IRS To Audit More High-Wealth Taxpayers & Offer Settlements for Conservation Easements

What is happening with the American way of life while we are watching politics and nature do the opposite. One is thriving the other starving

Reports show that the IRS is launching an audit campaign that will focus on hundreds of returns filed by high-wealth taxpayers. In addition, the agency also announced this week that it was making a settlement offer to taxpayers who may have invested in syndicated conservation easements.

Jennifer Benda is a partner/shareholder at the national law firm Hall Estill in its tax practice and a former certified public accountant who specializes in helping high wealth individuals navigate the ever changing tax laws. She discusses the two recent announcements and advice she has for individuals in this category.

Audits of Wealth Individuals

“IRS has been working for years on better audit techniques, including audits of high net worth individuals and their various entities.   IRS audit methods are now more targeted and generally issue based, meaning, they know of a deduction or structure they don’t like and they take a singular position and audit thousands of taxpayers who they believe took that deduction or implemented the disfavored structure,” Benda says. 

“Last week an IRS official stated that when the IRS gets back to work on July 15, they will be sending audit notices to groups of high net worth individuals.  It is thought that is in response to a TIGTA report which concluded that the IRS was not appropriately auditing high-income nonfilers,” Benda says. 

“Any high net worth individual with any aggressive tax planning in place for 2016 for later years should consult an independent advisor to assess their risk and any proactive actions they can take to minimize risk and exposure,” Benda says. 

Settlement for Syndicated Conservation Easement Transactions

“Yesterday the IRS announced that it was making a settlement offer to taxpayers who may have invested in syndicated conservation easements, one of the IRS’s “Dirty Dozen tax scams,” Benda says. 

“Syndicated conservation easements are ones where a partnership investment results in a charitable deduction that is more than 250% of the cash investment.  Generally, an inflated valuation of the easement’s value is what is used to generate the deduction,” Benda says. 

“In Colorado, for example, due to state law limitations on state credits for conservation easements, these structures are rare, but were rampant 10 years ago.  However, these structures have flourished in the south, leading to a string of recent U.S. Tax Court cases which the IRS has won,” Benda says. 

“Taxpayers receiving an offer of settlement related to a conservation easement charitable deduction should consult and independent tax advisor to determine the best course,” Benda says.