IRS Dedication More Attorneys to Attach Syndicated Conservative Easements!
The IRS announced (informally, at a CPA conference) that it is dedicating more attorneys to go after and litigate syndicated conservation easements. In such cases, syndicators acquire property in an LLC or LP, contribute a portion of it to a non-profit for natural or historical conservation purposes, and generate a very large tax deduction (well in excess of the cost of the property) for the LLC members.
In order to generate a tax deduction large enough to attract investors, the easement must usually be valued at far more than the cost of the entire property. Grossly inflated appraisals are the key to such schemes. The IRS has a solid track record of winning these cases.
I’d note that certain syndications of conservation easements are IRS “Listed Transactions”. Such transactions are very heavily penalized (75% of the tax savings) if not reported to the IRS. That 75% penalty is *in addition* to other normal penalties and interest. Here a useful link: https://www.irs.gov/pub/irs-drop/n-17-10.pdf.
From what I have seen, the vast majority of syndicated easement offerings are bogus on their face. The math just does not work. How is a property suddenly worth 5x (or more) than what the syndicator paid for it? For example, the syndicator buys at $1M, sells to investors at $1.5M, appraises it at $6M+ to get investors at least a $1.5M tax savings via $5M+ of “charitable” deductions. That’s math is so bogus, even a Democrat would be embarrassed to present it.
If some syndicator offers you such a “deal”, I’d pass. It’s far, far too good to be true. And should you enter into such a deal, I’d strongly recommend disclosing it as a Listed Transaction. This probably means you’ll be audited and lose but at least avoid the 75% penalty.