Paul L. Caron
Dean




Wednesday, June 22, 2022

ProPublica: The Tax Scam That Won’t Die

ProPublica, The Tax Scam That Won’t Die:

Pro PublicaFor the past six years, government officials have tried ever harder to kill a type of tax avoidance scheme that the Internal Revenue Service has branded “abusive” and among “the worst of the worst tax scams.” The IRS has pursued tens of thousands of audits and warned of hefty penalties facing anyone who exploits it. The Justice Department has targeted top promoters of what it calls “fraudulent” deals with criminal charges and civil lawsuits, yielding several guilty pleas and a civil settlement. In Congress, Democrats and Republicans have united to sponsor legislation to abolish the practice.

But the industry has fought back with a coterie of lobbyists, including a onetime member of Congress long viewed as a liberal lion, Henry Waxman. The battle shows how even on those rare occasions when both parties agree to take action, well-funded interests can frustrate a solution.

The result: The use of the scheme continues unabated. Along the way it has cost the U.S. Treasury billions in lost taxes, according to the IRS. ...

The government is targeting a tax deduction that goes by the cumbersome name “syndicated conservation easement,” which exploits a charitable tax break that Congress established to encourage preservation of open land. Under standard conservation easements, landowners who give up development rights for their acreage, usually by donating those rights to a nonprofit land trust, get a charitable deduction in return. When conservation easements are used as intended, both the public and the owner of the property benefit. A piece of pristine land is preserved, sometimes as a park that the public can use, and the donor gets a tax break.

The syndicated versions are different. Instead of seeking to protect a bucolic reserve for wildlife or humans, profit-seeking intermediaries have turned the likes of abandoned golf courses or remote scrubland into high-return investment vehicles. These promoters snatch up vacant land that till then was worth little. Then they hire an appraiser willing to declare that it has huge, previously unrecognized development value — perhaps for luxury vacation homes or a solar farm — and thus is really worth many times its purchase price. The promoters sell stakes in the donation to individuals, who claim charitable deductions that are four or five times their investment. The promoters reap millions in fees. ...

Today, the fight has taken on a grinding quality. By the IRS’ most recent reckoning, the use of syndicated easements grew from 249 deals in 2016, generating $6 billion in charitable deductions, to 296 deals in 2018, producing $9.2 billion in deductions. (By contrast, more than 2,000 nonsyndicated easement deductions have resulted in about $1 billion in annual deductions.)

The trend continues today, IRS Commissioner Charles Rettig told the Senate Subcommittee on Financial Services and General Government last month. He was visibly frustrated. “Notwithstanding our efforts,” Rettig testified, “we have not had an impact on essentially slowing the volume of these transactions that we receive currently. We need Congressional help. We need a statute to help us curb this activity.”

Prior TaxProf Blog coverage:

https://taxprof.typepad.com/taxprof_blog/2022/06/propublica-the-tax-scam-that-wont-die.html

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