IRS plans settlements in conservation easement cases

The Internal Revenue Service plans to offer settlements in syndicated conservation easement cases, but only for a limited period of time, as it unveils an updated website with details on court decisions and litigation involving the longtime tax shelter.

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Conservation easements allow taxpayers to set aside part of their real estate property for conservation purposes and claim a tax deduction. However, tax shelter promoters have also signed up clients for syndicated conservation easements in which they can invest in a piece of property that’s supposedly set aside for conservation and have run afoul of the IRS. President Trump has been sued by New York Attorney General Leticia James for claiming conservation easements on some of his golf courses in New York and other states.

The IRS web page also focuses on syndicated historic preservation easements, which have also presented similar issues as conservation easements. 

“Congress created the conservation easement deduction to encourage genuine preservation, not to subsidize abusive tax shelters,” said IRS CEO Frank Bisignano in a statement Wednesday. “The updated information on IRS.gov explains why the IRS continues to challenge these transactions and highlights the serious risks taxpayers face when they are sold inflated tax benefits disguised as conservation.”

The IRS reminded taxpayers that, while properly structured conservation easements can offer important public benefits, promoter-driven transactions are often built on inflated valuations that can lead to disallowed deductions, substantial penalties and other consequences. 

The IRS also announced Wednesday it will soon release the terms of a time-limited settlement opportunity for eligible taxpayers involved in these transactions. After that announcement, the IRS will extend settlement offers to eligible partnerships to provide an opportunity to resolve the federal tax consequences of these transactions with certainty. 

“The courts have repeatedly rejected abusive conservation easement arrangements, often sustaining major reductions in claimed deductions and significant penalties,” said acting IRS chief counsel Kenneth Kies in a statement. “Taxpayers and their advisors should carefully review the updated information and the settlement terms when they are announced.”

While the website discusses a number of Tax Court and appeals court decisions that have agreed with the IRS’s position on conservation easements, sometimes the court has ruled in favor of the developer. In a 2023 case involving a company called LakePoint Land II, a court found the IRS had skirted a statutory requirement for supervisors to sign off on tax penalties before levying them. The Treasury Inspector General for Tax Administration released a report Tuesday indicating that the IRS had backdated several approvals to get around this requirement.