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“Eight Things to Do When the IRS Wants to Audit Your Conservation Easement”

October 28, 2019
CPA Practice Advisor

“Eight Things to Do When the IRS Wants to Audit Your Conservation Easement" article by John Hackney in CPA Practice Advisor

In an article published by CPA Practice Advisor on October 28, 2019, Shareholder John Hackney discusses how to handle an IRS audit to conservation easements.

Hackney explains the IRS disfavors conservation easements and has increased its enforcement efforts. He recommends, “If you have invested in a conservation easement, or you are thinking about putting one together, you need to be ready to defend your easement deduction when the IRS comes calling.”

Conservation easements allow taxpayers the opportunity to donate certain legal rights associated with their properties to obtain charitable deductions. “A conservation easement perpetually restricts certain uses of the property, like the right to develop or mine the property, but does not transfer the ultimate ownership. The property remains in its natural state and the country benefits from increased greenspace,” explains Hackney.

In recent years, the IRS has greatly increased scrutiny of conservation easements. Hackney notes, “Instead of landowners making a donation on their property, like-minded conservationists sought to join together through partnerships to make easement donations (known as syndicated conservation easements).” The IRS believed that syndicated conservation easements routinely resulted in overvalued donations. With the increased reporting requirements, IRS audits of easement transactions have greatly increased.

Hackney suggests that taxpayers need to take the following steps to better protect themselves: study the audit techniques guide, review easement documents in light of recent case law, check appraisal and conservation purposes, have documents ready, verify the tax matters partner/partnership representative, keep all partner information and hire an experience CPA and counsel.

For the full article, click here.