Earlier today, December 22, 2016, the Eleventh Circuit Court of Appeals ruled that the IRS may proceed in its investigation into allegedly overvalued conservation easement appraisals prepared by a Georgia appraiser. Specifically, the appraiser will be required to provide the IRS with his client lists and other information from his files.
According to the court opinion (which you can read here), the IRS is investigating whether the appraiser “may have violated certain sections of the Internal Revenue Code … in connection with his involvement in conservation-easement partnerships or arrangements …” An unfortunate practice has arisen over the last several years in which certain businesses (i.e., tax shelters) seek funding from investors to be able to purchase real estate and then donate a conservation easement on the real estate. The investors benefit from this because they can claim the tax deductions resulting from the donation. That by itself is not necessarily a bad thing. However, one of the methods used by these schemes to maximize the investors’ returns is to hire appraisers who will provide incredibly inflated appraisal numbers, thereby allowing the investors to claim similarly inflated tax deductions. These inflated tax deductions are sometimes larger than the investors’ actual investments in the business. The IRS has finally started to notice these fraudulent tax shelters and is auditing them vigorously.
I won’t go into the technical legal arguments discussed by the Court in its opinion; those arguments deal more with the IRS’s auditing authority than land conservation. My point today is simply that the IRS’s investigations into syndicated partnerships and the associated abusive appraisal practices continue in full force, and I expect that they will do so for the next several years.
The case is United States v. Clower, No. 16-13039, 2016 U.S. App. LEXIS 23018 (11th Cir. Dec. 22, 2016).