IRS cracks down on ‘billions’ of tax breaks from land donations

Certain land donation deals that get hefty tax deductions will be under tighter scrutiny from Internal Revenue Service auditors, the agency said Tuesday.

The IRS announced a “significant increase” in audits and potential criminal prosecutions for taxpayers and their advisers involved in land donation deals known as syndicated conservation easements, where multiple people can claim tax deductions for donations of land that is protected from future development. The IRS is concerned about cases where the tax breaks exceed that value of the initial contribution.

“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,” IRS Commissioner Chuck Rettig said in a statement Tuesday. “If you engaged in any questionable syndicated conservation easement transaction, you should immediately consult an independent, competent tax adviser to consider your best available options.”

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The seal of the Internal Revenue Service hangs on a podium during an IRS Criminal Investigation 100th year anniversary event at the IRS headquarters in Washington, D.C.

The IRS is investigating billions of dollars of potentially inflated deductions and thousands of investors involved in the deals, the agency said.

The announcement marks the IRS’s most aggressive move to crack down on syndicated conservation easements. The agency noted in 2016 that it was concerned about cases where investors were receiving tax breaks worth at least 250 percent of the amount of the donation — and in some cases much more. There are already 80 cases docketed in the Tax Courts, according to the IRS.

Taxpayers may be able to avoid penalties if they remove the deduction on an amended tax return or ask the IRS to make a change to their tax documents, the agency said.

Supporters of the deals say they are a legitimate investment strategy to conserve land. Lawmakers, however, generally support rigorous auditing of this practice. Senate Finance Chairman Chuck Grassley and Ron Wyden, the top Democrat on the panel, have subpoenaed some investors involved in such land deals.

Laura Davison
Bloomberg News