Wall Street Journal Supports Abusive Conservation Tax Shelters

I had a tough time determining how to reply to a bit by the Editorial Board of the Wall Avenue Journal – A Case of Tax Fraud – at the IRS (Agent backdated documents to punish legal deductions). They had been referring to an IRS screwup that has gotten little bit of protection within the tax blogosphere. The Tax Courtroom sanctioned the IRS within the case of Lakepoint Land II LLC as a result of IRS attorneys didn’t inform the courtroom after they found a backdating downside with a penalty kind.

The Drawback

Clearly the IRS deserves and has taken some lumps and if the WSJ desires to cheer a bit of, who am I to object? Whether or not the convoluted truth sample rises to the extent of fraud, I am unable to work out after having learn Decide Weller’s opinion a number of occasions. If you wish to give it a attempt here’s a hyperlink to T.C. Memo 2023-111.

It’s the second a part of the heading – Agent backdated paperwork to punish authorized deductions (Emphasis added) – that’s troubling. If Lakepoint’s deductions are upheld by the Tax Courtroom, there will not be any penalties no matter whether or not the IRS has jumped by way of the penalty approval hoops. Absent the IRS screwup, the most definitely supply of a considerable penalty is an inflated appraisal – 200% brings a 20% penalty, 400% will get you 40%.

The editorial strikes from the backdating downside to debate the general effort by the IRS towards syndicated conservation easements.

“These easements have grow to be huge enterprise, as authorized tax loopholes typically do. Firms purchase up land, have it appraised for its foregone developmental worth, then promote stakes to traders who obtain the tax profit. This solely authorized commerce is disliked by the inexperienced foyer and a few lawmakers.” (Emphasis added)

A Educated Response

I simply did not know the place to start out. So I used to be happy once I noticed a letter to the editor from John Schoenecker.

“Concerning your editorial “A Case of Tax Fraud—on the IRS” (Sept. 30): I used to be Sen. Charles Grassley’s lead tax investigator in 2020, and I led the Senate Finance Committee’s investigation into syndicated conservation-easement transactions. Our report discovered that these transactions “seem like nothing greater than retail tax shelters that allow taxpayers purchase tax deductions on the finish of any given yr, relying on how a lot revenue these taxpayers want to shelter from the IRS, with no financial danger.”

No authorities company ought to ever minimize corners when implementing the legislation, however the Inner Income Service has been completely proper to go after syndicated conservation-easement transactions.”

The Unedited Model

I covered the report and interviewed John Schoenecker three years in the past. The report was a masterpiece that had an virtually cinematic high quality to it. Probably the most attention-grabbing remark was that the “engine of each syndicated conservation-easement transaction” is an inflated appraisal. I reached out to Mr. Schoenecker to congratulate him and he did me an actual strong. He gave me the textual content of the complete letter he despatched, the unedited model. Right here is the letter earlier than the WSJ editors, you understand, edited it.

“The Editorial Board made a obvious misstatement of the legislation in its editorial A Case of Tax Fraud – on the IRS. That editorial mentioned the backdating of audit paperwork in circumstances involving tax transactions of syndicated conservation easements. On the whole, any such conduct at a authorities company ought to clearly not occur, and I agree with the Journal’s total sentiment that the federal authorities ought to should observe the legislation similar to taxpayers do. In fact they need to. However the editorial goes on to generalize syndicated conservation-easement transactions as authorized transactions, which is a gross mischaracterization.

I used to be Sen. Charles Grassley’s lead tax investigator in 2020 when he final chaired the Senate Committee on Finance, and I led the committee’s investigation into these transactions. The committee’s report from that investigation discovered that syndicated conservation-easement transactions “seem[ed] to be nothing greater than retail tax shelters that allow taxpayers purchase tax deductions on the finish of any given yr, relying on how a lot revenue these taxpayers want to shelter from the IRS, with no financial danger.” In response to that report, the transactions achieved this consequence by way of inflated value determinations of undeveloped land, and it went into the main points about a few of these value determinations, which concerned valuations that ought to have raised an eyebrow, to place it mildly. The implication {that a} taxpayer’s claiming deductions from syndicated conservation-easement transactions was, till lately, authorized below the legislation is like saying {that a} taxpayer can typically declare a deduction for donating a used swimsuit to Goodwill even when the taxpayer claims the swimsuit is price $50,000. Claiming a deduction for donating a used swimsuit to charity is authorized; claiming it is price $50,000 is sort of definitely not. (That must be one very, very good swimsuit.) No authorities company ought to ever minimize corners when it enforces the legislation, however the IRS has been completely proper to go after syndicated conservation-easement transactions.” (Emphasis added

On The Different Hand

It is just honest to notice that the Wall Avenue Journal has or a minimum of had been doing job on its information facet masking the syndicated conservation easement story. Right here is report from Richard Rubin from final yr – How a Georgia Pine Farm Became a Significant Tax Deduction.

“The claimed tax breaks are sometimes far larger than the cash spent shopping for the property, a part of a minimarket during which high-income traders nationwide extract tax deductions as an alternative of minerals.”

On the opposite different hand, I didn’t discover any WSJ protection on the current conviction of easement promoters Jack Fisher and James Sinnott together with the acquittal of appraiser Clay Weibel.