Tax Court Nullifies Conservation Easement Penalty Notice

The U.S. Tax Court ruled last week that IRS Notice 2017-10 was issued without properly following the required Administrative Procedure Act (APA) notice-and-comment procedures. This ruling nullifies the guidance that was provided in the Notice, which designated certain syndicated conservation easements as “listed transactions” and required them to be disclosed to the IRS on Form 8886, Reportable Transaction Disclosure Statement.

In the case, the IRS, following Notice 2017-10, disallowed the conservation easement deductions claimed by four partnerships, stating they did not meet statutory requirements. In addition, the IRS sought to assess penalties under IRC Section 6662A for their failure to properly disclose the transactions as required by Notice 2017-10. With a 15-2 opinion, the Tax Court disallowed penalties against four partnerships that the IRS argued did not properly disclose their conservation easement deductions.

“We remain unconvinced that Congress expressly authorized the IRS to identify a syndicated conservation easement transaction as a listed transaction without the APA’s notice-and-comment procedures, as it did in Notice 2017-10,” the opinion said.

The cases can be found under docket numbers 17379-19, 17380-19, and 17382-19 in the U.S. Tax Court.