IRS Launches Abusive Transaction Settlement Initiative

While we have no new information about legislative efforts dealing with conservation easements, on October 27, 2005, the Internal Revenue Service announced an initiative (http://www.irs.gov/newsroom/article/0,,id=150072,00.html) to settle with taxpayers who have engaged in certain transactions the IRS considers abusive. Included among the kinds of transactions eligible for settlement are "[c]ertain abusive charitable contributions and conservation easements" for which "[d]eductions under §170 [were] improperly claimed as a result of ... historic land or façade easements that have no, or de minimis, value.…"

The IRS announcement footnotes the reference to "abusive ... conservation easements" as follows:

The Service does not consider deductions under § 170 for charitable contributions of ... conservation easements to be inappropriate when taxpayers have complied with the requirements for such deductions. Indeed, § 170 is intended to encourage charitable giving. In some instances, however, taxpayers have improperly claimed charitable contribution deductions as described in Notice 2004-41and Notice 2004-7.

Settlement terms involving "abusive" conservation easements require the taxpayer to forego any benefit from the disapproved transactions and to pay a 5% penalty in addition to the tax due.

The L'Enfant Trust posts this update as part of its effort to keep the voluntary preservation community apprised of relevant legislative and administrative developments affecting its conservation easements. The Trust makes no endorsement of the IRS initiative, but takes this occasion to remind potential donors to choose carefully the organization that will hold their easements and to note well the differences in easement deeds. (See www.lenfant.org; BEFORE YOU DONATE). The Trust believes that its strong easement deed and its effective program of easement enforcement will continue to serve well both the Trust's donors and the future generations of Washingtonians who are their beneficiaries.