IRS Final Rules Identify Syndicated Conservation Easements as Abusive Tax Transactions

The IRS and U.S. Treasury Department have finalized regulations identifying certain syndicated conservation easement transactions as "listed transactions," marking them as abusive tax schemes that must be reported. Released on October 7, these rules aim to curb tax avoidance strategies involving inflated charitable deductions through conservation easements. These easements allow property owners to limit land use for conservation and claim tax breaks, but the IRS has found that many are misused through exaggerated valuations. The new regulations require participants and advisers in these transactions to disclose their involvement to the IRS, with penalties for non-disclosure.

IRS Commissioner Danny Werfel stated that the regulations target abusive syndicated conservation easements, which have been used as tax shelters through inflated land appraisals. The Senate Finance Committee’s investigation into these schemes revealed that they often involve partnerships designed solely to generate tax deductions, with no genuine business purpose. By inflating land values, participants could claim excessive deductions, exploiting tax provisions meant for genuine conservation efforts. The new rules are part of an effort to enhance transparency and hold participants accountable.

The final regulations amend the Income Tax Regulations under 26 CFR Part 1, requiring taxpayers and advisers to file specific forms—Form 8886 for taxpayers and Form 8918 for advisers. These regulations took effect on October 8 and apply to open tax years. The IRS’s crackdown comes after several promoters were sentenced to over 20 years in prison for orchestrating a large-scale easement tax scam that caused the IRS $450 million in losses.

For more information see Tom Ozimek "IRS Final Rules Identify Syndicated Conservation Easements as Abusive Tax Transactions" The Epoch Times, October 6, 2024.