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Tax Deductions for Conservation Easements Face IRS and DOJ Scrutiny

News, Offshore Account Update

Posted in on July 30, 2021

The Internal Revenue Service (IRS) and the U.S. Department of Justice (DOJ) are targeting taxpayers suspected of fraudulently claiming tax deductions related to conservation easements. The deductions for charitable contributions of conservation easements are intended to promote the preservation of natural resources and historical infrastructure. However, many taxpayers claim these deductions improperly, and these “abusive” deductions result in substantial revenue losses for the U.S. government. Here, Virginia tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, discusses the qualifications for claiming a conservation easement deduction and the risks of taking “abusive” deductions in violation of federal law.

When Can U.S. Taxpayers Claim Deductions for Conservation Easements?

A conservation easement is a legal agreement that provides for the protection and preservation of real property with natural or historical significance. When a U.S. taxpayer donates a conservation easement to a qualifying organization, the taxpayer may become eligible to claim a charitable deduction. In order to qualify as a charitable deduction, a donation must meet all of the following requirements:

  • The donation must be made to a qualifying organization—typically either a public charity or government unit.
  • The donation must be intended as a gift to, and for the use of, the qualifying organization. This means that there must be no expectation of receiving anything in return.
  • The taxpayer must sign a deed transferring the interest in the subject property to the qualifying organization.
  • The taxpayer must transfer the entire interest in the subject property, except for a qualifying mineral interest, remainder interest in the property or restriction on the use of the property granted in perpetuity.
  • The transaction must be conducted exclusively for conservation purposes. These include, but are not limited to, outdoor recreation, protection of a natural habitat, preservation of an open space for scenic enjoyment, or compliance with a clearly delineated governmental conservation policy.

If any of these conditions are not satisfied, then a conservation easement will not qualify for a charitable deduction. As a result, taxpayers seeking to benefit from these deductions must choose appropriate donees, structure their transactions appropriately and maintain adequate documentation to demonstrate compliance if necessary.

What are the Risks of Taking “Abusive” Conservation Easement Deductions?

The IRS has identified several issues related to tax deductions for conservation easements that can lead to trouble for taxpayers. While improperly claiming charitable deductions can lead to an IRS audit and the potential for interest, fines and other civil penalties, it can also lead to criminal prosecution in some cases. The IRS and the DOJ are working together to uncover “abusive” conservation easement schemes and prosecute those involved—and they are pursuing criminal penalties when the evidence suggests an intentional effort to unlawfully evade federal income tax liability.

Contact Virginia Tax Lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group

If you have questions or concerns about claiming a charitable deduction related to a conservation easement, we encourage you to get in touch. To request an appointment with Virginia tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, call 703-752-3752, email ket@thornlawgroup.com or contact us confidentially online today.

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