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The IRS and syndicated conservation easements in Georgia

On Behalf of | Dec 21, 2022 | IRS Audits, Syndicated Conservation Easements

Some courts have recently made decisions that challenge the IRS’s authority when classifying a syndicated conservation easement as an abusive tax avoidance scheme in Georgia. The IRS has snapped back with propositions for regulations and making sure appropriate time is given for comments to be made.

What is a conservation easement?

A syndicated conservation easement is a way for taxpayers to use land for the purpose of conservation. Unfortunately, it’s an arrangement that’s often taken advantage of. This can happen when a promoter draws in investor syndicates and convinces them to pool their money together and purchase property, like a golf course, and then claim the tax breaks.

Some have been able to challenge the IRS

As of 2017, the Internal Revenue Service classifies these easements as listed transactions or tax shelters. But there have still been cases recently in which groups of investors have been able to successfully challenge the IRS’s syndicated conservation easement audits.

Green Valley Investors, for instance, got a favorable ruling from the U.S. Tax court. Notice 2017-10 was found to be invalid since it had been issued lacking the proper notice-and-comment rulemaking procedure.

Another case with a listed transaction went a similar way. It involved a construction company that was able to challenge the IRS in the federal appeals court.

The IRS has stated in Announcement 2022-28 that both the Treasury Department and the IRS don’t agree with what the Tax Court has decided in the Green Valley Case. The two departments also disagree with the decision from the Sixth Circuit Court of Appeals in the construction company case.

The Internal Revenue Service and the Treasury Department have proposed new regulations that will help suss out the listed transactions from the syndicated conservation easement. The IRS says this is an effort to clear up confusion and make sure the department is not disrupted in its work to fight against abusive tax shelters across the country. The department has stated that it will continue to defend its existing listing notes beyond the Sixth Circuit.