IRS To Launch Crackdown On Land Donations

by Leroy Baker, Tax-News.com, New York

02 July 2004

The Treasury Department and the Internal Revenue Service announced on Wednesday that the government is embarking on a crackdown to prevent improper tax deductions being taken by people who give real estate and cash to environmental groups.

The IRS is specifically targeting gifts of ‘conservation easements’ - deed restrictions that limit some types of real estate development. The investigations are focusing on easements that have questionable public benefit, or have been manipulated to generate inflated deductions.

“We’ve uncovered numerous instances where the tax benefits of preserving open spaces and historic buildings have been twisted for inappropriate individual benefit,” explained IRS Commissioner Mark W. Everson, warning: “Taxpayers who want to game the system and the charities that assist them will be called to account.”

Without naming names, the agency has said it is aware that some taxpayers are claiming inappropriate charitable contribution deductions for easement transfers, or are claiming deductions for amounts that exceed the fair market value of the donated easement.

In addition, the IRS declared knowledge of taxpayers claiming these deductions for cash payments or easement transfers to charitable organizations in connection with the taxpayers’ purchases of real property.

The IRS intends to impose penalties on promoters and appraisers of these schemes and the tax-exempt status of the charitable organizations may also be challenged.

"I'm encouraged that the IRS is willing to challenge the tax-exempt status of charitable organizations that engage in shady practices in land-donation transactions,” stated Iowa Republican Sen. Charles Grassley, Chairman of the Finance Committee.

"All too often, these conservation donations appear to do very little for the environment and only help fill the bank accounts of donors and middlemen," he added.

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