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Tax News: IRS's First Conservation Easement Settlement

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The Internal Revenue Service ("IRS") announced the first settlement involving syndicated conservation easement transactions.

About the Settlement Program

In June, the IRS announced a settlement program for certain cases involving abusive syndicated conservation easement transactions. The IRS will continue to actively identify, audit and litigate these abusive transactions. These transactions undermine the public's trust in tax incentives for private land conservation and in tax compliance in general.

The settlement requires a concession of the tax benefits claimed by the taxpayers and imposes penalties:

  1. All partners in an electing partnership must agree to settle to receive these terms, and the partnership must make a lump-sum payment representing the aggregate tax, penalties and interest for all of the partners before settlement is accepted by the IRS.
  2. Chief Counsel will allow investors to deduct the cost of acquiring their partnership interests but it will require a penalty of at least 10 percent.
  3. Partners who are promoters of conservation easement schemes are not allowed any deductions and must pay the maximum penalty asserted by IRS (typically 40 percent).

If less than all the partners agree to settle, the IRS may settle with those partners but will normally impose less favorable terms on the settling partners.

IRS's First Major Settlement

Coal Property Holdings, LLC and its partners agreed to a disallowance of the entire $155 million charitable contribution deduction claimed for an easement placed on a 3,700-acre tract of land in Tennessee. 

Under the terms of the settlement, the investor partners were permitted to deduct their cost of investing in the conservation easement transactions and paid a 10 percent penalty, whereas the promoter partner was denied any deduction and paid a 40% penalty. The taxpayers also fully paid all tax, penalties, and interest in conjunction with the settlement. The settlement will be reflected in a stipulated decision document entered by the Tax Court and in a separately entered closing agreement.

For any questions or concerns, please contact the Tax Attorneys at Fazzio Law, we are in your corner!

Category: Tax

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