IRS Targets Syndicated Conservation Easements

In recent years, there has been a lot of buzz surrounding the IRS and their increasingly hostile view towards Syndicated Conservation Easements. The IRS’ view is that this tax shelter has been abused beyond its intended use and is now costing the federal government millions, if not billions, in lost tax revenue. Since 2015 there has been a concerted effort by the IRS and other federal agencies to stamp out the practice of using SCEs as a way for high-income earners to eschew paying taxes. The issue has gone as far as having the US House of Representatives debate the limits that partnerships (syndicates) have to donating land and the benefits thereof.

The origin behind these now contentious schemes are what’s known as a conservation easement. Simply put, if a person has a piece of land that is deemed worthy of conservation then they can donate that land into a trust for conservation. This allows the owner to keep certain rights and get a tax break while also keeping the land in a state of conservation. Seems like a win-win, right? Well, in many cases it is. But there are some gray areas to the law. And as you can imagine the IRS’ internal code is complicated to say the least. Normally a person can only deduct taxes due to a contribution of this nature if they donate it in its entirety. Like every good idea, it can be taken advantage of. Over time accountants and other savvy individuals realized that a deduction could also be legal if it is also done through a syndicated entity, that is a group of investors instead of an individual. These investors could all pool their resources together, buy conservable land to donate, and get a tax break. The problem is that greed always gets in the way. The chief issue with SCEs is fraudulent tax appraisals on the land to inflate its value and then to promote the sale of this land at higher prices yielding higher tax breaks (in some cases 4 to 1, meaning a $100k investment yields a $400k tax deduction).