The Internal Revenue Service (IRS) has recently sent settlement offers targeting Syndicated Conservation Easements (SCEs) under audit. This initiative highlights the agency’s continued crackdown on the use of SCEs as cases progress through the courts.
IRS provides new incentive to settle SCEs cases
Over the summer, the IRS sent out multiple waves of letters to taxpayers with pending SCEs cases in tax court, offering to settle. The letters proposed a variation of the standard settlement terms for cases still under examination.
Key features of the new initiative include:
- Reduced penalties: The initiative imposes a 5% penalty for gross valuation misstatements.
- Lower tax rates: It applies a 21% tax rate at the partnership level, a reduction from the top individual marginal tax rate of 37% used in previous initiatives.
The IRS claims the new approach aims to expedite the resolution of SCE disputes by offering more favorable terms to investors. It is important for investors to remember that the IRS does not have their best interests in mind. As such, it is wise for any investor to have any offer carefully reviewed by legal counsel with experience in this niche area of law before moving forward. This will help to better ensure that you understand the impact of the offer and can weigh this against the prospect of litigation.
Options for SCE investors
Investors involved in SCE disputes now face a critical decision: accept the IRS’s settlement offer or proceed to litigation. Recent trends indicate varying outcomes for these choices. U.S. Tax Court cases concerning SCEs consistently found the actual value of the easements to be significantly lower than the values claimed by the entities. This pattern is evident in decisions such as Oconee Landing Property, LLC v. Commissioner and Buckelew Farm, LLC v. Commissioner, where the assessed values were just a fraction of those asserted by the taxpayers. These outcomes highlight judicial scrutiny that aims to curb overvaluation in conservation easement transactions, reflecting a strict enforcement stance by the IRS on these matters. As such, each investor must carefully weigh the potential risks and benefits of these options in the context of their specific situation.
The IRS’s settlement offer for SCEs represents a significant development for investors facing audits or litigation over these complex transactions. The IRS aims to resolve disputes more efficiently, but investors must carefully consider their options — settlement or litigation — based on their circumstances and the potential legal and financial outcomes.
If you’ve received a settlement offer, we encourage you to contact our experienced conservation easement tax attorneys at Bomar Law Firm by calling 404-841-6561 or by filling out our contact form. We can help review the settlement offer and help navigate the next steps.