Carolyn Schenck Comments on Latest IRS Easement Settlement Initiative in Tax Notes

Eligible partnerships that accept the terms of the IRS’s latest — and purportedly final — settlement offer for syndicated conservation easement and historic preservation easement cases won’t be required to pay the full settlement amount up front.

The liability will instead be subject to post-settlement collection, according to a May 13 IRS release detailing the terms of the settlement initiative.

. . .

“The longer these cases remain unresolved, the greater the potential exposure becomes — including penalties, interest, and litigation costs,” Carolyn A. Schenck, a former IRS national fraud counsel now with Caplin & Drysdale, told Tax Notes. “Many taxpayers may conclude this settlement opportunity represents the most rational off-ramp available.”

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Schenck said she wasn’t surprised to see the IRS announce another easement settlement opportunity.

“Taxpayers evaluating this program have to confront a simple reality: The government has amassed a substantial body of favorable precedent in syndicated conservation easement cases,” Schenck said. “The litigation environment today is dramatically different from where it was five or six years ago.”

After years of courtroom victories, the government clearly believes the momentum is on its side, Schenck said. “For many taxpayers, this may be the point where economics overtake ideology. Continuing to litigate against a government that has repeatedly prevailed on valuation and substantiation issues carries enormous financial risk,” she said.

Schenck noted that the courts have used extraordinarily harsh language in describing some syndicated easement transactions and valuations. Given the government’s track record in these cases, “it might be time to pick up the pen to sign,” she said.

Taxpayers should carefully distinguish between legitimate land conservation efforts and transactions driven primarily by aggressive valuation multiples, Schenck said, adding that courts have shown increasing skepticism toward the latter.

To read the article in full, please visit Tax Notes’ website.