By Richard Rubin 

WASHINGTON -- The Internal Revenue Service is pursuing criminal cases surrounding land-conservation deals that have emerged as a focus of the agency's enforcement efforts, the tax agency said on Tuesday.

The involvement of IRS criminal investigators marks the latest expansion of the tax agency's yearslong attempts to curb so-called syndicated conservation easements.

The IRS "now intends to pull out the big guns to uncover and prosecute criminal violations," said Nancy McLaughlin, a University of Utah law professor who studies conservation easements. "This is great news for federal taxpayers and for conservation, both of which suffer when billions of dollars are wasted on these abusive transactions."

The IRS didn't disclose details about the number of potential criminal cases, but said its combined civil and criminal efforts include billions of dollars in deductions and thousands of investors in the deals.

"Abusive syndicated conservation easement transactions undermine the public's trust in private-land conservation and defraud the government of revenue," IRS Commissioner Charles Rettig said in a Tuesday statement. "Putting an end to these abusive schemes is a high priority for the IRS."

U.S. tax law lets landowners donate easements that limit development on their property through permanent deed restrictions aimed at protecting sensitive habitats and meeting other environmental aims. They can then claim charitable-contribution deductions for the diminished value of the land.

Conservation groups and bipartisan majorities of Congress support that basic concept and say it has proven useful in preserving land in fast-growing areas. But in practice, some landowners and tax advisers have been using aggressive land valuations and partnership structures to generate large tax deductions and investment opportunities marketed to wealthy individuals. In some deals, high-income people can invest $1 and claim $4 or more in deductions within months, enough to turn a quick profit on the tax break. Those deals have been particularly popular in the southeastern U.S.

The IRS has been attacking such easement donations for several years, auditing donors and pursuing litigation in Tax Court.

In late 2016, the government began requiring taxpayers and promoters in certain deals to flag the transactions on tax returns, making it easier for the IRS to identify and audit them. Those red-flagged deals include transactions where the deduction is at least 2.5 times the investment. The IRS in 2018 made easements a priority for the agency's large business and international division.

Also last year, the IRS filed suit against easement promoters in Georgia to block them from preparing tax returns. That case is pending.

Separately, the bipartisan leaders of the Senate Finance Committee are investigating conservation-easement promoters.

"We're encouraged to see the IRS increase enforcement activity on abusive conservation easements," Andrew Bowman, president and CEO of the Land Trust Alliance, said in a statement.

"At the same time, we hope the agency is careful not to sweep up well-meaning philanthropists in actions that target wrongdoers," he added.

Robert Ramsay, who leads Partnership for Conservation, a group that has advocated the use of investment vehicles in easement deals, said there are limited instances of abuse that can be addressed mostly by changing appraisal standards and offering clearer guidance.

Write to Richard Rubin at richard.rubin@wsj.com

(END) Dow Jones Newswires

November 12, 2019 21:04 ET (02:04 GMT)