Conservation easements allow landowners to donate land to qualifying charities for conservation purposes. The donated land must be conserved and cannot be used for mining, drilling, development, or similar purposes, but it may be used for certain types of personal use, including farming and ranching. The easement attaches to the land in perpetuity, even when it sells.
Landowners get tax credits at the state and federal levels in exchange for donating to the easement. Georgia has hundreds of thousands of acres of land in wetland, grassland, and farming/ranching conservation easements, but landowners aren’t the only ones who can benefit from conservation easements. Many investors based in Georgia use syndicated conservation easements (SCE) to get valuable tax deductions.
Unfortunately, due to a significant amount of abuse of this program, the IRS is increasing scrutiny of syndicated easement tax deductions. If you’re facing an audit or worried about the validity of your deduction, you need an experienced conservation attorney. An attorney can also help if you’re a land owner interested in using conservation easements for tax planning and/or environmental purposes.
Abusive Conservation Easement Schemes
Although a conservation easement is a valid way to conserve land and receive a tax deduction, dozens of promoters have abused this idea and pulled thousands of investors into their schemes.
The promoters put land in an LLC and sell shares to investors. They work with an appraiser to calculate the value of the land if it were developed. Then, they donate the land to a qualifying charity and claim a tax deduction based on the land’s appraised value. The deduction then flows to the investors who claim it on their tax returns.
To determine the appraised value of the land, the promoters rely on its highest and best use. For example, they may claim that the land would be most valuable as a gravel pit, a residential community, or a golf course. Then, the appraiser calculates the value based on the land’s income potential or the prices of comparable land that have recently sold in the area.
IRS Focus on Georgia
According to the Philadelphia Inquirer, over a third (36%) of easement deductions claimed between 2010 and 2012 came from Georgia. Because of these high numbers, many Georgians may be affected by the IRS’ ongoing audits on syndicated conservation easements.
The Agricultural Conservation Easement Program (ACEP) received $1.4 billion from the Inflation Reduction Act, and the program aims to streamline the process of conserving land for wetlands or agricultural purposes. Additionally, the Georgia Land Conservation Program (GLCP) has handled over 300 conservation transactions that have conserved over 200,000 acres in GA since its founding in 2005.
The Role of a Georgia Conservation Easement Attorney
A conservation easement attorney who is experienced with the laws in Georgia and the IRS tax code can help you deal with conservation easements. A tax attorney can provide critical assistance if you invested in a syndicated conservation easement. Their guidance can be invaluable if you are facing an audit, dealing with a revoked tax credit, are interested in a settlement, or are worried about criminal tax evasion. An attorney can help you evaluate the risks of your deductions and ensure that you are compliant with state and federal tax laws.
Navigating Audits and IRS Challenges
A tax attorney can provide critical help and guidance during a tax audit. They can talk to the IRS on your behalf and ensure your rights are respected throughout the process. They also help you understand which documents you need to provide to the auditor and ensure that you meet critical deadlines during the audit process. If you disagree with the audit results, your attorney can help you appeal.
If you claimed a tax deduction from a syndicated conservation easement, the IRS may decide to audit your individual tax return. The IRS also audits the tax returns of LLC partnerships that have claimed these deductions and passed them to investors. If you are a partner in one of these LLCs, a lawyer can also help guide you through the legal challenges and potentially mitigate penalties.
Advising on Settlement Options
The IRS has announced the possibility of settlements for qualifying SCE investors, and an experienced attorney can help you decide if this is the right option for you and, if so, how to proceed. As of mid-2024, the IRS has sent settlement offers to select investors. To qualify for a settlement, you must not be facing an audit or legal charges, and you may need to meet additional requirements.
In many of the syndicated conservation easement cases, the Tax Court has decided to disallow up to 95% of the deduction and impose a 40% penalty. The Georgia Department of Revenue has also offered settlements to investors who wish to come forward voluntarily and resolve their tax exposure while the IRS audits are ongoing. The settlement offers a penalty waiver and can drastically reduce the total exposure. If you are a Georgia resident and an investor of one or more syndicated conservation easements, contact our team at Wiggam Law to discuss your options under this settlement program.
Defending Against Legal Actions
If you are facing legal action or worried about criminal exposure, contact a tax attorney as soon as you can.
Promoters are much more likely to face criminal charges for their involvement. In fact, at least two promoters have been sentenced to decades in prison for their roles in these schemes. If you are a promoter, you need the help of a tax attorney who has experience with both criminal tax issues and SCEs.
Choosing the Right Conservation Easement Attorney in Georgia
This is a serious issue, and you need the right attorney in your corner. Look for an attorney who understands conservation easements in Georgia and the implications for investors, landowners, promotors, credit brokers, and anyone else who deals with these tax credits. Also, choose an investor who has a strong track record with IRS cases and is familiar with Georgia tax laws.
If you believe that you may lose your tax credit if the IRS reviews your return or suspect you may have invested in an abusive scheme, contact a tax attorney for help as soon as possible. Make sure that you find an attorney who is experienced with these types of cases in Georgia in particular.
At Wiggam Law, we have been dealing with conservation easements for over a decade and want to help you. Don’t wait until the IRS selects your return for an audit. The more proactive you are, the better the outcome will likely be. Let’s talk about the best options for your situation. Schedule a consultation with our team or call us at (404) 233-9800.