Tax News & Views 4 to 1 Deduction Roundup

February 27, 2020

‘No Notable Decrease’ in Syndicated Easement Deals - Kristin Parillo, Tax Notes ($)

Syndicated conservation easements promise large charitable deductions to investors. The deductions are based on tax rules that allow taxpayers to deduct contributions of appreciated property to charity at full value without paying tax on the gain. In these deals, organizers donate a "conservation easement" to a charity - keeping title, but promising to never develop the property. Investors in the syndication receive a share of the resulting deduction. 

It seems like every week the Tax Court rules against one of these syndications - see here, here, here, and here, for example. Yet according to IRS Commissioner Charles Rettig, these deals seem to just keep rolling. Tax Notes reports that the Commissioner provided that information in a letter to Senate Finance Chair Charles Grassley. Why take the risk? The Commissioner offers a clue. From the Tax Notes report:

Rettig provided details on average return ratios, which are calculated by dividing the total amount of contribution deductions by the total amount of investments. The return ratio for 2018 was 4.87 based on the 9,212 Forms 8886 that provided both the contribution deduction and investment amounts, Rettig said. After removing outliers, the ratio was 4.92. The average return ratio for the top 10 percent of covered transactions was 9.45.

For 2017, the return ratio was 4.70 after removing outliers, and the average return ratio for the top 10 percent was 8.23.

The IRS knows about these deals because these are "reportable transactions." Investors in the deals are required to file Form 8886, "Reportable Transaction Disclosure Statement," while those involved in putting the deals together are required to file Form 8918, Material Advisor Disclosure Statement." The penalties for not filing these reports are stiff. 

The IRS challenges these on various grounds. The IRS has won court challenges based on the details of the easement -- it has to really be permanent; on technical issues involved in reporting the transaction; and on valuations. The tax law requires careful reporting of appreciated property contributions, and the courts cut careless filers little slack. 

Bottom line? Because of reporting requirements, the IRS knows about conservation easement syndications. The Commissioner doesn't like them, so examiners target them. Investments made only for tax reasons are inherently risky, so be careful out there.

Related: Ben Peeler, New IRS Audit Campaigns Announced 

Peter Reilly, War On Easement Deductions—$30 Million Denied In Three Cases


S Corporation Denied Refund of Late-Filing Penalties - U.S. District Court, Northern District of Illinois, via Tax Notes ($). This case resulted in late filing penalties and interest exceeding $58,000 for a return with no tax due. Calendar year 2019 S corporation and partnership returns are due March 16. Penalties start at $205 per K-1 for a return that is a day late, multiplied by each additional month of late filing. It's not too early to extend. Better safe than sorry.


Texas Tax Responsibilities and Resources for Sellers After Wayfair - Texas Comptroller of Public Accounts. Another state implements sales tax reporting for non-resident sellers. 

Related: David Casper, Laura Robichaud, States Respond to SCOTUS Wayfair Decision 


New law helps people save for retirement; other retroactive changes impact many taxpayers - IRS. A "Fact Sheet" on SECURE Act changes to retirement plans.


Tax Treatment Upon Death of Livestock - Roger McEowen, Agricultural Law and Taxation Blog. " The tax consequences upon death of livestock that are held for draft, dairy, breeding or sporting purposes differ depending on whether the taxpayer held the animals for 12 months or more (24 months or more for cattle and horses) than if they were not held for that requisite time period."


Sign IRS Tax Returns Under Penalty Of Perjury, Don’t Take It Lightly - Robert Wood, Forbes.


Military tax considerations and tips - Kay Bell, Don't Mess With Taxes.


State and Local Individual Income Tax Collections per Capita - Janelle Cammenga, Tax Policy Blog. "In fiscal year 2017, the most recent year for which data are available, individual income taxes generated 23.3 percent of state and local tax collections, right behind general sales taxes (23.6 percent)."

 Per Capita Individual Income Tax 2017 Tax Foundation


How the Death of a President Impacts Tax Court Jurisdiction - Keith Fogg, Procedurally Taxing. Post office is shut down to mourn an ex-president on the due date of a filing. Is the taxpayer out of luck? A happy ending here.

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