What's Happening?
The IRS has been intensifying its enforcement on syndicated conservation easement transactions over the past six years, auditing nearly all such transactions. These audits often result in significant tax
liabilities for investors, who face near-full disallowance of deductions and a 40% penalty. Investors are exploring various remedies, including interest abatement and offers in compromise, to mitigate these liabilities. Interest abatement is governed by Section 6404(e) of the federal tax code, which allows for abatement when an IRS officer causes an unreasonable delay in performing a ministerial or managerial act. However, obtaining such abatements is challenging, as the IRS has discretion and is not obligated to grant them. Additionally, the IRS may argue that investors could have made refundable deposits to reduce accruing interest, further complicating abatement claims.
Why It's Important?
The enforcement actions by the IRS on syndicated conservation easements highlight the agency's focus on combating what it considers abusive tax shelters. This has significant implications for investors and the broader tax compliance landscape. The difficulty in obtaining interest abatements or offers in compromise underscores the challenges taxpayers face when dealing with complex tax disputes. The IRS's stance may deter future participation in such transactions, impacting the financial strategies of investors and the operations of companies promoting these easements. The broader tax policy implications include a potential shift towards stricter enforcement and reduced leniency in tax shelter cases, affecting how tax professionals advise their clients.
What's Next?
Investors involved in these transactions may continue to seek alternative relief options, such as disputing IRS calculations or pursuing installment agreements. Legal precedents, such as the US Tax Court's 2024 decision in Abdo v. Commissioner, may offer new avenues for interest abatement claims. However, these cases are still emerging, and the outcomes remain uncertain. Tax professionals will need to closely monitor developments in case law and IRS policy to provide informed guidance to their clients. The IRS's continued focus on these transactions suggests that enforcement actions will persist, potentially leading to further legal challenges and policy discussions.
