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Push Against Tax-Advantaged Land Deals to Continue Next Congress

Dec. 23, 2020, 5:08 PM

The outgoing chairman of the Senate’s tax-writing panel says he isn’t done chasing promoters of tax-advantaged land deals, as a push to crack down on the transactions is stalled in Congress.

In Sen. Chuck Grassley’s (R-Iowa) sights are syndicated easement deals that involve promoters soliciting multiple investors to buy interests in property that is then donated for a tax deduction, leveraging a tax break under Section 170 (h). The IRS has flagged the transactions as potential tax shelters, and reining them in has been a focus of the Senate Finance Committee for several years.

Grassley, who is term-limited from continuing as chairman but will remain a committee member, said he looks forward next year to passing easement legislation, which “should be an easy choice for every member in both houses of Congress.”

The measure that could have legs is expected to be a version of (H.R. 8842, S.5019). The bipartisan measure would disallow a charitable deduction for a conservation easement donation if the deduction claimed is more than two and a half times the initial investment.

The bill stalled despite a year of intense attention on these deals—the Finance Committee issued a scathing report in August saying that syndicated easement land deals were essentially tax shelters, and the IRS and Department of Justice have been cracking down on the deals. On Dec. 21, two men pleaded guilty to promoting schemes involving $1.2 billion in fraudulent deductions. The IRS heralded the news as a sign of its continued enforcement efforts.

The Land Trust Alliance, which has consistently opposed these deals, said in a statement that this week’s guilty pleas underline the need for action from Congress.

Rep. Mike Thompson (D-Calif.), one of the bill’s sponsors in the House, plans to reintroduce the measure in the next Congress, an aide said.

Retroactivity Hangup

The bill wasn’t included in a year-end funding package as its supporters had hoped. A Democratic congressional aide said it was scrapped in talks after objections from a handful of Republican senators.

Partnership for Conservation, a group that supports syndicated easements, said in a statement that a retroactivity provision in the bill is misguided because it would retroactively increase taxes, while leaving in place restrictions that taxpayers voluntarily placed on their land.

The bill, as written, would apply to contributions made in taxable years ending after Dec. 23, 2016, the day the IRS issued a notice flagging syndicated easements for additional scrutiny.

The retroactive nature of the bill means that if the measure became law those who took part in the deals would have to file amended tax returns for some tax years and essentially give back the tax breaks.

According to a December memo from the Joint Committee on Taxation, obtained by Bloomberg Tax, the bill would bring in $11.5 billion over 10 years if the retroactivity applied to taxable years ending after Dec. 23, 2016.

More Battles to Come

Daniel Ryan, partner at Sullivan & Worcester LLP, said the bill is a good first step in addressing some of the abusive syndicated deals.

Still, Congress needs to rethink its approach to syndicated easements on a broader scale, said Chaim Gordon, a tax controversy attorney at the Law Offices of Chaim Gordon.

That could involve changing the rules governing the tax break motivating the deals. Syndicated conservation easement investors generated $9.2 billion in charitable contribution deductions in tax year 2018, according to IRS data released by the Finance Committee.

“If Congress were to take away the deductions and instead directly fund conservation easement purchases, that would make more sense,” he said.

To contact the reporters on this story: Kaustuv Basu in Washington at kbasu@bloombergtax.com; Jeffery Leon in Washington at jleon@bloombergtax.com

To contact the editors responsible for this story: Patrick Ambrosio at pambrosio@bloombergtax.com; Colleen Murphy at cmurphy@bloombergtax.com

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