IRS Offers to Settle With Certain Tax Avoidance Scheme Participants

The IRS said on June 26 that it will be mailing time-limited settlement offers to some taxpayers under audit who participated in deals involving syndicated conservation easements, a tax avoidance scheme the agency is trying to eliminate.

Here’s what the IRS said in a press release on Wednesday about the settlement offer:

The IRS will notify eligible taxpayers by letter with the applicable terms and timelines to respond. The settlement offer requires substantial concession of the income tax benefits and the application of penalties. Taxpayers under examination who receive a letter but opt not to participate will continue to face IRS enforcement actions, including potential full disallowance of charitable contributions associated with the syndicated conservation easements and the imposition of all applicable penalties.

Taxpayers who don’t receive a letter are not eligible for this resolution, and the IRS will continue enforcement-related actions. Taxpayers with cases pending in the United States Tax Court are not eligible for this settlement offer.

After careful consideration and input from external stakeholders, the IRS is taking this additional step of offering time-limited settlements in the interest of sound tax administration. The IRS encourages taxpayers and their advisors to carefully review the settlement offer. The settlement offer is the most effective and efficient way for taxpayers to bring finality to the transactions and achieve tax certainty.

Syndicated conservation easements have been included in the IRS’s annual list of Dirty Dozen tax schemes for many years, including this year.

Fraudsters may peddle syndicated conservation easement agreements—in which someone invests in an easement (an easement is the right to use someone’s land for a given purpose, like conservation)—and receives a tax deduction in return. This strategy can inflate a person’s tax deduction, lowering the amount of income that gets taxed. To do so, the fraudster suggests that a taxpayer can deduct an amount higher than what they invested in the easement. But as the IRS warns: if it sounds too good to be true, it probably is.

The SECURE 2.0 Act of 2022 added new subsections to the part of the tax law that provides rules for deductions for charitable contributions under Internal Revenue Code Section 170.

Last November, the Treasury Department and the IRS issued proposed regulations that disallow deductions for syndicated conservation easement transactions.