Wall Avenue Journal Helps Abusive Conservation Tax Shelters

I had a tough time determining how to reply to a chunk by the Editorial Board of the Wall Avenue Journal – A Case of Tax Fraud – on the IRS (Agent backdated paperwork to punish authorized deductions). They had been referring to an IRS screwup that has gotten an excellent little bit of protection within the tax blogosphere. The Tax Court docket sanctioned the IRS within the case of Lakepoint Land II LLC as a result of IRS attorneys didn’t inform the court docket once they found a backdating downside with a penalty type.

The Drawback

Clearly the IRS deserves and has taken some lumps and if the WSJ desires to cheer a bit of, who am I to object? Whether or not the convoluted truth sample rises to the extent of fraud, I can not determine after having learn Decide Weller’s opinion a number of instances. If you wish to give it a strive here’s a hyperlink to T.C. Memo 2023-111.

It’s the second a part of the heading – Agent backdated paperwork to punish authorized deductions (Emphasis added) – that’s troubling. If Lakepoint’s deductions are upheld by the Tax Court docket, there will not be any penalties no matter whether or not the IRS has jumped by means of the penalty approval hoops. Absent the IRS screwup, the most definitely supply of a considerable penalty is an inflated appraisal – 200% brings a 20% penalty, 400% will get you 40%.

The editorial strikes from the backdating downside to debate the general effort by the IRS in opposition to syndicated conservation easements.

“These easements have develop into large enterprise, as authorized tax loopholes typically do. Firms purchase up land, have it appraised for its foregone developmental worth, then promote stakes to traders who obtain the tax profit. This fully authorized commerce is disliked by the inexperienced foyer and a few lawmakers.” (Emphasis added)

A Educated Response

I simply did not know the place to begin. So I used to be happy once I noticed a letter to the editor from John Schoenecker.

“Relating to your editorial “A Case of Tax Fraud—on the IRS” (Sept. 30): I used to be Sen. Charles Grassley’s lead tax investigator in 2020, and I led the Senate Finance Committee’s investigation into syndicated conservation-easement transactions. Our report discovered that these transactions “seem like nothing greater than retail tax shelters that permit taxpayers purchase tax deductions on the finish of any given 12 months, relying on how a lot earnings these taxpayers want to shelter from the IRS, with no financial threat.”

No authorities company ought to ever minimize corners when imposing the legislation, however the Inner Income Service has been completely proper to go after syndicated conservation-easement transactions.”

The Unedited Model

I lined the report and interviewed John Schoenecker three years in the past. The report was a masterpiece that had an virtually cinematic high quality to it. Essentially the most attention-grabbing statement was that the “engine of each syndicated conservation-easement transaction” is an inflated appraisal. I reached out to Mr. Schoenecker to congratulate him and he did me an actual strong. He gave me the textual content of all the letter he despatched, the unedited model. Right here is the letter earlier than the WSJ editors, you realize, edited it.

“The Editorial Board made a evident misstatement of the legislation in its editorial A Case of Tax Fraud – on the IRS. That editorial mentioned the backdating of audit paperwork in instances involving tax transactions of syndicated conservation easements. Typically, any such conduct at a authorities company ought to clearly not occur, and I agree with the Journal’s total sentiment that the federal authorities ought to should observe the legislation similar to taxpayers do. In fact they need to. However the editorial goes on to generalize syndicated conservation-easement transactions as authorized transactions, which is a gross mischaracterization.

I used to be Sen. Charles Grassley’s lead tax investigator in 2020 when he final chaired the Senate Committee on Finance, and I led the committee’s investigation into these transactions. The committee’s report from that investigation discovered that syndicated conservation-easement transactions “seem[ed] to be nothing greater than retail tax shelters that permit taxpayers purchase tax deductions on the finish of any given 12 months, relying on how a lot earnings these taxpayers want to shelter from the IRS, with no financial threat.” In line with that report, the transactions achieved this end result by means of inflated value determinations of undeveloped land, and it went into the small print about a few of these value determinations, which concerned valuations that ought to have raised an eyebrow, to place it mildly. The implication {that a} taxpayer’s claiming deductions from syndicated conservation-easement transactions was, till not too long ago, authorized below the legislation is like saying {that a} taxpayer can typically declare a deduction for donating a used go well with to Goodwill even when the taxpayer claims the go well with is value $50,000. Claiming a deduction for donating a used go well with to charity is authorized; claiming it is value $50,000 is nearly definitely not. (That must be one very, very good go well with.) No authorities company ought to ever minimize corners when it enforces the legislation, however the IRS has been completely proper to go after syndicated conservation-easement transactions.” (Emphasis added

On The Different Hand

It’s only honest to notice that the Wall Avenue Journal has or no less than had been doing an excellent job on its information aspect masking the syndicated conservation easement story. Right here is report from Richard Rubin from final 12 months – How a Georgia Pine Farm Turned a Vital Tax Deduction.

“The claimed tax breaks are sometimes far greater than the cash spent shopping for the property, a part of a minimarket through which high-income traders nationwide extract tax deductions as an alternative of minerals.”

On the opposite different hand, I didn’t discover any WSJ protection on the latest conviction of easement promoters Jack Fisher and James Sinnott together with the acquittal of appraiser Clay Weibel.