Certain syndicated conservation easement transactions are referred to as being “listed” in proposed regulations that were released today.
Following a recent U.S. decision, the IRS today published proposed regulations designating specific syndicated conservation easement transactions as “listed transactions.” The Tax Court ruled against the IRS.
“A transaction that is the same as or substantially similar to one of the types of transactions that the IRS has determined to be a tax avoidance transaction and identified as a listed transaction by notice, regulation, or other forms of published guidance” is how the IRS defines a listed transaction.
In an article titled “The Tax Scam That Won’t Die,” ProPublica reported on syndicated conservation easements in June.
When the IRS published Notice 2017-10 in 2017, it was an attempt to put an end to this tax avoidance scheme because it categorized syndicated conservation easements as listed transactions that needed to be reported to the IRS. The designation of these transactions as “listed” was made with the intention of discouraging taxpayers from taking part in these scams, identifying those who do, and penalizing them appropriately.
Penalties, according to Forbes, include
- Congress added Section 6662A to the Internal Revenue Code in 2004 to impose an additional penalty on taxpayers who engage in “listed” or “reportable” transactions and whose returns understate tax as a result of those reportable transactions, on top of the numerous other civil and potentially criminal penalties applicable to United States taxpayers whose tax returns are incorrect. The fine is equal to 20% or 30% of the understated tax amount related to the transaction that was listed.
- Promoter penalties may be imposed at a percentage of the transaction, according to Internal Revenue Code Section 6700.
- Sections 6707 and 6707A impose penalties for failing to file certain reports or keep track of certain information required in connection with a listed transaction.
- In connection with a listed transaction, accuracy penalties and civil fraud penalties are more likely to be imposed.
As Forbes pointed out, these are only civil penalties; there may be criminal consequences as well.
However, the IRS was dealt a setback on November 9 when the Tax Court declared IRS Notice 2017-10 “invalid.” Forbes reported on November 10:
The IRS stated on December 6 that it disagrees with the Tax Court’s ruling and will continue to defend Notice 2017-10; however, the proposed regulations released on Tuesday will “eliminate any ambiguity regarding the need to report these transactions” and “ensure that this decision does not disrupt the IRS’s ongoing efforts to combat abusive tax shelters throughout the nation,” according to the IRS.
According to the IRS, it plans to issue proposed regulations identifying additional listed transactions soon and hopes to finalize the proposed regulations in 2023 after taking into account public comments.
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