IRS sets up conservation easement office, ends settlement process

The Internal Revenue Service has created a new Office of Conservation Easements and plans to make changes in the process for settling disputed claims for the sometimes lucrative tax breaks.

The IRS has cracked down on the tax break for landowners who set aside part of their property for conservation purposes, particularly when they're peddled by promoters of syndicated conservation easement schemes, sometimes including them on its annual list of Dirty Dozen tax scams. In May, the IRS announced it would offer settlements in conservation easement cases, but only for a limited period of time.

Now, the IRS seems to be pursuing a new strategy after a series of court cases challenging its position, including one earlier this week involving a conservation easement on land in the Santa Monica Mountains region of Los Angeles County.

The IRS said Wednesday that the new Office of Conservation Easements would centralize technical expertise and coordinate policy, enforcement, and case-resolution strategy across the IRS and with the Office of Chief Counsel. It will support engagement with taxpayers, tax practitioners, conservation and historic preservation organizations, and other stakeholders. The new Office will also work with the Treasury Department to evaluate administrative and legislative options that advance Congress's conservation and historic preservation objectives, promote consistent tax administration, and strengthen valuation integrity.

As part of the transition, the IRS said it would conclude the current uniform settlement initiative effective today and won't issue any additional uniform settlement letters under the May 13 program. Any deadlines for accepting previously issued offers are withdrawn. Prior elections to participate in the May 13 settlement framework will remain in effect and will be processed in accordance with their terms.

Taxpayers with pending cases can continue to request settlements under the May 13 framework through their assigned IRS examination or Chief Counsel representative. If the case remains eligible, the IRS will issue a new offer on the same standardized terms. Individual cases can continue to be resolved on different terms where warranted by the hazards of litigation. The IRS said the transition doesn't signal a new or more favorable standardized offer, but ends the issuance of uniform offers and deadlines.

The IRS advised taxpayers to continue working directly with their assigned representatives on case-specific matters and settlement requests. Once it's operational, the Office of Conservation Easements will provide central coordination and a channel for general inquiries. More contact information will be announced separately by the IRS.

The tax break has been widely used by many wealthy taxpayers, including President Trump for one of his golf courses. But it has also led to long running litigation. The National Taxpayers Union Foundation recently issued a study in which it reviewed 798 resolved and pending Tax Court cases involving partnership conservation easement deductions and found the IRS has taken an extreme zero-valuation position 93% of the time and imposed heavy misstatement penalties 99% of the time. Most of the cases remained unresolved as of April. It noted that the Treasury Department recently estimated there are 700 pending conservation easement cases at the Tax Court, and another 400 on the way from audits. "While the Tax Court accepts about 20,000 cases per year, all but a few hundred of these are settled so adding several hundred trials to the docket is significant," said the NTUF.