IRS Staff Didn’t Initially Agree on Land Deal Settlement Offer

A “fairly significant contingent” of IRS officials didn’t want to extend a settlement offer to investors in potentially abusive tax-advantaged land conservation deals, according to an agency official.

The IRS has been urging investors to take a settlement offer announced last month after winning several U.S. Tax Court cases dealing with tax-avoiding syndicated conservation easement transactions. But there wasn’t consensus initially within the agency about offering that deal, said Tom Cullinan, counselor to the commissioner and chief counsel at the IRS.

• Several people thought “we should litigate every case and get the 40% penalty, and there was a high degree of confidence that that would be the outcome,” Cullinan said Tuesday during an American Bar Association webcast. Everyone is on the same page now, however, he said.
• The controversial transactions involve multiple people claiming a charitable deduction for donations of property that will be protected from future development under tax code Section 170(h). The agency has expressed concern that in many of these deals investors are taking deductions based on purposely inflated property appraisals.
• The IRS strategically chose the pending Tax Court cases that would be offered the deal, carving out some with unique issues that could further develop the law, Cullinan said. He added that any suggestions the IRS might have to improve the offer because it can’t handle its conservation easement case load are “total nonsense.”