IRS Has Close Eye on Tax-Exempt Orgs Making Conservation Deals

The IRS is auditing more than a dozen tax-exempt organizations involved in land conservation transactions known as syndicated conservation easements.

The IRS has stepped up its scrutiny of the transactions, investigating participants as well as appraisers, tax preparers, and others who have helped organize and sell investors on the deals. The agency is paying very close attention to tax-exempt organizations, reviewing the tax forms of any such entity that takes part in a deal, according to Sunita Lough, deputy commissioner for services and enforcement at the IRS.

“When we see an exempt organization that is involved in the syndicated conservation easement, we pull the 990,” Lough said Nov. 14 at an American Institute of CPA’s conference in Washington. “We have over a dozen or more exempt organizations that are involved in these conservation easements under audit.”

The tax-advantaged land deals, which the IRS has flagged on its “Dirty Dozen” list of tax scams, allow multiple people to claim a charitable deduction for donations of property that will be protected from future development under tax code Section 170(h). The IRS believes that some land transactions are being structured to give investors the opportunity to obtain charitable deductions and corresponding tax savings that significantly exceed their investment.

The transactions have also caught the eye of lawmakers: Senate Finance Committee leaders Chuck Grassley (R-Iowa) and Ron Wyden (D-Ore.) are investigating potential abuses and have subpoenaed six individuals seeking more information on the transactions.

“We appreciate the value of conservation easements,” IRS Commissioner Charles Rettig said during Nov. 14 remarks at the AICPA conference. “We don’t appreciate the activities that have gone on with respect to the syndicated conservation easements and artificial appraisals.”

The IRS says its enforcement efforts are targeting billions of dollars of potentially inflated deductions. Rettig said the agency’s Nov. 12 announcement of its broad scrutiny of the deals, which could include both civil and criminal cases, is “fair warning” to those involved.

“We’re not going to stand down,” Rettig said.