…Yup Conservation Easement Syndications Under IRS Scrutiny
The ability for a landowner, rancher or farmer to set aside land that will never be developed for commercial purposes is well founded in our tax and legal system. The value of a conservation set aside (easement) is measured by the difference in the valuation of the property before and after the easement is put in place. This type of easement allows the landowner to receive a charitable income tax deduction for 50% of the value of the gift (100% if substantially all his income is derived from farming or ranching), which can be deduced from Adjusted Gross Income (AGI). If it cannot all be used in the first year it is available to be carried forward for fifteen years (normal charitable deductions allow for five additional years). This is the sensible application of the law. However, recently, several syndicators have spotted an opportunity to assemble investors and to sell them the tax benefits of conservation easements as a tax shelter proposition.
Normally, the easement deduction is only available to the owner of the land who places the easement. Reminiscent of the tax shelter days of the early 1980s, syndicators are putting together investors and easements in a manner that has caused the IRS designate conservation easement syndications as “listed transactions” subject to extra scrutiny. Some of the issues that have caused the extra scrutiny are inflated valuations of the easement property and lack of business purpose.
In many cases, the syndications appear to be nothing more than a means to sell charitable deduction to investors. There doesn’t seem to be any chance of profits or income, just tax benefits. Clearly there is an issue here. Once again, it is time to use common sense and keep your distance from what seems to be a toxic waste dump.