IRS Announces Crackdown on Development: What to Know

Ever wonder how certain pieces of land are exempted from development? In areas like Washington, D.C., spots of nature are oftentimes preserved through the development process. One such mechanism is syndicated conservation easements, which confer certain tax benefits while committing to preserving land.

The Internal Revenue Service (IRS) recently announced a “crackdown” on alleged abuse relating to conservation easements. According to the IRS, developers have been misrepresenting the value of conservation easements, resulting in disproportionate tax benefits – therefore prompting its need to increase the number of audits performed. Syndicated conservation easements garner tax credits (because they are considered charitable donations) and have been used to avoid taxes on the actual transfer of land (rather than their intended purpose of simply preserving land in exchange for a charitable benefit.)

The IRS has stated that certain developers are inflating the actual value of the conservation easement in order to leverage or increase its value and related tax benefits. Given the IRS’ recent announcement, I recommend that you verify whether a deal with a syndicated conservation easement is valid – or simply a ploy to avoid tax liability. Having a real estate attorney or appraiser look at the actual appraisal associated with the conservation easement is a good place to start. A failure to fully vet such a deal can mean that you, as the investor/purchaser, actually end up of footing the tax bill and paying related penalties. A good rule of thumb: if it seems too good to be true – it likely is.

If you have any questions about this or any other Labor and Employment topics, please contact me at [email protected] or 703-745-1849