In June 2024, the IRS announced it was mailing limited-time settlement offers to taxpayers who invested in Syndicated Conservation Easements (SCEs) or similar transactions.
Although conservation easements offer legitimate tax savings for qualifying landowners and investors, SCEs have been on the agency’s Dirty Dozen tax scam list since 2016.
If you have received a settlement letter, you may want to contact the IRS as soon as possible to take advantage of the offer, but first, consider reaching out to a tax attorney to discuss your decision. Unfortunately, according to the IRS, only taxpayers who receive the letter are eligible for a settlement, but you can still have options.
At Wiggam Law, we have worked extensively with SCE investors and landowners, and we can answer your questions, help you figure out what to expect if you invest in an SCE, and provide representation as you navigate audits, appeals, court cases, and possible criminal exposure. To get help now, contact us today.
2024 IRS SCE Settlement Offers
The 2024 offers vary based on whether your case is docketed or not.
- Docketed cases: Partners can keep the deduction related to their cost, which is typically the amount invested, but the remaining deduction will be disallowed, and they will incur a 10% penalty. Partners will pay tax on the disallowed deduction at their individual income tax rates.
- Nondocketed cases: If all partners agree to the settlement, the deduction minus costs will be disallowed. The partnership will pay a 21% tax on the unreported income, and the penalty will be just 5% of the unreported tax liability.
With both offers, the penalties are significantly lower than the 75% civil fraud penalty or the 40% accuracy-related penalty. For non-docketed cases, the reduced tax rate offers significant savings compared to the highest possible individual tax rate of 39.6%
If you want to avoid prolonged litigation, you may want to consider an offer carefully. The IRS has stated that it will not offer better settlement terms.
What If You Don’t Accept the Settlement Offer
Not accepting the settlement means that you will continue to be at risk of audit or examination. If you’re currently under examination, you will likely have your deduction disallowed, incur penalties and interest, and face unwanted collection actions.
According to former IRS Commissioner Chuck Rettig, “The IRS will continue to actively identify, audit, and litigate these syndicated conservation easement deals as part of its vigorous and relentless effort to combat abusive transactions… These abusive transactions undermine the public’s trust in private land conservation and defraud the government of revenue. Ending these abusive schemes remains a top priority for the IRS.”
Unfortunately for investors, the IRS has disallowed billions of dollars in deductions and imposed significant penalties on investors. The Tax Court has upheld the agency’s decision in the vast majority of SCE cases.
Options for Recovering and Mitigating Losses
Whether you accepted a settlement or lost the deduction through an IRS audit or legal case, you may be able to mitigate your losses in a few different ways.
FINRA Arbitration or Mediation
The Financial Industry Regulatory Authority (FINRA) regulates broker-dealers and helps to recover money for investors who have been harmed. You may be able to recover some of your losses through FINRA mediation or arbitration. Consult with a tax attorney who has experience with these types of cases.
Section 6603 Refundable Deposits
To prevent additional interest from accruing on your tax liability, you may want to make a Section 6603 refundable deposit. Again, you should consult with a tax attorney before making this decision, but making a deposit halts interest and preserves your right to request a refund if the dispute is resolved in your favor. IRS interest rates update quarterly, and as of Q4 2024, they are 8% and compound daily.
State Voluntary Disclosure Programs
If your federal case still needs to be fully resolved and your state has yet to reach out to you about the return, you may be able to make a voluntary disclosure. The rules vary from state to state, but in Georgia, you may qualify for penalty waivers and a limited lookback period of three years.
Previous SCE Settlement Offers
The 2024 settlement offer is not the first of its kind, but the current settlement offers more advantages to investors than previous settlement offers.
In November 2019, IRS Commissioner Chuck Rettig announced, “We will not stop pursuing everyone involved in the creation, marketing, promotion, and wrongful acquisition of artificial, highly inflated deductions based on these aggressive transactions. Every available enforcement option will be considered, including civil penalties and, where appropriate, criminal investigations that could lead to a criminal prosecution.”
Then, several months later, on June 25, 2020, the IRS offered a limited-time settlement to certain taxpayers with pending litigation on SCE transactions. To qualify for the settlement, all of the partners must have agreed to the settlement, and the partnership must have paid the tax, penalties, and interest. This settlement offer disallowed the deduction for the easement contribution. It allowed investors to deduct their costs and pay a penalty of 10 to 20%. Partners who provided services were not allowed to deduct expenses and faced a 40% penalty.
Guidance for IRS Settlements and Legal Representation
Have you received a settlement letter? An audit notice? Or other IRS communication about your SCE deduction? Are you worried about an SCE deduction you claimed on a previous year’s tax return? Regardless of the situation you’re facing, we can help.
The legal team at Wiggam Law has been defending and guiding taxpayers regarding conservation easements and SCEs for years, and we can answer your questions. To learn more, contact us today to set up a consultation or check out this analysis of abusive and legitimate SCE transactions. Schedule a consultation with our team or call us at (404) 233-9800.