Paul L. Caron
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Saturday, January 18, 2020

The IRS Tried To Crack Down On Rich People Using An 'Abusive' Tax Deduction. It Hasn’t Gone So Well.

ProPublica, The IRS Tried to Crack Down on Rich People Using an “Abusive” Tax Deduction. It Hasn’t Gone So Well.:

Pro PublicaIn March 2019, the IRS added a scheme to its annual “Dirty Dozen” list of “the worst of the worst tax scams.” That same scheme was targeted, just weeks earlier, when the U.S. Department of Justice filed a fraud lawsuit against a handful of promoters allegedly responsible for generating more than $2 billion in improper tax write-offs. And the Senate Finance Committee has been investigating that very same racket, recently demanding thousands of pages of documents from six promoters. Lawmakers from both parties have introduced legislation to halt the same practice.

The scheme they’re all trying to kill is what’s called a “syndicated conservation easement,” which the IRS calls “abusive” and says has resulted in bogus deductions for the rich that have cost the U.S. Treasury billions in revenues.

A conservation easement, in its original, legitimate form, is granted when a landowner permanently protects pristine land from development. In that scenario, the public enjoys the benefit of undeveloped land and the taxpayer gets a charitable deduction. By contrast, the syndicated form, created and packaged by profit-seeking middlemen known as “promoters,” involves buying up land, finding an appraiser willing to declare that it has huge development value and thus is worth many times the purchase price, then selling stakes in the deal to wealthy investors who extract tax deductions that are often five or more times what they put in. (ProPublica investigated syndicated easements in the 2017 article “The Billion-Dollar Loophole.”)

But the multifront crackdown seems to be having, at best, a limited effect. There were signs that the pace of syndicated deals has eased, according to an IRS letter to Congress in July 2018 that cited incomplete data; that’s the most recent official statement from the agency, which declined to comment for this article. And some entities doing syndicated projects have seen their business drop or have even left the field. But IRS commissioner Chuck Rettig offered a different picture to the Senate Finance Committee this spring. “Syndicated transactions have absolutely not declined,” he testified. “They’re still there.”

In November, Rettig announced an escalation — including the launch of criminal investigations — in the agency’s attempts to stymie syndicated easements. “We will not stop in our pursuit of everyone involved in the creation, marketing, promotion and wrongful acquisition of artificial, highly inflated deductions based on these aggressive transactions,” he said in a statement at the time. Three IRS divisions are now conducting coordinated examinations of syndication deals after identifying 125 “high-risk cases,” and outside contractors have been hired to assist with the investigative load. More than 80 tax court cases are now pending against partnerships that used the syndicated easement deduction.

The imperviousness of the scam’s promoters and investors has left tax experts flummoxed. ...

[B]ipartisan congressional sponsors have, for the past three years, proposed legislation that would kill most syndications by limiting their profitability. It would bar deductions that exceed two and a half times the investment for any easement partnership that owned the land for less than three years.

In July, Congress’ Joint Committee on Taxation projected that passage of the latest incarnation, the “Charitable Conservation Easement Program Integrity Act of 2019,” would, if enacted, produce $7.1 billion in additional tax revenue through 2021. The bill has yet to get out of committee.

https://taxprof.typepad.com/taxprof_blog/2020/01/the-irs-tried-to-crack-down-on-rich-people-using-an-abusive-tax-deduction-it-hasnt-gone-so-well.html

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Comments

It sounds like the government is a bit conflicted about the real worth of conservation. The taxation side seems to hate conservation, whereas the natural resources/parks/forestry wants the public to value it. Or is it just a valuation problem?

Posted by: ruralcounsel | Jan 21, 2020 4:24:25 AM

Nice to see our government zealously addressing big-money challenges!

But I learned in law school that genteel individualized advice can be at least as questionable as ostentatious (and thereby somewhat egalitarian) publicity. For instance, to name our Family Limited Partnerships "so-and-so Associates" instead, and that it was natural to not be able to find out about putting a straddle in two GRATs - an "aggressive" "bipolar GRAT" to those in the know - online.

Posted by: Anand Desai | Jan 22, 2020 5:02:53 PM