Inside This Issue
Settlements
begin in syndicated conservation easement transaction initiative
WASHINGTON – As part of a
continuing effort to combat abusive transactions, the Internal Revenue Service
announced today the completion of the first settlement under its initiative to
resolve certain docketed cases involving syndicated conservation easement
transactions.
On June 25, 2020, the IRS
Office of Chief Counsel announced that it would offer to settle certain cases
involving abusive syndicated conservation easement transactions. Since then,
Chief Counsel has sent letters to dozens of partnerships involved in these
transactions whose cases are pending before the U.S. Tax Court.
“We are seeing movement on
these settlements,” said IRS Chief Counsel Mike Desmond. “Given the potential
for significant penalties, we anticipate more taxpayers will take similar
actions and ultimately accept these offers, and we encourage them to do so.”
The IRS will continue to
actively identify, audit and litigate these abusive transactions as part of its
vigorous effort to combat abuse in this area. These transactions undermine the
public's trust in tax incentives for private land conservation and in tax
compliance in general. Ending these abusive schemes remains a top priority for
the IRS. The IRS continues to strongly recommend that participants seek the
advice of competent, independent advisors in considering the potential
resolution of their matter.
The settlement requires a
concession of the tax benefits claimed by the taxpayers and imposes penalties:
• 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.
• 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.
• 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.
This week, the first settlement
under the terms of the initiative was finalized. 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. On October 28, 2019, the Tax Court issued its Opinion (153
T.C. 126) granting the government’s motion for partial summary judgment holding
that the "judicial extinguishment" provisions of the easement deed
did not satisfy the requirements of section 1.170A-14(g)(6), Income Tax Regs.
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. A public statement acknowledging the settlement was
part of the agreement between the IRS and the taxpayer.
IRS Commissioner Chuck Rettig
thanked the trial team for their exceptional dedication and work on the case:
“The IRS is pleased that the partnership in the Coal Property transaction has
agreed to this settlement, and we encourage other participants in qualifying
easement cases to accept the terms of the Chief Counsel’s initiative,” Rettig
said.
Coal Property was represented
by Christopher S. Rizek and Scott D. Michel of the Washington, D.C. law firm
Caplin & Drysdale. “In light of the significance of the Court’s ruling on
the perpetuity issue, our client decided to take advantage of an assured
penalty reduction in the IRS initiative and settle this matter under the IRS’s
terms, and it is pleased that this case is resolved,” Rizek said.
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