Ground Zero: The IRS Attack on Syndicated Conservation Easements

On June 25, 2020, the Internal Revenue Service (“IRS”) announced a settlement initiative (“SI”) to certain taxpayers with pending docketed cases involving syndicated conservation easement (“SCE”) transactions. The SI is the current culmination of a long series of attacks by the IRS against SCE transactions. The IRS has recently found success in the Tax Court against SCEs, but the agency’s overall legal position may be overstated. It is possible that the recent SI is merely an attempt to capitalize on leverage while the IRS has it.

Regardless, the current state of the law surrounding SCEs is murky at best. Whether a taxpayer is contemplating the settlement offer, is currently involved in an unaudited SCE transaction, or is considering involvement in an SCE transaction in the future, the road ahead is foggy and potentially treacherous. This Article attempts to shed light on the obstacles that face SCE transactions. This Article: (1) provides an overview of SCE transactions and the main attacks against them; (2) analyzes each of the IRS’s main attacks and the relevant issues that arise; (3) illustrates the relevant pro-taxpayer and anti-taxpayer cases on each issue; (4) discusses the subsequent considerations that taxpayers need to take into account and the future outlook of SCE; and (5) concludes with a summary of the Article’s findings.