Prose by Tax Pros - Another Article by Hale E. Sheppard

The IRS is attacking partnerships that donate conservation easements to charitable organizations and then pass along the corresponding tax deductions to their partners. In an effort to dispense with cases quickly and avoid addressing the key issue — valuation of easements — the IRS often raises a long list of technical arguments. These generally focus on unintentional flaws with the deed of conservation easement, the appraisal, or Form 8283, “Noncash Charitable Contributions.” To the dismay of many in the conservation, tax, and legal communities, the Tax Court has ruled in favor of the IRS on technical issues in several recent cases.

This article examines the main issues in conservation easement disputes, the arguments typically raised by the IRS, various Tax Court cases focused on conservation purpose, and a new, non-easement case that might fortify taxpayer defenses.

This article explains assessment-periods, IRS duties related to extension requests, and the findings of the recent governmental report. More importantly, it analyzes the following critical issues related to Form 872: If a taxpayer declines to grant a Form 872 during an audit, is he permanently deprived of the chance to present his case to the Appeals Office? What strategic advantages are gained by “cooperating” with the IRS? What, exactly, does “cooperating” mean in different contexts? Is not granting a Form 872 tantamount to not “cooperating” with the IRS?

In light of the IRS’s new “compliance campaign,” nonresident aliens and those involved with foreign owners of U.S. real property would be wise to contact experienced tax/legal professionals in order to explore the options for proactively rectifying any issues with the IRS on the most beneficial terms available.

The IRS often shifts its resources, focusing enforcement efforts in priority areas. In recent years, the IRS has devoted considerable attention to failures to report foreign assets, charitable deductions related to conservation easements, and captive insurance companies. While these matters tend to grab headlines, the IRS continues to plod ahead, largely unnoticed, challenging other tax issues that it finds problematic.

This article explains the general tax and information-reporting duties for U.S. taxpayers with international connections, the application of the exit tax, the details about the new RPCFC, and interesting issues triggered by the RPCFC that are likely unknown to many taxpayers.

The IRS has implemented numerous voluntary disclosure programs over the past decade for taxpayers with international tax non-compliance. Opinions vary, of course, but many taxpayers and practitioners considered the penalties imposed under such programs fairly harsh. The IRS has softened its stance considerably with the introduction of its newest program in September 2019, called Relief Procedures for Certain Former Citizens (“RPCFC”). It is designed to benefit taxpayers who were formerly U.S. citizens, have already expatriated, had little to no U.S. income tax liability in the years preceding expatriation, were not filing U.S. tax or information returns with the IRS before expatriating, did not pay the “exit tax” under Code Sec. 877A, and would not have been subject to the exit tax were it not for their non-willful violations.

Many people have grown weary of cases focused on penalties for failing to declare foreign accounts on FinCEN Form 114 (“FBAR”), which is understandable given all the attention heaped on this topic since 2008. However, the reality is that the Internal Revenue Service (“IRS”) continues to aggressively impose severe FBAR penalties, while the Department of Justice (“DOJ”) regularly files lawsuits in District Courts to collect them. These governmental actions, coupled with the colorful defenses raised by taxpayers, have created a significant amount of precedent in recent years. Court decisions are inconsistent, the IRS is capricious in following its own published guidance, and the key concept of “willfulness” is constantly evolving. Taxpayers who do not stay abreast of the evolution diminish their chances of success in fending off FBAR penalties.

In an effort to keep taxpayers and their advisors updated, this article analyzes three recent FBAR cases, Flume, Boyd, and Cohen, which contribute new material to the dialogue.

Partnerships and others under attack by the IRS as part of its “compliance campaign” against conservation easement and substantially similar transactions need to be aware of relevant Chief Counsel directives and implement appropriate defense strategies from the very start of the audit process.

This article summarizes conservation easement donations and related tax deductions, identifies the parties that the IRS is now pursuing, explains the non-disclosure rules and applicable exceptions, unpacks three IRS pronouncements attempting to justify potential violations of taxpayer protections and evidentiary rules, and reminds partnerships and others affiliated with SCETs and SSTs of the importance of understanding the IRS’s strategies and implanting processes to defend against them from the outset.

The IRS has been attacking for several years what it has labeled syndicated conservation easement transactions (“SCETs”). Among the many weapons employed by the IRS are identifying SCETs as “listed transactions” in Notice 2017-10, 2017-4 IRB 544, launching a “compliance campaign” consisting of dozens of specialized Revenue Agents, featuring SCETs on the IRS’s “dirty dozen” list, and engaging in a widespread practice of claiming that tax deductions related to SCETs should be $0 and imposing severe penalties.

Assaults on SCETs are now common knowledge, but what many fail to realize is that the IRS does not limit itself. Indeed, the IRS has also been challenging fee-simple donations of property to charities for years, applying many of the same techniques used more recently against SCETs. This article examines a relatively obscure case from yesteryear, Terrene Investments, whose importance likely will increase as tax disputes involving SCETs and fee-simple property donations increase. This case demonstrates that the IRS has a history of taking extreme positions, many of which ultimately cannot be supported before the Tax Court.

This article examines the main concepts around conservation easement donations, categories of IRS attacks against partnerships, evolution of the appraiser penalty rules, and impacts of new IRS guidance.

Unless somebody has been living under the proverbial rock the past few years, he is aware that the IRS is aggressively attacking “syndicated” partnerships that donate conservation easements to charity and claim the related tax deductions. This is common knowledge. What many people do not realize, though, is that the IRS is pursuing others involved with easement donations, and methodically changing the rules to achieve its goals. For instance, with absolutely no fanfare, the IRS released in late January 2020 what appeared to be a routine, innocuous, procedural memorandum called “Interim Guidance on IRC 6695A Penalty Case Reviews” (“Interim Guidance”). The reality is that this Interim Guidance triggers a critical change, eliminating the multi-level review procedure formerly used by the IRS to protect appraisers against improper penalties and disciplinary referrals. This article explains the main concepts around easement donations, categories of IRS attacks against partnerships, evolution of the appraiser penalty rules, and impacts of the new Interim Guidance.