In recent months, it has come to the attention of the Department of the Treasury and the Internal Revenue Service (IRS) that certain individuals, called promoters, have been falsely stating to taxpayers that they could make charitable contributions of conservation easements in exchange for tax deductions in excess of the amount of the contribution. These types of legal issues are being scrutinized by the IRS to ensure compliance with the spirit of charitable contributions and to ensure that individuals are not using charitable contributions to avoid taxes.
Tax Avoidance or Tax Deductions?
According to the IRS, these types of transactions are considered tax avoidance transactions. The IRS has gone to great lengths to document these types of transactions, and it is important for any individuals involved in these types of schemes to discuss their situation with a tax attorney. Now that the IRS has taken notice of these types of transactions, it is essential that taxpayers in these situations have experienced representation to handle these tax issues.
Historically, the IRS has allowed for tax deductions of this sort when it was made as a contribution of real property to a qualified organization for the purposes of conservation. These types of contributions are known as qualified conservation contributions. Because of the strong governmental interest in promoting conservation areas, the government has found that these types of donations should be rewarded with a tax deduction. Under the existing tax rules, individuals who make charitable contributions are then able to receive a tax deduction for the contribution of a conservation easemen
More recently, however, individuals have taken advantage of this part of the Tax Code and have sold taxpayers on the idea that their land was worth a much greater amount than the contributions. The promoters, in these cases, would obtain appraisals that inflated the value of the conservation easements based on unrealistic conclusions about the potential of the property. Naturally, the IRS intends to challenge the tax benefits that were received as a result of these overvaluations. Additionally, the IRS may seek to challenge the investors under other rules such as the partnership anti-abuse rule.
According to the IRS, investors who have entered into one of these types of transactions after January 1, 2010, will need to disclose the transactions for each taxable year that the individual participated in the transaction.
The IRS is interested in carefully regulating charitable contributions and the purported value of donations. As such, it is highly important for individuals, who make charitable contributions, to understand the tax issues that can arise from a misstatement regarding the contribution.
If you have questions about your contributions and are facing scrutiny from the IRS, we invite you to call the Scammahorn Law Firm at (903) 595-1000.