Washington (July 1, 2004) -- The Internal Revenue Service advised taxpayers that it will disallow improper charitable contribution deductions for transfers of easements on real property to charitable organizations and for transfers of easements in connection with purchases of real property from charitable organizations.


Taxpayers who claim improper charitable contribution deductions for such transfers may be subject to accuracy-related penalties, the agency said.

“We’ve uncovered numerous instances where the tax benefits of preserving open spaces and historic buildings have been twisted for inappropriate individual benefit,” said Commissioner Mark W. Everson. “Taxpayers who want to game the system and the charities that assist them will be called to account.”


In Notice 2004-41, the IRS said it is aware that some taxpayers are claiming inappropriate charitable deductions for easement transfers that don't qualify as qualified conservation contributions, or are claiming deductions for amounts that exceed the fair market value of the donated easement. In addition, the IRS said that some taxpayers are claiming inappropriate charitable contribution deductions for cash payments or easement transfers to charitable organizations in connection with the taxpayers’ purchases of real property.


The IRS may impose penalties on promoters, appraisers and other persons involved in the transactions. In appropriate cases, the IRS may challenge the tax-exempt status of the charitable organization, based on the organization’s operation for a substantial nonexempt purpose or impermissible private benefit.


-- WebCPA staff

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