ProPublica: The Tax Scam That Won’t Die

ProPublica, The Tax Scam That Won’t Die:

For 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:

• ProPublica: America's Richest People Pay Little To Nothing In Federal Income Taxes (June 8, 2021)
• ProPublica: How Peter Thiel Turned $2,000 In A Roth IRA Into $5,000,000,000 (June 28, 2021)
• ProPublica: Why You Can’t Turn Your Roth IRA Into a Billion-Dollar Tax Shelter (July 1, 2021)
• ProPublica: The Billionaire Playbook — How Sports Owners Use Their Teams To Avoid Millions In Taxes (July 12, 2021)
• ProPublica: The Number Of People With IRAs Worth $5 Million Or More Has Tripled, Congress Says (July 29, 2021)
• ProPublica: Secret IRS Files Reveal How Much the Ultrawealthy Gained by Shaping Trump’s “Big, Beautiful Tax Cut” (Aug. 11, 2021)
• ProPublica: How The Trump Tax Law Created A Loophole That Lets Top Executives Net Millions By Slashing Their Own Salaries (Aug. 20, 2021)
• ProPublica: House Bill Would Blow Up The Massive IRAs Of The Superwealthy (Sept. 22, 2021)
• ProPublica: More Than Half Of America’s 100 Richest People Exploit GRATs To Avoid Estate Taxes (Sept. 30, 2021)
• ProPublica: 18 Billionaires Received Taxpayer-Funded Stimulus Checks During The Pandemic (Nov. 4, 2021)
• ProPublica: How These Ultrawealthy Politicians Avoided Paying Taxes (Nov. 5, 2021)
• ProPublica: More Billionaire Tax Games (Dec. 9, 2021)
• ProPublica: How Three Families Shielded Their Fortunes From Taxes For Generations (Dec. 15, 2021)
• Wall Street Journal Editorial, The Internal Revenue Leak Service (Dec. 15, 2021)
• ProPublica: When Billionaires Don’t Pay Taxes, People 'Lose Faith In Democracy' (Mar. 4, 2022)
• ProPublica Names The 15 Americans Who Reported The Most Income And Reveals Data For The Top 400 (Apr. 14, 2022)
• ProPublica: If You’re Getting A W-2, You’re A Sucker (Apr. 19, 2022)