November 5, 2019 - Douglas Myser

Report on abusive charity tax abuse. The report was addressed to Senator Charles Grassley, Chair of the Senate Finance Committee, so it is no surprise that it leads with the syndication of conservation easements. The center of this particular tax scam is Rome, Georgia. People there are arguing that syndicated conservation easements are the subject of unjust persecution. The report gives a nice graphic of the seven steps of a syndicated conservation deal highlighting the step were it goes wrong-appraisal. The report goes on to highlight the enforcement problem as three separate divisions of the IRS are involved. Report on abusive charity tax abuse.

Syndicated easements also illustrate how noncompliance can cross the areas of responsibility of the IRS's audit divisions. In this case, the beneficiary of the scheme may be a small business taxpayer or a corporation, even though the scheme hinges on an inflated appraisal and being able to donate to the tax exempt recipient. There is a pretty good argument that syndicated conservation easements are inherently abusive, since it is hard to see how they can work without some serious fibbing about valuation. That is not the case with donor advised funds, a technique that I have recommended and would use myself if my ship ever came in.

The Report illustrates how DAFs work and ways in which they can go bad. One thing which is not illegal, but a cause for concern is  holding onto assets indefinitely and never having them be put to actual charitable use. Then there is the donors regaining control of the assets with nothing ever going to actually charitable purposes. Not mentioned there is the ever present problem of valuation.  The federal government has investigated cases of potential private benefit by pharmaceutical companies and patient assistance programs. The IRS filed a court summons in May 2017 in an ongoing investigation of a patient assistant program.

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