The Internal Revenue Service is reacting to recent court decisions challenging its ability to classify syndicated conservation easements as abusive tax avoidance schemes by proposing regulations and allowing time for comments.
Conservation easements enable taxpayers to set aside land for conservation purposes and claim tax deductions, but the arrangement has been exploited by promoters to entice syndicates of investors into pooling their money to buy property such as golf courses and claiming tax breaks. In 2017, the IRS issued a notice identifying syndicated conservation easements as "listed transactions," essentially tax shelters. However, last month the U.S. Tax Court ruled in favor of a group, Green Valley Investors, that had challenged the IRS. The court, in a reviewed decision with two judges dissenting, held that Notice 2017-10 was invalid because it was issued without following the notice-and-comment rulemaking procedure in the Administrative Procedure Act.
In a separate case earlier this year involving another type of listed transaction, a company called Mann Construction also won a victory against the IRS in a federal appeals court on similar grounds. In that case, the IRS said it had identified certain trust arrangements claiming to be welfare benefit funds and involving cash value life insurance policies as listed transactions.
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"At the same time, however, to eliminate any confusion and to ensure that these decisions do not disrupt the IRS's ongoing efforts to combat abusive tax shelters throughout the nation, the Treasury Department and the IRS are today issuing proposed regulations to identify certain syndicated conservation easement transactions as listed transactions," said the IRS. "The Treasury Department and the IRS intend to finalize these regulations, after due consideration of public comments, in 2023 and intend to issue proposed regulations identifying additional listed transactions in the near future."
