Tax Court Rejects Bullshit Syndicated Conservation Easement Shelter for the Usual Reasons (3/31/25)

In Ranch Springs, LLC v. Commissioner, 164 T.C. ___, No. 6 (3/31/25), links below *, the Tax Court rejected another bullshit tax shelter, here of the syndicated conservation easement ilk. The fact pattern for this ilk of bullshit tax shelter may be simply stated: a grossly overvalued property contributed to charity for charitable easement purposes. The holding highly summarized is:

• the real value is determined in an amount grossly less (joining grossly and less may not be good English, but readers will get the concept); and
• the 40% gross valuation misstatement penalty applies because, well, the valuation was grossly misstated.

A more detailed summary is found in the Syllabus and, for those wanting more, in the 66-page opinion (actually 64 excluding the caption and the Syllabus), but that is the guts of the holdings.

These are unexceptional holdings, in my opinion, so I am not sure why the Court designated this a “T.C.” opinion rather than a “T.C. Memo.” opinion. The parts I found interesting (set forth below) are hardly the stuff of which T.C. opinions are usually made. Perhaps the reason is in the third “Held” conclusion in the Syllabus relating to the proffered “before value” found to be erroneous as a matter of law as follows:

Held, further, assuming arguendo that limestone mining was a permissible use, the version of the income method P’s experts used to determine the “before value” of the property is erroneous as a matter of law because it equates the value of raw land with the net present value of a hypothetical limestone business conducted on the land. A knowledgeable willing buyer would not pay, for one of the assets needed to conduct a business, the entire projected value of the business.

. Oh well…..

So, what did I find interesting?

Guest Blog: Professors McGovern and Brewer on APA Status of Listed Transactions (12/12/24)

I offer the second of two guest blogs from Bruce McGovern, Professor teaching tax law at the South Texas College of Law Houston (school resume here) and Professor Cassady V. (“Cass”) Brewer teaching tax law at the Georgia State University College of Law (school resume here). The first offering, titled Guest Blog: Professors McGovern and Brewer on Developments in Hewitt Holding Regulation Procedurally Invalid (12/8/24) is here. I will do a shorter lead in and will cut to the chase. This offering deals with the APA status of IRS Notices:

           2. Yet another Green decision under the APA regarding listed transaction notices has the IRS and Treasury seeing red, but proposed and final regulations provide a blackletter law counterpunch. We previously have written about successful taxpayer challenges to the IRS process of issuing administrative notices identifying “listed transactions” (a subset of “reportable transactions”) under Reg. § 1.6011-4(b)(2), thereby potentially triggering enhanced penalties for noncompliance. Generally, taxpayers participating in such listed transactions must file special disclosures with the IRS under § 6011(a). See Form 8886, Reportable Transaction Disclosure Statement. Material advisors (as defined) to such participating taxpayers are also subject to special disclosure and list maintenance requirements under § 6112(a). See Form 8918, Material Advisor Disclosure Statement. In addition, taxpayers and their material advisors may be subject to enhanced penalties and criminal sanctions for failing to properly disclose, and for participating in, such transactions. See §§ 6662A; 6707; 6707A; 6708. At least three courts have held that the IRS violated the Administrative Procedure Act (“APA”) by issuing certain listed transaction notices. Specifically, the Sixth Circuit, the U.S. District Court for the Eastern District of Tennessee, and the U.S. Tax Court have determined that the three distinct listed transaction notices at issue in those cases were “legislative rules” subject to the notice-and-comment procedures of the APA. Further, because the IRS did not publish an advanced notice of proposed rulemaking inviting public comment before issuing the notices, the courts invalidated them. See Mann Construction, Inc. v. United States, 27 F.4th 1138 (6th Cir. 2022) (invalidating Notice 2007-83, 2007-2 C.B. 960, which identified certain business trust arrangements utilizing cash value life insurance purportedly to provide welfare benefits as listed transactions); CIC Services, LLC v. Internal Revenue Service, 592 F. Supp. 3d 677 (E.D. Tenn. 2022), as modified by unpublished opinion, 2022 WL 2078036 (2022) (invalidating Notice 2016-66, 2016-47 I.R.B. 745, as modified by Notice 2017-8, 2017-3 I.R.B. 423, which identified certain micro-captive insurance arrangements as listed transactions); Green Valley Investors, LLC v. Commissioner, 159 T.C. 80 (2022) (invalidating Notice 2017-10, 2017-4 I.R.B. 544, which identified post-2009 syndicated conservation easements as listed transactions). After initially contesting the application of the APA to the listed transaction notices at issue in Mann Construction, CIC Services, and Green Valley Investors, the IRS and Treasury practically have conceded, responding in at least two instances with proposed APA-compliant listed transaction regulations in place of invalidated notices. See REG-109309-22, Micro-Captive Listed Transactions and Micro-Captive Transactions of Interest, 88 FR 21547 (4/11/23) and REG-106134-22, Syndicated Conservation Easements as Listed Transactions, 87 F.R. 75185 (12/8/22). The latter proposed regulations regarding syndicated conservation easements have been finalized and are discussed further below. For additional background, see Announcement 2023-11, 2023-17 I.R.B. 798. The recent developments summarized immediately below are another installment in the APA tug-of-war between taxpayers and the IRS concerning listed transaction notices under Reg. § 1.6011-4(b)(2) that may implicate enhanced penalties under §§ 6662A; 6707; 6707A; 6708.

                   a. IRS and Treasury see red after Green(s). Green Rock LLC v. Internal Revenue Service, 104 F.4th 220 (11th Cir. 6/4/24), aff’g 654 F. Supp. 3d 1249 (2023). The taxpayer in this case was a promoter/material advisor of syndicated conservation easements. As such, the taxpayer was subject to Notice 2017-10, 2017-4 I.R.B. 544, which identified post-2009 syndicated conservation easements as one type of listed transaction under Reg. § 1.6011-4(b)(2). [*13] Further, as a promoter/material advisor to a listed transaction, the taxpayer potentially was subject to enhanced penalties under § 6707A. The taxpayer complied with Notice 2017-10 and the reportable transaction regime throughout the relevant years, including filing Form 8886, Reportable Transaction Disclosure Statement, and Form 8918, Material Advisor Disclosure Statement. Nevertheless, the taxpayer filed suit in the U.S. District Court for the Northern District of Alabama in 2021, alleging that Notice 2017-10 was invalid under the APA. Like taxpayers in previous similar cases, the taxpayer argued that the IRS had failed to comply with the APA by issuing Notice 2017-10 without providing a formal notice of proposed rulemaking inviting public comment. The district court agreed, setting aside Notice 2017-10 as applied to the taxpayer. See Green Rock LLC v. Internal Revenue Service, 654 F. Supp. 3d 1249 (2023). The taxpayer undoubtedly was emboldened by the Tax Court’s 2022 decision against the IRS in another “Green” case, Green Valley Investors (cited above). By an 11-4-2 vote, the Tax Court invalidated Notice 2017-10 under the APA in that case.

Guest Blog: Professors McGovern and Brewer on Developments in Hewitt Holding Regulation Procedurally Invalid (12/8/24)

This morning I offer a guest blog from Professors Bruce McGovern, teaching tax law at the South Texas College of Law Houston (school resume here) and Cassady V. (“Cass”) Brewer teaching tax law at the Georgia State University College of Law (school resume here). Professor McGovern authors many articles, including an annual article co-authored with Professor Brewer titled Recent Developments in Federal Income Taxation: The Year 2023, 77 Tax Law. 805 (2024). Professor McGovern makes monthly presentations of material included in that annual offering to the Wednesday Tax Forum (“WTF”) in Houston. In the most recent offering on December 13, 2024, Professors McGovern and Brewer had significant items on tax procedure that I thought readers of this blog might find interesting and enlightening. With their permission, I am offering a copy and paste of the two items in two separate blogs (because they are two separate subjects). I offer some comments after that copy and paste.

The first involves the saga of cases starting with Hewitt v. Commissioner, 21 F.4th 1336 (11th Cir. 2021) here, which held IRS proceeds regulation for conservation easements adopted in 1986 invalid under the APA for failure to respond to significant comment in adopting the final regulation. There have been significant developments since Hewitt that Professors McGovern and Brewer cover quite nicely.

IX. EXEMPT ORGANIZATIONS AND CHARITABLE GIVING Exempt Organizations Charitable Giving

          With more than 750 conservation easement cases on the docket, the Tax Court’s flip-flop on the validity of the extinguishment proceeds regulation is not going to help matters. Valley Park Ranch, LLC v. Commissioner, 162 T.C. No. 6 (3/28/24). In a reviewed opinion (7-2-4) by Judge Jones, the Tax Court refused to follow its prior decision in a conservation easement case decided just four years earlier Oakbrook Land Holdings, LLC v. Commissioner, 154 T.C. 180 (2020), aff’d, 28 F.4th 700 (6th Cir. 2022). Instead, rejecting Oakbrook, a majority of the Tax Court in this case appealable to the Tenth Circuit determined that Reg. § 1.170A-14(g)(6)(ii), one of the chief weapons the IRS has used to combat conservation easements, is procedurally invalid under the Administrative Procedure Act (“APA”). It is fair to say that the Tax Court’s decision in Valley Park Ranch will have a significant impact on current and future conservation easement litigation between the taxpayers and the IRS.

          Background. Other than challenging valuations, the IRS’s most successful strategy in combating syndicated conservation easements generally has centered around the “protected in perpetuity” requirement of § 170(h)(2)(C) and (h)(5)(A). The IRS has argued in the Tax Court that the “protected in perpetuity” requirement is not met where the taxpayer’s easement deed fails to meet the strict requirements of the “extinguishment regulation.” See Reg. § 1.170A-14(g)(6)(ii). The extinguishment regulation ensures that conservation easement property is protected in perpetuity because, upon destruction or condemnation of the property and collection of any proceeds therefrom, the charitable donee must proportionately benefit. According to the IRS’s reading of the extinguishment regulation, the charitable donee’s proportionate benefit must be determined by a fraction determined at the time of the gift as follows: the value of the conservation easement as compared to the total value of the property subject to the conservation easement (hereinafter the “proportionate benefit fraction”). See Coal Property Holdings, LLC v. Commissioner, 153 T.C. 126 (10/28/19). Thus, upon extinguishment of a conservation easement due to an unforeseen event such as condemnation, the charitable donee must be entitled to receive an amount equal to the product of the proportionate benefit fraction multiplied by the proceeds realized from the disposition of the property.

          Facts. The taxpayer partnership in this case claimed a $14.8 million charitable contribution deduction for its 2016 tax year after granting to a charity a conservation easement over 45.76 acres of Oklahoma land it acquired in 1998 for $91,610. The easement deed recited in part that the contributed property was to be held “forever predominantly in its natural, scenic, and open space condition” and that “the duration of the Easement shall be in perpetuity.” 162 T.C. at ___. The easement deed further provided in relevant part that if the land was taken by eminent domain, the taxpayer and the charity would, “after the satisfaction of prior claims,” share in the condemnation proceeds “as determined by a Qualified Appraisal meeting standards established by the United States Department of Treasury.” 162 T.C. at _____. Upon audit, the IRS took the position, as it has in many prior cases, that the taxpayer’s deduction should be disallowed for failing to meet the proportionate benefit fraction requirement of the extinguishment proceeds regulation, Reg. [*9] § 1.170A-14(g)(6)(ii). The IRS’s litigating position is that the proportionate benefit fraction must be fixed and unalterable as of the date of the donation according to the following ratio: the value of the conservation easement as compared to the total value of the property subject to the conservation easement. Thus, according to the IRS, leaving the proportionate benefit upon condemnation to be determined later by a qualified appraisal meeting certain standards is insufficient. (Note: Section 4.01 of Notice 2023-30, 2023-17 I.R.B. 766 (4/10/23), sets forth what the IRS considers acceptable language regarding the proportionate benefit fraction as it relates to extinguishment clauses in conservation easement deeds.) After petitioning the Tax Court, the taxpayer argued alternatively that either (i) the easement deed met the requirements of Reg. § 1.170A-14(g)(6)(ii) by “explicit incorporation,” or (ii) the regulation is procedurally invalid under the APA, in which case the easement deed need not strictly comply with the regulation as long as it meets the more general requirements of the applicable subsections of the statute, § 170(h) (qualified conservation contribution). The case was heard by the Tax Court on cross-motions for summary judgment.

          The Tax Court’s Majority Opinion. In a reviewed opinion (7-2-4) by Judge Jones (joined by Judges Foley, Urda, Toro, Greaves, Marshall, and Weiler), the court began its analysis by reviewing the conflicting decisions of the Sixth and Eleventh Circuits concerning the procedural validity of Reg. § 1.170A-14(g)(6)(ii) under the APA. See Hewitt v. Commissioner, 21 F.4th 1336 (11th Cir. 2021) (concluding that the regulation is invalid under the APA); Oakbrook Land Holdings, LLC v. Commissioner, 28 F.4th 700 (6th Cir. 2022) (concluding that the regulation satisfies the APA). The majority emphasized that a divided (2-1) Sixth Circuit panel decided Oakbrook, whereas a unanimous (3-0) Eleventh Circuit panel decided Hewitt. Thus, in a footnote, Judge Jones pointed out that of the six appellate court judges who have considered the issue, four decided that Reg. § 1.170A-14(g)(6)(ii) is invalid under the APA while only two upheld the regulation. Noting that the case is appealable to the Tenth Circuit, which has not taken a position on the validity of Reg. § 1.170A-14(g)(6)(ii), Judge Jones concluded for the majority that “after careful consideration of the Eleventh Circuit’s reasoning in Hewitt, we find it appropriate to change our position.” 162 T.C. at ____. The majority gave a nod to the principle of stare decisis—following established precedent—but reasoned that its holding in Oakbrook, even though affirmed by the Sixth Circuit, is not “entrenched precedent,” thereby allowing the Tax Court to strike down Reg. § 1.170A-14(g)(6)(ii) as procedurally invalid under the APA in line with Hewitt. 162 T.C. at ____.

Tax Court Rejects Bullshit Grossly Overvalued Conservation Easement Claim (7/19/24)

In Corning Place Ohio, LLC v. Commissioner, T.C. Memo. 2024-72, JAT Google Docs here and GS here, the Court (Judge Lauber) denied a charitable deduction for an alleged conservation easement and imposed accuracy-related penalties. The Court’s opening paragraph tells the story of a bullshit tax shelter, as so often these days, in the guise of a conservation easement (footnote omitted):

          This case presents what might be called the urban version of the conservation easement tidal wave that has deluged this Court. A partnership acquired a historic office building in downtown Cleveland, Ohio, and proceeded to renovate it into luxury [*3] apartments. The renovation was undertaken pursuant to a “rehabilitation plan” approved by the National Park Service (NPS) and the State of Ohio, both of which awarded historic preservation tax credits. The partnership used the tax credits to finance the renovation.

          Gilding the lily, the partnership then granted a conservation easement over the very same property, claiming a $22.6 million charitable contribution deduction on the theory that it had relinquished valuable development rights. The “lost development rights” allegedly consisted of the notional opportunity to add a 34-story vertical addition on top of the historic building. Apart from being structurally implausible and economically unsound, adding 34 floors of steel and concrete atop the building would have required the partnership to forfeit the Federal and Ohio tax credits upon which it relied to finance the renovation. As a condition of receiving those credits, it had pledged that the rehabilitation plan would entail no rooftop improvements “visible from the street.”

          Needless to say, a 34-story addition on top of the building would have been visible from the street. Finding that the 34-story tower was a chimerical concept ginned up solely to support a wildly inflated appraisal, we will sustain the Commissioner’s disallowance of the charitable contribution deduction and his imposition of a 40% penalty under section 6662(h) for a “gross valuation misstatement.”

I include at the end of this blog entry several quotes from the opinion that I thought particularly good to show the perfidy of the actors involved in the drama. First, I will address two tax procedure issues:

Tax Court Judge Lauber Denies Petitioner Motion for Summary Judgment Rejecting Fraud Penalties in Allegedly Abusive SCE Case; Some Background (4/14/24)

In North Donald LA Property LLC et al. v. Commissioner (Order T.C. Dkt. 24703-21 #140 4/10/24), TA here and TC Dkt here*, a syndicated conservation easement (“SCE”) case, the Court (Judge Lauber) denied the petitioner’s motion for partial summary judgment. 

* This is an order and not an opinion of the Court. Hence there is no direct access to the Court’s order. Access through the Court (as opposed to a third party provider) is by using the Court website to access the docket entries for Case # 24703-21 and going to the particular docket entry (in this case entry 140 dated 4/10/24). Here there is a third party provider, Tax Analysts on its public site sponsored by Deloitte. I take this opportunity to state my appreciation to Tax Analysts and Deloitte for providing this service.

Judge Lauber opens (slip op. 1):

On February 16, 2024, petitioner filed a Motion for Partial Summary Judgment seeking a ruling that the civil fraud penalty, as a matter of law, does not apply because respondent has not alleged facts showing that NDLA “intended to evade taxes known to be owing by conduct intended to conceal, mislead, or otherwise prevent the collection of taxes.” Memorandum in Support of Motion for Partial Summary Judgment at 7 (quoting Parks v. Commissioner, 94 T.C. 654, 661 (1990)). In essence, petitioner contends that respondent cannot carry his burden of proving fraud by clear and convincing evidence because NDLA disclosed on its tax return the facts relating to the conservation easement transaction. Finding that there exist genuine disputes of material fact regarding the possible application of the fraud penalty, we will deny the Motion.

Judge Lauber starts the discussion of the facts as follows:

Sixty West, LLC (Sixty West), was a promoter of syndicated conservation easement transactions.n3 In March 2016 Reserve at Welsh, LLC (Welsh), an entity controlled by Sixty West, purchased 3,324 acres of land in Jefferson Davis Parish, Louisiana (Parent Tract). Sixty West allegedly purchased the Parent Tract for use in multiple syndicated transactions that would generate large charitable contribution tax deductions for investors. The total purchase price for the Parent Tract was $9,888,008, or $2,975 per acre.
   n3 “Promoter” is a loaded term in the syndicated conservation easement space because of the penalty imposed on “promoters” by section 6700(a). In this Order we use the term “promoter” in its ordinary sense, making no determination as to whether Sixty West was a “promoter” within the meaning of section 6700(a), a question that is not before us.

Judge Lauber’s recitation of the rest of the relevant facts then follows a recognizable pattern for those who have watched abusive SCE cases. Setting aside technical foot-faults, the core common pattern is the substantial overvaluations of the donated easements. Based upon the appraisal  of a frequent appraiser in abusive SCE cases (Claud Clark III), NDLA claimed a donation of $115,391,000 for a portion of the property originally purchased. (Order slip op. 2.) That contribution claim was based upon a “’before value’ of the property of $116,303,000, or $471,4561 per acre. Subtracting from the sum an “after value” of $912,000, Mr. Clark asserted that the easement was worth $115,391,000.’” (Slip op. 2-8.)

Timely disclosure Forms were filed as follows (Slip op. 30):

Grossly Overvalued Conservation Easement Disallowed in Full and Gross Valuation Misstatement Penalty Applied (2/24/24)

In Oconee Landing Property, LLC v. Commissioner, T.C. Memo. 2024-25 (2/21/24), GS here, the Court (Judge Lauber) denied the charitable contribution deduction because

• the allegedly relied upon appraisers were not “qualified appraisers” because the petitioners knew the property was worth only a fraction of the appraisers’ opined values (Slip Op. 39-48; and
• the property was “ordinary income property” in the hands of the promoters and that character carried over to the partnership, thus limiting the charitable deduction to the promoters basis. Petitioner supplied “no evidence” of that basis. (Slip Op. 48-57.)

Further, the Court held that, although entitled to no deduction, the Court still had to determine the value of the contributed easement to determine whether the valuation misstatement penalties applied. § 6662(a), (b)(3). The penalties are 20% if the valuation is substantial—i.e., 150% or more of the correct value--and 40% if the valuation is gross—200% or more of the correct value. (Slip Op. 74, citing § 6662(h) and § 6662(h)(2)(A)(i), respectively.) The value of the easement claimed on the return was $20.67 million but the value determined “was no greater than $4,972,002, thus the claimed value “exceeded the correct value by 416%.” (Slip Op. 74-75.)

In support of the first holding (not qualified appraisers), the Court said (Slip Op. pp. 45-46):

A person who achieves an advance agreement with an appraiser that property will be overvalued—knowing that it is being overvalued—cannot establish good faith reliance on professional advice that the appraisal is acceptable. n14

But there is more in the indicated footnote, the Court said (Slip Op. 46):

   n14 In its opening post-trial brief petitioner asserted that the regulations governing qualified appraisals and qualified appraisers “did not go through a proper notice-and-comment process and are, therefore, invalid.” That assertion occupied a single sentence; petitioner supplied no argument in support of that assertion, stating that “the Court need not reach that issue in this case.” And in its post-trial Answering Brief petitioner did not mention any challenge to the validity of Treasury Regulation § 1.170A-13(c)(5)(ii), or any other provision of the regulations, based on the Administrative Procedure Act (APA). Under these circumstances, petitioner has not properly presented or preserved an APA challenge to any regulation discussed in this Opinion.

Promoters of Abusive Conservation Easement Deductions Enjoined from Similar Conduct (3/23/23)

The Court entered Final Judments of Permanent Injunctions against promoters of abusive conservation easement tax shelters (a genre of bullshit tax shelters). The promoters enjoined are Ecovest Capital,   Ecovest Capital, Inc., Alan N. Solon, Robert M. McCullough, and Ralph R. Teal, Jr and Claud Clark III. The Final Judgments are (i) for Claud Clark III here; and (iii) for the remaining defendants here.  The Courtlistener docket entries with links to the pertinent documents most of the key documents in the proceeding are here. The terms summarized are:

(i)  enjoined from participating in any way in a plan or arrangement that involves a deduction for a qualified conservation contribution under 26 U.S.C. § 170(h)”,

(ii)  provide annual statements under penalty of perjury to the IRS and DOJ Tax for the next six years that they have not so participated,

(iii) contact all persons for whom appraisals were provided and all employees or other persons participating in the appraisals, provide them a copy of the Final Judgment of Permanent Injunction, and provide a list of such persons to DOJ Tax;

(iv)  prominently display on the website a copy of the Final Judgment of Permanent Injunction and

(v)  allow, through the Court’s retained jurisdiction, DOJ Tax to take civil discovery to monitor compliance.

I have not focused on the relief requested in the amended complaint (Doc 225 in the docket entries), but I did note that DOJ Tax sought disgorgement in Court V and Relief Sought ¶ m.  The Final Judgment of Permanent Injunction does not address disgorgement. Further in the complaint, the request for the injunction was to enjoin conduct subject to certain IRC penalty provisions (§ 6700, § 6695A, § 6694).  Those specific references are not included in the Final Judgment of Permanent Injunction but the description of the enjoined conduct probably covers conduct under the sections. There is no admission of liability for the penalties.

 A similar consent judgment was previously entered for Nancy Zak. (See Doc 271 and Doc 167 Attachment  1.) 

4th Circuit Holds the Tax Partnership Receiving an Administrative Summons is Different Than its Representative for Purposes of § 7602(d) (7/9/22; 7/12/22)

In Equity Inv. Assocs., LLC v. United States, 40 F.4th 156 (4th Cir. July 8, 2022), CA 4 here and GS here, the Court held that, for purposes of the § 7602(d) limitation on IRS administrative summonses after a criminal referral to DOJ, the person investigated for whose records a third party (bank) was summonsed (in this case a syndicated conservation easement tax partnership) is not the same as a related person (the partnership representative under 26 C.F.R. §§ 301.6223-1) who was under criminal referral, at least in part arising from the same set of facts. See the discussion at Slip Op. 8-11 under the heading “A. “Person” in § 7602(d) does not include a legal person's agents.”  The Court rejects the suggestion that anything other than an actual referral of the person to whom the summons is issued will meet the terms of the statutory limitation. See Slip Op. 11-14, saying at Slip Op. 12:.

            Equity [the summonsed tax partnership] must show evidence that a referral existed before the IRS summons, because the IRS can generally use its summons power to further a criminal investigation. § 7602(b). The summons power only ends “at the point where an investigation was referred to the Justice Department for prosecution.” United States v. Morgan, 761 F.2d 1009, 1012 (4th Cir. 1985). And a Justice Department referral is not simply some generalized suspicion of criminal activity, but a specific procedural mechanism used to share information. Id. (describing a Justice Department referral as a “mechanical test”).

These are pretty straightforward holdings that I am surprised were seriously disputed.  Hence, I think they require no further discussion for the prototypical reader of this blog (as I imagine that reader). But I note that the court makes some statements in the opinion that on their face seem noteworthy or curious. I will just list them without further comment:

 1. Slip Op. 2 n1:

   n1 The IRS has broad powers to investigate criminal tax fraud, but it lacks the power to prosecute tax fraud. So if an IRS criminal investigation discovers evidence of criminal activity, the IRS must refer the case to the Justice Department for prosecution. Once referred, the IRS typically plays a continued role in investigating and prosecuting the case.

2. Explaining how the tax partnership inflates the value of the donated easement (Slip Op. 3 n3):

   n3 This inflation is possible because the easement's value is often not calculated based on the land's recent purchase price but based on the value of its highest and best use. See PBBM-Rose Hill, Ltd. v. Comm'r, 900 F.3d 193, 209 (5th Cir. 2018). So the limit on the valuation is little more than the imagination of the appraiser (who may be in on the scheme), tempered only by the fear of an audit. See generally Mary Clark, Greedy Giving, Bad for Business: Examining Problems with Arbitrary Standards in Appraising Conservation Easements, 51 U. Mem. L. Rev. 479 (2021).

Sixth Circuit Creates Circuit Conflict with Eleventh Circuit on Conservation Easement Regulations (3/15/22)

I recently discussed the Eleventh Circuit’s opinion in  Hewitt v. Commissioner, 21 F.4th 1336 (11th Cir. 2021). 11th Cir. Invalidates Proportionate Sharing Regulations As Procedurally Arbitrary and Capricious for Failing to Address a Significant Comment (12/30/21; 12/31/21), here; and Regulations Interpreting Pre-1996 Code Provisions; Fixing Hewitt (1/6/22; 1/7/22), here. In Hewitt, the Eleventh Circuit invalidated the regulation § 1.170A-14(g)(6)(ii) requiring for charitable conservation donations of partial interests (such as easements) that the deed does not permit the donor to share in proceeds on extinguishment in the property values attributable to post donation improvements made by the donor. Yesterday, the Sixth Circuit sustained the regulation, thus creating a Circuit conflict between Hewitt and Oakbrook Land Holdings, LLC v. Commissioner, 28 F.4th 700 (6th Cir. 2022), CA6 here and GS here.

The Sixth Circuit in Oakbrook holds the regulations are procedurally valid, rejecting the reasoning of the Eleventh Circuit for holding the regulations procedurally invalid. The Sixth Circuit so holds in separate parts of the majority opinion that

(i)                addresses procedural regularity or “arbitrary or capricious” review (in 5 USC § 706 stated in disjunctive but often stated in conjunctive “arbitrary and capricious review) (28 F.4th at 710-718 and 720- 722); and 

(ii)              Chevron analysis (28 F.4th at 718-720). 

 (It is not clear to me why the Court sandwiched Chevron analysis between components of arbitrary and capricious review, but there is a lot of confusion in this general area.)

IRS Offers to Settle Abusive Syndicated Conservation Easement Shelters Pending in Tax Court (6/26/20)

In IR-2020-13, here, the IRS announces that it will offer to settle Conservation Easement Syndication shelters of the BS genre that are currently pending in the Tax Court.  The settlement offer will be made by mail in each pending case.  The announcement says that the following will be the key terms.

• The deduction for the contributed easement is disallowed in full.
• All partners must agree to settle, and the partnership must pay the full amount of tax, penalties and interest before settlement.
• "Investor" partners can deduct their cost of acquiring their partnership interests and pay a reduced penalty of 10 to 20% depending on the ratio of the deduction claimed to partnership investment.
• Partners who provided services in connection with ANY Syndicated Conservation Easement transaction must pay the maximum penalty asserted by IRS (typically 40%) with NO deduction for costs.

Keep in mind that these are not all the terms but only the key terms.  And, I suppose, as presented, they may only be summaries of the key terms so that the actual key terms summarized may present different nuances than one can derive from the summaries.  As I learn more details or obtain more documents or links that may be helpful, I will do update revisions to this blog entry.

One of the key points regarding the offer, it will be made only in those cases pending before the Tax Court.  Cases in the IRS administrative pipeline are not within the scope of the offer as stated.  (Query, will Appeals make the same offer because, once a case gets to Appeals, the same incentive to clear the cases will be presented, because the next step will be litigation in the Tax Court?)

Peter Reilly has a good early discussion of the offer:  IRS Victory In Easement Case Prompts An Offer Not To Be Refused (Forbes 6/25/20), here.  Highly recommended.  And, from knowing Peter and his special interested in the abusive Syndicated Conservation Easement Shelters, he is likely to have more posts as the settlement offer plays out.

In email correspondence with Peter, I offered the following off-the-cuff (meaning not fully considered) comments.  I offer those off-the-cuff comments (modified and expanded but again without detail thought) just for early consideration, but if I have time to try to refine them, I will do so here.

1. The key excerpt, I think, is this:

The IRS realizes that some promoters may tell their clients that their transaction is “better” than or “different” from the transactions previously rejected by the Tax Court and that it may be better for the client to litigate than accept this resolution.  When deciding whether to accept the offer, the IRS encourages taxpayers to consult with independent counsel, meaning a qualified advisor who was not involved in promoting the transaction or handpicked by a promoter to defend it.

2. The penultimate paragraph says that taxpayers not excepting should not expect better terms.  But, as suggested by the above quote, what about those taxpayers who really do have better cases than the very bad cases (i.e., their documents meet the technical requirements of the regulation and their valuation is not grossly inflated as much as the more abusive ones)?  They will have better litigating hazards and the IRS should be willing to settle on a litigating hazards of their cases rather than insisting that one size fits all.