IRS Steps Up Its War On Environmental Tax Deductions

The government reopened this week after the longest shutdown in history on the very day that tax filing season began - an auspicious occasion that was scheduled to proceed whether the IRS remained officially shuttered or not. It is unfortunate, however, that even with government resuming normal operations certain classes of taxpayers are still exposed to capricious action by the IRS.

As NTU has noted, a years-long campaign is underway by the IRS to undermine the intent of Congress in the administration of a sound tax policy tool that allows people to conserve land in concert with one another. Despite clear legislative prerogative that has enshrined what are called ‘conservative easements’ into law for decades, the IRS has pursued aggressive action against taxpayers who take the conservation easement deduction. The IRS has recently escalated its attacks by coopting the intimidation powers of the Department of Justice.

The IRS has urged on this war on conservation by getting the DOJ to file a complaint against individuals and companies who have partnered to conserve land, calling into question nearly one hundred different conservation easement donations. The complaint alleges abuse of the tax code but provides little evidence that abuse occurred. Rather than exploring the specific transgressions alleged, the DOJ is attempting instead to block future generations of conservationists from claiming the tax benefit Congress has provided for this  purpose, and demanding that the defendants forfeit any benefit they have earned from their partnership over the last ten years. This massive intrusion into an important and legal taxpayer transaction is bold even for an agency whose fecklessness NTU has long documented.

Enlisting the powers of the DOJ is a signal that the IRS is stepping up its war on conservation easement donations. In the past, the IRS has only utilized its own enforcement powers, and enlisting the law enforcement authority of the DOJ is yet another overreach in attempting to chill conservation easements, which have been enshrined in law by Congress. As we pointed out in a paper last year:

The IRS has adopted the vaguely sinister epithet of “syndicated” to describe easement deductions that are structured to allow groups of people to contribute land to conservation and share the tax incentive benefits. From this followed a contorted train of assumptions that led the IRS to issue a listed transaction notice in December of 2016 and then report on taxpayers’ forms only a narrow calculation of deduction numbers with no context reflecting the quality and quantity of land conserved.

This malicious attack on taxpayers was celebrated in the Forbes opinion pages last week, with one writer recycling old tropes about the “cost” of such tax benefits. As described above, the IRS has gone above and beyond to obscure the full fiscal impact of the deduction, which if given fair measure would prove more efficient than government-run spending programs designed to accomplish the same conservation means. This was the thrust behind the deduction’s codification into law, with Congress acknowledging the important and necessary role the private sector can play in socially beneficial aims such as conservation.

The Forbes piece goes on to wonder why such an investor would pursue a conservation easement given the “severe penalties” threated to those taking the deduction. This is, of course, the explicit intent of the government’s action: to assist a few zealots within the IRS on their crusade to wipe out a legal tax practices sanctioned by Congress through administrative and judicial scorched-earth tactics. For anyone familiar with Article I of the United States Constitution, we know this is not how tax law is made.

That detractors are urging the executive branch to be weaponized against law-abiding taxpayers to support their own policy preferences says a lot more about these opponents than it does about the law itself; NTU offered a host of critiques regarding this approach and solutions to address real (and not perceived) shortcomings in the law in our issue brief here