donated on land owned by the partnership. In fall of 2018, the IRS doubled down on its attacks of these investments when syndicated conservation easements were added to the list of LB&I compliance campaigns. While the IRS continues to crack down on these arrangements, taxpayers have continued litigating the finer points of these transactions. On the flipside, DOJ has begun cracking down on promoters who market these transactions. Below are details on the most recent developments.
ReplyDeletePine Mountain Preserve v. Comm’r
This case involves three conservation easements covering various portions of an assemblage of over 2,000 acres of land. The land was located in what sounds like a beautiful location in Alabama for development of recreational and horse properties. Over three years, three different easements were granted on various portions of 1,300 of the 2,000 acres. The first two easements reserved the right to allow for small parcels of development, in a location to be agreed upon between the property owner and the charity holding the easement.
Relying on its prior rulings in Belk v. Comm’r, 140 T.C. 1 (2013), supplemented by T.C. Memo. 2013-154, aff’d 774 F.3d 221 (4th Cir. 2014) and Bosque Canyon Ranch v. Comm’r, T.C. Memo. 2015-130, vacated and remanded sub nom. 867 F.3d 547 (5th Cir. 2017), the court determined that the first two easements did not a qualified real property interest due to the uncertainty created by the reservation to create pockets of development on the property subject to the conservation easement. [We note that the Tax Court was not persuaded by the Fifth Circuit opinion in Bosque Canyon and declined to follow it since this case is not appealable to the Fifth Circuit.] However, while the third easement contained a reservation for installing a water tower, it did not allow for the parties to choose after the easement areas for development within the easement area. Thus, the third easement was determined to be a qualified real property interest.
Valuation of the third easement was discussed in a Memorandum opinion issued simultaneously with the full Tax Court opinion addressing the validity of the easement. The court found the taxpayer’s expert overvalued the potential development of the property in determining the value of the easement but that the IRS expert undervalued the easement by ignoring the development potential of the property. The court went to great lengths to discuss in detail the misgivings of both valuation expert’s opinions but the
For those wishing to protect their captive, we’ll get you compliant.
ReplyDeleteAnd for those facing an audit, we’ll be your defense.
Businesses have been creating captive insurance companies (CICs) for more than 100 years in order to manage risk while taking advantage of the tax benefits offered by the insurance arrangement.
However, the IRS has started to evaluate possible abuses surrounding CICs, and has begun examinations in the area. For those businesses who are unprepared when facing examination, there can be consequences.
designated syndicated conservation easement arrangements
ReplyDeletePublished on February 18, 2020
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call firstStatus is online
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188 articles
The Internal Revenue Service today urged taxpayers involved in designated syndicated conservation easement arrangements to consult with their tax advisors following a recent U.S. Tax Court decision and agency plans to continue enforcement efforts in this area.
In late 2016, the Internal Revenue Service designated certain syndicated conservation easement arrangements as "listed transactions" in Notice 2017-10 (PDF).
On Dec. 13, 2019, the U.S. Tax Court entered its first decision on a syndicated conservation easement transaction. In TOT Property Holdings, LLC v. Commissioner, Docket No. 005600-17, the Tax Court sustained in its entirety the IRS's determination that all tax benefits from a syndicated conservation easement transaction should be denied and that the 40% gross valuation misstatement and negligence penalties applied. The Tax Court found that the transaction failed the legal requirements applicable to donations of land easements and, in imposing the gross valuation misstatement penalty, found that the actual value of the easement donation was less than 10 percent of what was originally reported on the tax return.
"In denying the deductions and upholding the 40% gross valuation misstatement penalty, the Tax Court confirmed that aggressive syndicated easement transactions simply will not survive scrutiny," said IRS Commissioner Chuck Rettig. "We will not stop in our coordinated pursuit of these abusive transactions while seeking the imposition of all available civil penalties and, when appropriate, various criminal options for those involved."
"If you engaged in any questionable syndicated conservation easement transaction, you should immediately consult an independent, competent tax advisor to consider your best available options," Rettig added.
Tax Court trials in four other syndicated easement cases were conducted earlier this year and more than 50 cases are pending. In other recent cases, the Tax Court has rejected arguments that various regulations taxpayers failed to comply with are invalid, essentially negating one of these taxpayers' main defenses.
"We are prepared to take each of these and all other cases being developed by the IRS to trial, although the substance of most cases can be resolved without trial because the transactions do not meet the basic requirements to claim the charitable contribution deduction," said IRS Chief Counsel Mike Desmond. "We encourage taxpayers and their advisors to see the writing on the wall and take immediate steps to resolve these matters."
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