IRS Final Rules Identify Syndicated Conservation Easements as Abusive Tax Transactions

The IRS building in Washington on June 28, 2023. Madalina Vasiliu/The Epoch Times

The IRS and the U.S. Treasury Department have issued final regulations identifying certain syndicated easement transactions as “listed transactions,” classifying them as abusive tax schemes that must be reported to the IRS.

The final rules, released on Oct. 7, are part of an IRS effort to crack down on tax avoidance strategies involving inflated charitable deductions, with the agency working to close various loopholes and boost tax-related revenues.

Syndicated conservation easements are legal agreements in which property owners commit to limiting the use of their land for conservation purposes. By donating these easements as charitable contributions, they can claim tax breaks. The IRS has increased its scrutiny of these easements, citing concerns that they are often misused, particularly through inflated valuations.

The new regulations identify syndicated conservation easements as “listed transactions,” which triggers a requirement for participants and material advisers to disclose their involvement using specific forms. Failure to disclose these transactions to the IRS could lead to potential penalties. The agency says this move aims to increase transparency and accountability, ensuring the IRS can more effectively identify and address issues related to easement abuse.

“These regulations send a clear signal on abusive syndicated conservation easement arrangements, which generate high fees for promoters and willing participants who gamed the tax system with grossly inflated appraisals,” IRS Commissioner Danny Werfel said in a statement. “As the Senate Finance Committee has shown in its review, abusive syndicated conservation easement transactions are operating too often as nothing more than retail tax shelters that let taxpayers buy deductions at the end of any given year.”

The Senate Finance Committee report identified two main issues with syndicated conservation easements—inflated appraisals of undeveloped land and the use of partnerships that exist solely to generate tax deductions. It highlights how these schemes exploit tax provisions for conservation by artificially inflating land values and structuring partnerships that have no genuine business purpose, allowing participating taxpayers to claim outsized deductions.

The newly released final rules amend the Income Tax Regulations under 26 CFR Part 1, adding regulations that identify syndicated conservation easements and substantially similar arrangements as “listed transactions,” requiring participating taxpayers and advisers to file appropriate forms—Form 8886 for taxpayers and Form 8918 for advisers.

These regulations are set to become effective upon publication in the Federal Register on Oct. 8, with applicability to open tax years and transactions as outlined in the rules.

In January, several promoters involved in a large-scale easement tax scam were sentenced to more than 20 years in prison for their roles in an arrangement that caused more than $450 million in losses to the IRS.