Congress Increases Scrutiny of Syndicated Conservation Easements

Coblentz Patch Duffy & Bass
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Senate Finance Committee launches investigation, while anti-syndication bill is introduced in the House and Senate

Abusive syndicated easements are bad news, as described in more detail in my December 2017 article here. The Land Trust Alliance and the IRS have been fighting to shut down this tax shelter for years, and now Congress is jumping into the fray. On March 27, 2019, the Senate Finance Committee announced the beginning of an investigation into abusive syndicated conservation easement transactions. The Committee kicked off its investigation with fourteen individual letters to parties associated with investors known to have engaged in this type of syndicated easement.

Abusive syndicated easements usually involve a promotor who pools together investors to fund a pass-through entity (such as a partnership or LLC) to own or acquire real estate. Typically within the two-year period following the investment, the entity then conveys a conservation easement based on an inflated valuation, passing through to the investor a charitable contribution deduction which vastly exceeds the cost of the investment.

Last week, IRS Commissioner Charles Rettig testified before the U.S. Senate Finance Committee, where he confirmed that these tax shelters are not declining, despite the IRS’s 2017 notice to list abusive syndications and the Department of Justice’s recent enforcement action against one large promoter. Senator Daines spoke for the rest of us in the conservation community when he noted at the hearing that the syndicated conservation easement shelter industry “undermines the legitimacy of conservation.”

Senator Daines is one of the legislators cosponsoring the Charitable Conservation Easement Program Integrity Act of 2019, a bill championed by the Land Trust Alliance to fight easement shelters. The Act would prohibit charitable contribution deductions for conservation easements where (1) the taxpayer has held the property for less than 3 years and (2) the deduction claimed by a taxpayer exceeds 250% of the taxpayer’s original investment. The Act provides a limited exception to this rule for certain family partnerships.

A similar bill was introduced previously in 2017 but failed to gain traction at that time. Hopefully, now that the Senate Finance Committee is investigating these shelters and Congress soon learns the extent of the abuse, the Act will be passed so that “a few bad actors don’t threaten the program by selling off deductions based on exorbitant appraisals.” Fingers crossed this will happen soon so we can stop wasting ink on the bad actors and instead turn our attention to the positive impact made by legitimate conservation easements every day.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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