The Biden Administration Takes Aim at Wealth: 10 Proposed Tax Hikes Targeting Corporations and The Wealthy


Biden’s Proposed Increase to Corporate Tax Rate

Biden’s Proposed Increase to Corporate Tax Rate

A look at some of the Biden administration's tsunami of proposed tax hikes targeting corporations and the wealthy.

Here is a quick high-level overview of what you should be thinking about considering the Biden administration's tsunami of proposed tax hikes that would target corporations and the wealthy.

I will cover proposed Biden plans to tax wealth in America, including:

  • Increases to the Corporate tax rate 
  • Increases to the Global Minimum Tax
  • Increases to the Top Persona Income Tax Rate
  • Increases to the Capital Gains Tax Rate
  • Increases to Social Security Taxes for Employers and Employees
  • Reducing the Benefit of Itemized deductions 
  • Elimination of Like-Kind Exchanges

I will also cover many other areas that could have a significant impact on high-net-worth individuals. If you are someone with significant assets, say, $2 million or more in net worth, keep reading.

#1 - Biden’s Proposed Increase to the Corporate Tax Rate

OK, so first let us talk about the corporate tax rate changes. The Biden administration recently announced The American Jobs Plan, which is an infrastructure bill aimed at spending trillions of dollars on roadways, bridges, etc. The bill also includes a lot of other priorities that the Biden administration thinks are important. To offset the high price tag, they have proposed a significant number of corporate income tax rate changes that should raise a lot of revenue over a decade.

First, they have proposed raising the corporate income tax rate from 21% to 28%. While that seems like a significant rise in rates -- and it is -- the reality is that when President Trump came into office, the tax rate was 35%. So, it is still significantly lower than it was when President Trump came into office, should they get the entire increase passed through legislation and signed into the tax code.

#2 - Biden’s Proposed Increase to the Global Minimum Tax

Another proposal is a 21% global minimum tax calculated by each country by country. US corporations would pay 21% on overseas income in each country in which they do business. In addition, they proposed an alternative 15% corporate minimum tax on corporations with a global book income of $100 million or more. Many large corporations would end up paying at least a 15% tax rate on the book income that they show to investors.

If you are a corporate taxpayer and you are facing these kinds of significant rate hikes, what can you do about it? Well, the only thing that makes common sense would be to defer your taxes to later years when hopefully we will have folks that decide to reduce rates again. These kinds of high rates do not tend to stay around for a very long period of time. You would want to outlast the government by creating a deferral.

#3 - Biden’s Proposed Elimination of the IRS Section 199A Deduction

Another code section that the Biden administration is seeking to change is the recently enacted Section 199A deduction. This deduction provides for a 20% passive deduction for qualified business income. The Biden administration is proposing phasing it out for taxpayers who make more than $400,000 of adjusted gross income.

If you are making more than $400,000, then you're going to eventually end up not being able to take advantage of this Trump-era provision. The 199A deduction is a below-the-line deduction available to owners of Sole Proprietorships Partnerships, S-Corps, and some trusts and estates engaged in a qualified business.

The only solution for a phase-out of the 199A deduction would be to be creative in locating additional deductions that could create the same kind of offset so that your taxes remain stable.

#4 - Biden’s Proposed Increase on the Top Persona Income Tax Rate

The Biden administration is also raising the top personal income tax rate. The current rate of 37% will be raised to 39.6 % for people making more than $1 million. This is not a massive increase in actual rates, but it will raise a significant amount of revenue.

The only solution for the high-end taxpayers would be to undertake a strategy for deferring the income to later years when, hopefully, the rate will decrease; or doing a conversion strategy which would take some of the ordinary income and turn it into a capital gain. The idea would be to defer the income until capital gains rates are low again, given that the Biden administration is also proposing raising the capital gains rate significantly.

#5 - Biden’s Proposed Increase on the Capital Gains Tax Rate

The Biden administration is going to propose a capital gains tax rate increase that's very significant. Currently, capital gains are taxed at a preferred rate of 20%. The Biden administration would like to raise that to the top income tax rate currently at 37%. They have also proposed, of course, that the rate increases to 39.6% for taxpayers making more than $1 million in income.

The capital gains tax rate is a preferred rate in which assets that are sold at a gain that have been held for more than a year are taxed at a preferred rate of 20%. The Biden administration is proposing that the rate for people that make more than $1 million in income rise to the top level of taxation for that class. For example, right now, the top tax rate is 37%. The Biden administration is proposing it be raised to 39.6%. If it were successful, capital gains for this class of taxpayer would be at 39.6% rather than the 20% it is today. That is an incredibly significant increase.

#6 - Biden’s Proposed Increase on Social Security Taxes for Employers and Employees

The Biden administration is also proposed raising the Social Security tax rate for employers and employees. Currently, Social Security taxes are applied to the first $137,700 of wages/income, and that number is inflation-indexed each year. The Biden administration is planning on over $400,000 being taxed at an additional 12.4%. In application, this means there is no Social Security tax on the income between the current cap on Social Security, which is $137,700, and the $400,000 in which the new tax rate would apply.

#7 Biden’s Proposed Reduction on Itemized Deduction Benefits

The Biden administration is also proposing reducing the benefit of itemized deductions such that nobody receives a benefit of more than 28%. Itemized deductions are things like:

  • medical,
  • dental,
  • real estate taxes,
  • state taxes,
  • home mortgage interest,
  • mortgage insurance,
  • charitable gifts,
  • casualty theft losses, etc.

In application this is a reintroduction of the “Pease” limitation on itemized deductions, reducing itemized deductions by 3% for each dollar of income in excess of $400,000.

"The  Pease Limitation put a cap on how much certain taxpayers could claim in the way of itemized deductions before it was repealed when President Donald Trump signed the Tax Cuts and Jobs Act (TCJA) into law on December 22, 2017."

Bird, Beverly. “How Did the Pease Limitation Work (and Why Was It Repealed?).” THE BALANCE [New York, NY], 17 Sept. 2020,

#8 - Biden’s Proposed Steep Reduction for Estate Tax Exemption

The Biden administration has also made significant proposed changes to the estate tax code. For example, the estate tax exemption is being proposed to be reduced from $11.58 million to $3.5 million. That is a giant reduction in the estate tax exemption. That will bring an enormous amount of estates into the estate tax world, wherein most estates were not previously. It increases the top tax rate for estates to 45%.

#9 - Biden’s Proposed Elimination of The Step-Up-In-Basis Benefit to value assets in the estate.

Most importantly, there are proposals both in the House and the Senate right now to eliminate the Step-Up-In-Basis for beneficiaries who receive $1 million in either income or benefit or property during the year that the descendant passes away. Today, when someone passes away the value of the assets in the estate that a beneficiary receives is "stepped up" to the current fair market value of the asset.

So, for example, if you own some investment property that is worth $1 million, but only costs you $500,000, you have a $500,000 gain in that property if you sold it. But because the descendant passes away, it's treated as though it has stepped up to the full $1 million. You pay no tax on what would otherwise be a capital gain, the capital gains to the sale of the asset.

Now that we understand what the step-up in basis is, let us look at the proposal that the Biden administration has on the table in the Senate and in the House. They are proposing that beneficiary's making $1 million dollars in the year of the date of death of the descendant do not get the step-up-in-basis and instead must pay tax on the assets as though they were sold on that date in the amount of the difference, between the basis of the descendant and the amount that is a fair market value of the asset.

If you combine this step-up-in-basis elimination with the higher capital gains rate that the Biden administration is proposing, there could be as much as an $80 billion increase in annual taxes.

#10 - Biden’s Proposed Elimination of Like-Kind Exchanges

The Biden administration has also proposed changing the rules with respect to Like-Kind exchanges. These exchanges are typically where you have property held for business, often real property, and you have a sale of a one piece of property and a purchase of a like-kind piece of property on the other side. And you do not end up paying capital gains tax or you do not end up paying income tax on the sale of the asset.

It rolls into the new property and you take the same lower basis that you would have in the initial property that was sold into the new property that is acquired. The Biden administration has decided to propose that taxpayers making more than $400,000 can no longer make use of like-kind exchanges.

That is a quick look at some of the tax proposals on the table that could have a huge impact on your wealth. In future blogs, we will start to look at each of the areas that give you some wealth protection strategies to think about.

If you are a high net worth individual or advisor and looking for tax strategies and tax law insights for protecting your wealth, contact us at

Written by Beckett Cantley Author, Professor of Tax Law, and Senior Partner at the Cantley Dietrich law firm.

Ground Zero: A comprehensive review of the IRS Attack on Syndicated Conservation Easement


What is a Syndicated Conservation Easement - The Cantley Dietrich Blog

What is a Syndicated Conservation Easement?

Authored by Beckett G. Cantley and Geoffrey C. Dietrich

What is a Syndicated Conservation Easement - The Cantley Dietrich Blog

A "syndicated" conservation easement is a transaction whereby the promoter organizes a group of investors together in an entity, uses the investors' cash contributions to the entity to purchase land, and places a conservation easement on the land restricting the private use of it. When you place a valid conservation easement on a parcel of land, you are reducing the value of the property by making a charitable donation of the perpetual use of the land to a charitable land trust. The IRS is challenging many syndicated conservation easements because, among other things, they take the position that the value of the conservation easement is being overstated when taking the charitable deductions generally allowed under Section § 170 of the Internal Revenue Code. The purpose of the deduction is to encourage the preservation of land. The amount of the deduction is generally equal to the difference between the value of the land at its "highest and best use" and the value of the land after the conservation easement is executed.

On June 25, 2020, the IRS announced a settlement initiative (“SI”) to certain taxpayers with pending docketed cases involving syndicated conservation easement (“SCE”) transactions. The SI is the current culmination of a long series of attacks by the IRS against SCE transactions. The IRS has recently found success in the Tax Court against syndicated conservation easements, but the agency’s overall legal position may be overstated. It is possible that the recent SI is merely an attempt to capitalize on leverage while the IRS has it. Regardless, the current state of the law surrounding SCEs is murky at best. Whether a taxpayer is contemplating the settlement offer, is currently involved in an unaudited SCE transaction, or is considering involvement in an SCE transaction in the future, the road ahead is foggy and potentially treacherous.

This article attempts to shed light on the obstacles that face syndicated conservation easement (SCE) transactions, including:

(1) an overview of syndicated conservation easement transactions and the main attacks against them; 

(2) analysis of the IRS’ main attacks and the relevant issues that arise; 

(3) illustrations of the relevant pro-taxpayer and anti-taxpayer cases on each issue; 

(4) subsequent considerations that taxpayers need to take into account and the future outlook of syndicated conservation easement; and 

(5) a summary of syndicated conservation easement key findings.

What is a Conservation Easement?

Under Section § 170 of the Internal Revenue Code, taxpayers are allowed to take a deduction for donating a conservation easement on their land.[3] The purpose of the deduction is to encourage the preservation of land.[4] The amount of the deduction is generally equal to the difference between the value of the land at its “highest and best use” and the value of the land after the conservation easement is executed.[5] To take advantage of this deduction, many taxpayers have created transactions that are now referred to as syndicated conservation easement transactions.[6] Typically in these cases, investors form and contribute funds to a partnership. The partnership then buys another partnership containing a tract of land that has been held by it for more than one year. The partnership obtains an appraisal of the land’s “highest and best use” which is considerably higher than the amount the land-owning partnership paid for the land. Then the partnership donates a conservation easement over the land to a local conservancy. Finally, the partners take large deductions (usually far more than their initial investment in the partnership) based on the new valuation of the land for their charitable contribution under Section 170.[7]

The IRS is challenging many syndicated conservation easements as abusive tax shelters. The Internal Revenue Service (“IRS”) became suspicious of conservation easements in 2016, when it first designated syndicated conservation easement (“SCEs”) transactions as “listed transactions.”[8] In 2019, the IRS announced a “significant increase in enforcement actions” related to SCE transactions as SCEs made the IRS’ “Dirty Dozen” list of tax scams.[9] This increase in enforcement actions has primarily resulted in IRS victories in the Tax Court.[10] Thus, the IRS recently announced a Settlement Initiative (“SI”) to leverage its favorable outcomes against the taxpayers.[11] Some critics are skeptical of the SI, claiming the IRS only wins SCE cases on technical grounds and the IRS does not hold as strong of a position as it claims on the true issues surrounding conservation easements.[12] Accordingly, many suggest that few taxpayers will take part in the SI.[13]

In the Tax Court, the IRS is fighting the entire deduction, which many argue cuts against congressional intent.[14] In the cases where the taxpayers prevail, the IRS is typically still able to reduce the value of the easement.[15] There is virtually no case[16] where the taxpayers get to keep the entire deduction. Despite their recent success in the Tax Court, the IRS is far from an outright victory in the war on conservation easements. The determinative issues in these cases are temporary roadblocks for SCE transactions. Eventually, taxpayers will figure out how to structure their SCE transactions to avoid the pitfalls of recent cases. For example, the IRS recently convinced the Tax Court that certain taxpayers’ easement deeds violate the perpetuity requirement of conservation easements because the extinguishment clause of the deed provides the one with a fixed value instead of a “proportionate value” upon extinguishment.[17] Going forward, those drafting SCE deeds will make sure that the extinguishment clause complies with this requirement. Additionally, many conservation easements struck down in the Tax Court found much more favorable outcomes upon appeal.[18] In fact, the most influential recent case is likely to be appealed in the 6th Circuit.[19] The Tax Court avoids circuit precedent when possible,[20] but as the number of cases rises the Tax Court may not be able to hide much longer. The IRS may eventually have to concede that SCEs are technically valid conservation easements. When that happens, the IRS will fall back on one of its original arguments—conservation easements overvaluation. Thus, valuation is the real issue and it is extremely fact-intensive and differs from case to case.

Currently, The IRS’ primarily attacks SCE’s by arguing that the taxpayers did not make a “qualified conservation contribution.”[21] This is required for the taxpayers to receive the deduction for donating a conservation easement.[22] There are three necessary requirements for a contribution to be considered a “qualified conservation contribution”: 

  1. The contribution must be of a qualified real property interest (“QRPI”).
  2. The contribution must be made to a qualified organization.
  3. The contribution must be “exclusively for conservation purposes.”[23]

The qualified organizations requirement is rarely litigated. This article shall discuss the relevant pro-IRS and pro-taxpayer cases on the other requirements below. Further, this article discusses the current state of the law surrounding syndicated conservation easements and the factors taxpayers will need to consider as they make decisions in this area.

Qualified Real Property Interest: Section 170(h)(2)© of the IRS Code

The determinative issue in some conservation easement cases has been whether a QRPI was contributed as a part of the deal. At its core, this attack on the easement deed is an attack on the perpetuity on the conservation easement. While the perpetuity of an easement is typically challenged under the “exclusively for conservation purposes” element, the QRPI argument still rears its head every now and then. This is evidence that the IRS is looking to exploit even the slightest of deficiencies in easement deeds.[24] However, the decline in recent cases decided on this issue may be due to transaction organizers adapting to adverse case law in their drafting.

Section 170(h)(2) defines a QRPI as: “. . . a restriction (granted in perpetuity) on the use which may be made of the real property.”[25] The applicable regulation[26] provides that a “perpetual conservation restriction” is a qualified real property interest. A “perpetual conservation restriction” is a restriction granted in perpetuity on the use which may be made of real property—including, an easement or other interest in real property that under state law has attributes similar to an easement (e.g., a restrictive covenant or equitable servitude).[27] It is critical that conservation easement exists in perpetuity. There is only one, extremely narrow exception to the perpetuity of such easements.[28] As we will see in Part III, the Treasury Regulations provide for the judicial extinguishment of conservation easements in situations where the conservation purpose becomes either impossible or impracticable to carry out.

The seminal case on the issue of QRPI and perpetuity in the context of conservation easements is Belk v. Commissioner.[29]  In Belk, the taxpayers purchased a 410-acre tract of land, then transferred such land to their own limited liability company.[30] The taxpayers then developed the land to include a golf course surrounded by residential lots.[31] A few years later, the taxpayers executed a conservation easement over the portion of the tract which included the golf course.[32] The easement was granted in perpetuity, but was subject to certain “reserved rights.”[33] One of those rights, the centerpiece of the case, essentially allowed the taxpayers to modify which parcels of land were or were not covered by the conservation easement, as long as the change was proportionate and did not adversely affect the conservation purpose of the easement.[34]

The Tax Court held, and the Fourth Circuit affirmed, that the taxpayers had not donated a QRPI.[35] Therefore, they lost the entire deduction.[36] The Tax Court reasoned that because the conservation easement allowed the taxpayers to change the boundaries of the easement, the easement was not granted in perpetuity.[37] The taxpayers contended that since the provision required them to maintain a certain proportion of land within the conservation easement, the value of the easement does not change—thus, it exists in perpetuity.[38] The Fourth Circuit rejected this argument by emphasizing the plain language of the statute: “a [QRPI] includes a restriction (granted in perpetuity) on the use . . . of the real property.”[39] The Fourth Circuit held that the perpetuity of a restriction is inevitably attached to the real property originally designated as a conservation easement.[40] “Thus, while the restriction [in this case] may be perpetual, the restriction on ‘the real property’ is not.”[41] Therefore, the taxpayers had not donated a QRPI and the easement did not qualify as a “qualified conservation contribution.”[42]

Conservation Easement Pro-Taxpayer Cases

While Belk continues to spearhead the dismantling of many conservation easements, some cases have come out in the taxpayers’ favor as the courts wrestle how to interpret and distinguish Belk. In 2013, the Tax Court decided Gorra v. Coissioner.[43] In Gorra, the taxpayers donated a conservation easement on the façades of a townhouse in New York.[44] The Commissioner contended that the easement was not perpetual because “there are facts to indicate that the [one] was willing to terminate the [e]asement upon [the taxpayers’] request.”[45] The court ignored this argument—focusing exclusively on the language of the easement deed. Accordingly, the court differentiated this case from Belk because the deed clearly defined the property donated under the easement and restricted the easement to that property in perpetuity.[46] Thus, the taxpayers had donated a QRPI and the easement donated qualified as a “qualified conservation contribution.”[47]

Importantly, the court affirmed that the term “QRPI” includes the perpetuity requirement.[48] In other words, for a parcel of land to be considered a QRPI for purposes of a conservation easement, the interest must be set aside in perpetuity.[49] The taxpayer cannot switch what land is protected and what is not—that would violate perpetuity.[50] Additionally, it is important to note that although the taxpayers prevailed in securing their deduction, they ultimately lost on valuation.[51] The court held that the easement was overvalued by over 400%.[52] Therefore, the taxpayers lost over 80% of their deductions and were also assessed the maximum accuracy-related penalty of 40%.[53]

A couple of years later, the Tax Court decided Bosque Canyon Ranch, LP v. Comm’r.[54] In this case, two related partnerships sold a tract of land to its partners for the purposes of development and conservation.[55] Part of the land was developed, while the other was donated as a conservation easement to a charity one land trust.[56] Crucially, the easement deed allowed the partners to slightly modify the easement boundaries by mutual agreement with the one.[57] The Tax Court agreed with the IRS that this provision was similar to the provision in Belk.[58] Therefore, the Tax Court held that the taxpayers had, in turn: violated perpetuity, not donated a QRPI, and not made a “qualified conservation contribution.”[59]

Interestingly, the 5th Circuit reversed in Tax Court’s decision two years later in favor of the taxpayers.[60] The 5th Circuit held that the instant case was different from Belk because the easement could only be modified if it left the original exterior boundaries intact and if the total acreage of the easement remained the same.[61] To illustrate, picture of a slice of Swiss cheese.[62] The piece of cheese is the tract of land and the holes represent the parts of the land that the easement does not cover. In this case, the 5th circuit is saying that the sizes of the holes can change as long as the total amount of cheese remains constant (i.e. when one hole gets bigger, another hole or holes must get smaller to compensate) and the external square shape of the slice also stays intact.[63] Additionally, the court recognized that the modifications at issue were “de minimis at most.”[64] Finally, although the taxpayers won at the appellate level, the case was remanded to the Tax Court for valuation analysis.[65] The dispute overvaluation is ongoing.

Anti-Taxpayer Conservation Easement Cases

Gorra and Bosque Canyon Ranch are unique cases. Belk is typically interpreted by the Tax Court to leave no room for error regarding the QRPI requirement. In 2015, the Tax Court decided Balsam Mountain Investments, LLC v. Commissioner.[66] In that case, the taxpayers executed a conservation easement with a provision allowing the taxpayers to shift the easement boundaries up to five percent in the first five years of the easement’s existence.[67] The court held that while this provision was slightly different and much less dramatic than the provision in Belk, the difference is not enough for the easement to qualify.[68] The court held that the taxpayers had not contributed a perpetual QRPI sufficient to receive the desired deduction.[69] Importantly, the court further asserts that under Section 170(h)(2)© there must be an “identifiable, specific piece of real property.”[70]

The most recent case on the QRPI issue is Pine Mountain Preserve, LLLP v. Commissioner.[71] The easement deed in Pine Mountain is similar to the deed in Bosque Canyon Ranch in that it permitted slight changes to the interior boundaries of the easement, but not to the total acreage or exterior boundaries of the easement.[72] The court explicitly acknowledged that the facts in this case are similar to those in Bosque Canyon Ranch, but chose not follow the 5th Circuit’s precedent because this case was not appealable in the 5th Circuit.[73]

The court uses the Swiss Cheese analogy from the dissent in Bosque Canyon Ranch to illustrate its decision and how it believes this case, along with Bosque Canyon Ranch, should be treated the same as Belk.[74] The court claimed that Belk and Bosque Canyon Ranch are the same in that they make new holes in the cheese.[75] Regardless of whether or not the acreage proportion is the same, creating new holes or changing the sizes of each hole is not permissible under Belk and violates perpetuity.[76] Accordingly, the court held its ground on the QRPI issue in this case.[77]

Qualified Real Property Interest Case Analysis

While the issue of whether a QRPI is contributed is not usually the main issue in conservation easement cases, taxpayers (and drafters) should take a second look at their deeds to make sure that they are truly contributing a QRPI in perpetuity given recent caselaw. These cases reveal multiple key insights to help with this analysis. First, for the Tax Court, there must be an “identifiable, specific piece of real property” that is restricted and perpetual in size and shape.[78] Additionally, the Tax Court is very skeptical of any provision in the easement deed which allows for modifications of the easement boundaries.[79] The appellate courts might be more taxpayer friendly.[80] However, the court also noted in Pine Mountain (and affirmed in Oakbrook)[81] that the retained powers of all parties to change contractual terms does not by itself deprive a deed of easement of its required perpetuity.[82]

Conservation Easement Cases Primarily center on “Exclusively for Conservation Purposes”

The majority of conservation easement cases center on whether the contribution is “exclusively for conservation purposes.” There are three main categories of challenges by the IRS under this issue: environmental/wildlife, exchange, and perpetuity.

Section §170(h) of the IRS code defines “conservation purpose” as:

  1. the preservation of land areas for outdoor recreation by, or the education of, the general public,
  2. the protection of the relatively natural habitat of fish, wildlife, or plants, or similar ecosystem,
  3. the preservation of open space (including farmland and forest land) where such preservation is—
  4. for the scenic enjoyment of the general public, or
  5. pursuant to a clearly delineated Federal, State, or local governmental conservation policy, and will yield a significant public benefit, or
  6. the preservation of a historically important land area or a certified historic structure.[83]

Conservation Easements:  Environmental & Wildlife Protection

IRS Cases Challenging conservation easements

The IRS has challenged conservation easements on section §170(h)(ii), “the protection of a relatively natural habitat of fish, wildlife, or plants, or similar ecosystem.”[84] The regulations add the word “significant” before the word “relatively.”[85] Thus, to the extent the Code allows, the protection at issue must be “significant.”[86] Significance is subjective and is typically decided on a case by case basis.

The most recent case challenging the significance of the protection of environmental and wildlife interests is Champions Retreat Golf Founders, LLC v. Commissioner.[87] In that case, the taxpayers bought a 463-acre tract of land in 2002.[88] Two-thirds of the parcel was used as a golf course.[89] The other third was either used for homesites or was undeveloped.[90] In 2010, the taxpayers executed a conservation easement on a 348-acre portion of the land including the undeveloped land and the golf course.[91] The easement land “is home to abundant species of birds, some rare, to the regionally declining fox squirrel, and to a rare plant species, the dense flower knotweed.”[92] 

The issue in the case was whether the taxpayers contributed the easement for “the protection of a [significant][93] relatively natural habitat of fish, wildlife, or plants, or similar ecosystem,” or for “the preservation of open space . . . for the scenic enjoyment of the general public [that] will yield a significant public benefit.”[94] The Tax Court held that it did. The 11th Circuit reversed.[95] The 11th Circuit took a broad approach to the regulations, ultimately deciding that at least part of the easement was exclusively for conservation purposes and that it protected both a relatively natural habitat of fish, wildlife, or plants, or similar ecosystem and open space for scenic enjoyment under §170(h)(ii) and (iii).[96] The IRS argued that the presence of a golf course on most of the easement property prohibited the land from being considered “natural.”[97] The court rejected this argument, saying that what matters under the regulation is not that the land is natural, but that the habitat is.[98] Thus, the court acknowledged that the taxpayers are entitled to a deduction if the easement is made to protect the habitat of a “rare, endangered, or threatened species.”[99] Since the easement includes the habitat of some rare, endangered, and threatened species of plants and animals, the court found that the Tax Court’s finding otherwise was clearly erroneous and wrong as a matter of law.[100] Additionally, the court found that but for the golf course being built on the property, the easement would clearly be the preservation of open space for public enjoyment.[101] Again, while the taxpayers prevailed on appeal, the case has been remanded to the Tax Court for valuation analysis.[102]

Analysis of Tax Court rulings on conservation easements

In general, the Tax Court will be much more hesitant to find that easements are made exclusively for conservation purposes. As seen in Champions, the Tax Court relies on the term “significant” in the relevant regulation to justify its analyses. The Tax Court seems to want to weigh the particular facts and circumstances for itself in each case. However, the Tax Court fails to create any sort of identifiable or objective framework for deciding what is “significant” under the regulation. Accordingly, it seems like that Tax Court’s standard for what is “exclusively for conservation purposes” is both high and unpredictable. 

Although circuit courts, like the 11th Circuit in Champions, have generally been more sympathetic to taxpayers and have interpreted the applicable regulations quite broadly, the Tax Court has resisted at every point that it can.[103] The Tax Court has insisted on construing the regulations narrowly. Any ground given up on the regulations is given to the IRS by deference to the administrative agency. Additionally, the Tax Court’s eagerness in Pine Mountain voice its disagreement with the 5th Circuit’s Bosque Canyon opinion shows how strongly the Tax Court feels about its positions regarding conservation easements. That is not likely to change soon. Thus, it is likely that if a case like Champions came through the Tax Court from outside the 11th Circuit, the Tax Court would maintain its position against the taxpayer. Perhaps most importantly, even if taxpayers win on this issue, valuation remains a significant hurdle going forward.

Exchange or Gift: exclusively for conservation purposes

To be exclusively for conservation purposes, the taxpayer can receive no other consideration from the donee and can place no conditions on the gift. While this argument is not usually made within the context of Section §170(h), it is implicit in the analysis. Section §170(c) defines a charitable contribution as a contribution or gift to or for the use of various specified entities or other types of entities for certain approved purposes.[104] This means a charitable contribution—eligible for a deduction—cannot include a quid pro quo arrangement.[105] A few conservation easements have been defeated in cases where the donor conditioned the gift or received something in return. For example, in Pollard v. Commissioner, the Tax Court denied a deduction related to a conservation easement because the taxpayer had given the conservation easement to the county in exchange for a subdivision exemption.[106] The court held that there was a quid pro quo arrangement and therefore there could be no deduction for a charitable contribution.[107]

Moreover, in Graev v. Commissioner, the taxpayer made a side deal with the donee which placed a condition on the conservation easement.[108] The side deal provided that in the event the IRS disallows the taxpayer’s charitable deduction, the taxpayer would recoup his investment and both parties would work together to extinguish the conservation easement.[109] The court pointed to Reg. §1.170A-1(e) which “clarifies that . . . no deduction for a charitable contribution that is subject to a condition . . . is allowable, unless on the date of the contribution the possibility that a charity’s interest in the contribution [would be defeated] is “negligible”.[110] The court held that since the possibility of the donee’s interest in the land being defeated was not “so remote as to be negligible.” Thus, the taxpayer’s deduction is not allowable.[111]

Therefore, while contributions of conservation easements do not usually run into this issue, it is important to note that for a contribution to be considered a “qualified conservation contribution,” it must first be a charitable contribution.[112] Only under rare circumstances can a charitable contribution be subject to a condition and remain charitable.[113] If a contribution is not charitable, it cannot be a “qualified conservation contribution” because it would not be “exclusively for conservation purposes.”[114]  Therefore, taxpayers with conservation easements that are subject to one or more conditions or are a product of a quid pro quo arrangement are likely to lose their entire deduction if challenged.

Perpetuity: core aspect of what makes a conservation easement work

Conservation easements, to be made exclusively for conservation purposes, must exist in perpetuity.[115] Perpetuity is the core aspect of what makes a conservation easement work and it is central to the policy considerations that underlie its existence.[116] This is the most common way the IRS targets deductions attached to conservation easements. It is their recent victories on this issue that have prompted the recent SI.[117]

There are over twenty cases that have been decided on the issue of perpetuity, and of those cases, the taxpayers prevail in only three.[118] This disparity shows the importance of perpetuity as the cornerstone of conservation easements. It also displays the painstaking determination IRS and the Tax Court have to make sure that conservation easements are truly perpetual in existence if they are to allow accompanying deductions. The IRS and the Tax Court have demonstrated their willingness to go great lengths to find that a certain aspect of a conservation easement deed violates perpetuity.[119] Once they have this hook into perpetuity, they can drag the entire deduction down.

Pro-Taxpayer Cases: conservation easements have to be perpetual in order to be valid

Two of the three pro-taxpayer cases on this issue,  Gorra  and  Bosque Canyon Ranch, have already been discussed in the context of QRPIs.[120] This is because perpetuity applies to both the first and third elements of a “qualified conservation contribution.” We have seen how a QRPI necessarily includes a restriction in perpetuity.[121] However, outside of the QRPI issue, recent cases simply recognize that conservation easements have to be perpetual in order to be valid.[122] If they are not perpetual, they are not “exclusively for conservation purposes.”

The other pro-taxpayer case is Irby v. Commissioner.[123]Irby was a unique case decided in 2012.[124] In that case, the IRS tried to challenge the extinguishment clause of the conservation easement deed, claiming the conservancy would not get its fair share upon extinguishment.[125] Thus, the deed was “superficial” and not exclusively for conservation purposes.[126] Unlike the other extinguishment clause cases discussed below, this clause provided for the donee (a government funded organization) to repay the government upon extinguishment of the easement.[127] The IRS argued that this deprived the donee of their proportionate share under the regulation.[128] However, the court reasoned that this situation was different because the donor would not receive a windfall as a result of the extinguishment of the easement.[129] Thus, what happens to the donee’s proportionate share apart from the donor is beyond the scope of the regulation.[130] Therefore, the court disagreed with the IRS and upheld the clause and the easement.[131]

Conservation Easement IRS Anti-Taxpayer Cases

The most influential conservation easement case as of late is Oakbrook Land Holdings, LLC v. Commissioner.[132] While this case is currently on appeal in the 6th Circuit, it has been used to strike down many conservation easements in the past couple months.[133] In Oakbrook, the taxpayers bought a 143-acre piece of land.[134] The taxpayer set aside 37 acres for development, and donated the remaining 106 acres to a local conservancy.[135] The IRS took issue with the extinguishment clause of the easement deed.[136] Extinguishment clauses are commonly found in conversation easement deeds.[137] These clauses outline the division of hypothetical proceeds from a future hypothetical extinguishment of the easement.[138] To understand how these clauses work, a closer look at the regulations is helpful.

Although conservation easements must exist in perpetuity, the law does provide a very limited avenue to dissolve them. The relevant regulation provides:

If a subsequent unexpected change in the conditions surrounding the property that is the subject of a donation under this paragraph can make impossible or impractical the continued use of the property for conservation purposes, the conservation purpose can nonetheless be treated as protected in perpetuity if the restrictions are extinguished by judicial proceeding and all of the donee's proceeds . . . from a subsequent sale or exchange of the property are used by the donee organization in a manner consistent with the conservation purposes of the original contribution.[139]

The following section governs how the proceeds of the extinguishment are distributed between the parties:

 . . . for a deduction to be allowed under this section, at the time of the gift the donor must agree that the donation of the perpetual conservation restriction gives rise to a property right, immediately vested in the donee organization, with a fair market value that is at least equal to the proportionate value that the perpetual conservation restriction at the time of the gift, bears to the value of the property as a whole at that time. . . . For purposes of this paragraph (g)(6)(ii), that proportionate value of the donee's property rights shall remain constant. Accordingly, when a change in conditions give rise to the extinguishment of a perpetual conservation restriction under paragraph (g)(6)(i) of this section, the donee organization, on a subsequent sale, exchange, or involuntary conversion of the subject property, must be entitled to a portion of the proceeds at least equal to that proportionate value of the perpetual conservation restriction, unless state law provides that the donor is entitled to the full proceeds from the conversion without regard to the terms of the prior perpetual conservation restriction.[140] (Emphasis added).

In other words, even though conservation easements with extinguishment clauses may not be perpetual in fact, they can be “treated as protected in perpetuity” if the extinguishment clause complies with the regulations.[141] Accordingly, the regulations provide that upon extinguishment, the donee is entitled to a “proportionate share” of the subsequent proceeds.[142] In Oakbrook, the IRS argued that the deed’s extinguishment clause did not provide for the donee to get their “proportionate share.”[143]

The easement deed in  Oakbrook  provided that upon extinguishment and subsequent sale, the donee “shall be entitled to a portion of the proceeds equal to the fair market value of the [c]onservation [e]asement.”[144] The IRS argued that this provision did not comply with the regulation because the donee should get a “proportionate share”—a fraction, not a fixed value.[145] The taxpayers argued that the regulation says “value” not “share.”[146] Therefore, the whole number they provided for in their deed is permissible.[147]The court ruled that the IRS interpretation is correct without relying on deference to the agency’s interpretation.[148] Thus, the regulation prohibits any scenario in which a donor gets to recover compensation other than a proportionate share (a fraction) of the proceeds, with the proportion defined by the easement’s FMV over the FMV of the unencumbered and unimproved property.[149]

In sum, the court disallowed the deduction because the extinguishment clause in the easement deed did not comply with the applicable regulations.[150] Because the clause existed (jeopardizing the perpetuity of the conservation easement) and did not comply with the regulations, it cannot be treated as protected in perpetuity as the regulation permits.[151] Thus, a small defect in the easement deed cost the taxpayers lost their entire deduction.

This case is likely to be appealed to the Sixth Circuit, and the outcome is uncertain based on 6th Circuit precedent. There are two relevant cases in the 6th Circuit: Hoffman Properties II, LP v. Commissioner[152] and Glass v. Commissioner.[153]Glass was decided in 2006, in favor of the taxpayers.[154] In Glass, the court affirmed the Tax Court’s decision that the easement in that case was protected in perpetuity, but offered little analysis on the issue.[155] In April of 2020, the court decided Hoffman in favor of the IRS.[156] In that case, the easement deed gave the donor the ability to make changes to the easement as donee permits.[157] Thus, the circuit court affirmed the Tax Court’s decision that this provision defeated the perpetuity of the conservation easement.[158]

Although appellate courts have generally been more sympathetic towards taxpayers, the 6th Circuit has typically deferred to the Tax Court on these issues.[159] Additionally, neither of these cases made a sincere attempt to analyze the relevant regulations and apply them to the easement deed.[160] Further, neither of these cases involved an extinguishment clause.[161] Thus, an appellate decision in Oakbrook is a wild card. Nonetheless, many cases have come out of the Tax Court in the past month following Oakbrook and striking down conservation easements over defective extinguishment clauses.[162] Even if the 6th Circuit reverses Oakbrook, the Tax Court is likely to maintain course in cases ineligible for appeal in the 6th Circuit.

Analysis: conservation easement deductions

Right now, the IRS is hanging its hat on improper extinguishment clauses, which render conservation easement deductions wholly invalid.[163] Some believe the IRS is engaging in scare tactics by issuing a SI before the courts have truly settled these issues, but the IRS also knows that it has valuation as a backstop.[164] Moreover, Oakbrook differs from Irby in that the issue in Irby was how the donee’s “proportionate share” was allocated after distribution.[165] However, in Oakbrook, the issue was whether the donee received their “proportionate share.”[166] In Oakbrook, the court was worried about the donor obtaining a windfall upon extinguishment.[167] Conversely, in Irby, the donor would never receive a windfall from the extinguishment of the easement because the donee would be repaying the government, not the donor.[168]

Finally, it is also worth noting the Tax Court’s approach to the applicable regulations in Oakbrook. The court recognized that both parties’ interpretations of the regulation at issue were not plain readings of the text.[169] The court also acknowledged that the 5th Circuit previously found the regulation to be ambiguous.[170] The 5th Circuit recognized that when a regulation is ambiguous, courts should defer to the agency that issued it.[171] However, the Tax Court in Oakbrook specifically concluded that this type of deference was unwarranted in this case.[172] Curiously, the court asserts that although the Commissioner’s interpretation is “not a plain reading,” it is the correct conclusion based on “traditional tools of construction.”[173] Thus, the court held that deference to the agency was unnecessary.[174] Interestingly, this is not the first time in which a circuit court deferred to the IRS while the Tax Court did not.[175]

In recent cases, the Tax Court seems almost merciless their insistence that the IRS wins even without any deference to the IRS. The Tax Court appears to be almost an IRS ally in the war on SCE transactions.[176] However, speculation and technicalities seem insignificant when taxpayers realize that even if they win on these issues, the dispute over valuation lurks around the corner.

Valuation: IRS’ attack on SCE deductions

Once the dust settles on the IRS’ attack on SCE deductions, taxpayers are still not in the clear. It now seems like the imperfections in the various deeds from these cases can be fixed and adjusted by those still seeking to create a SCE transaction. Future drafters now know the pitfalls to avoid. For example, do not allow changes to the easement boundaries and make sure any extinguishment clause complies with the Treasury Regulations. Assuming this happens, there will likely be a time where the IRS can no longer win these cases on such technicalities—disallowing entire deductions. However, when that time comes, the IRS will likely turn to valuation as the main issue. Objectively, this is the real reason why the IRS dislikes SCE schemes. In fact, the IRS said they don’t care if they lose on everything else—they believe they will win on value.[177] The IRS has no issue with conservation easements or the conjunctive deductions. The IRS is targeting those it believes to be abusing conservation easements for large tax savings.[178]

The valuations of SCEs are problematic because they directly relate to the amount of the subsequent deductions—which is arguably the main goal of SCE transactions. Thus, there is an incentive for taxpayers to obtain an inflated valuation. The value of a conservation easement is the difference between the fair market value of the land before the easement and the fair market value of the land after the easement.[179] Theoretically, this value should reflect the forgone value of development rights on the land. It is standard practice to value property at its most valuable reasonably probable use—or “highest and best” use.[180] However, such a determination is highly subjective and thus highly contestable.

The IRS must believe the taxpayers in these cases have no reason to pursue a conservation easement other than tax savings. If not, the IRS would not have attempted to disallow the entire deduction in recent cases. The IRS would have gone straight to disputing the valuation. However, assuming certain fact patterns in which taxpayers would prevail on the “qualified conservation contribution,” the IRS will have to settle for arguing for a reduced valuation. In that case, the outcome of each case will truly depend on its own facts and circumstances. Unfortunately, the Treasury Regulation does not provide helpful guidance on the valuation of conservation easements.[181] In short, the regulation states that 1) the value of the easement is the fair market value, 2) if there are relevant comparable transactions, the fair market value should be based on those, 3) if there are no relevant comparable transactions, the fair market value equals the difference between the value before the easement and the value after the easement, and 4) that this value is the value of the deduction.[182]

A new methodology has emerged by those appraising SCEs which has not yet seen significant challenge by the Tax Court.[183] This methodology applies four main criteria pulled from the Uniform Standards of Professional Appraisal Practice:[184] what is legally allowable, physically possible, financially feasible, and maximally productive.[185] The “maximally productive” element is the most controversial.[186] The regulations require an “objective assessment” of such development’s likelihood.[187] Critics suggest that many SCE valuations do not contain this “objective assessment” to substantiate their valuation.[188] Thus, typical SCE valuations reflect a hypothetical value derived from inappropriate assumptions about the land’s maximum productivity.[189] Thus, a discounted cash flow analysis will project a value which no buyer would ever pay.[190] This directly conflicts with the definition of fair market value—which requires a willing buyer and seller.[191]

Recently, the Tax Court has seldom addressed the issue of valuation as it has found other ways to extinguish these conservation easements completely.[192] However, many of the cases pending and those remanded from the appellate level are currently being decided on the issue of valuation.[193] Past results in the Tax Court have varied. In most cases, the court leans toward the valuation of the IRS which is usually far less than the taxpayers’ valuation. There are a couple of favorable outcomes for taxpayers, but far from an outright victory on valuation. Therefore, even if taxpayers successfully retain their deduction, they face an uphill battle on the amount of such deduction. Adding insult to injury, taxpayers could still face a hefty penalty for overvaluing their deduction. Altogether the return on investment for those involved in SCE transactions seems bleak.

Conservation Easement: Penalties and the IRS Settlement Initiative

Generally, there is a 10%-20% penalty applied to gross misstatements of deductions.[194] The IRS routinely goes for the maximum of 40% in conservation easement cases.[195] It is either all or nothing. In most of the cases, the Tax Court has upheld the 40% penalty.[196] However, there is a considerable amount of circumstances, like Oakbrook, in which the court disallows the entire deduction but does not impose a penalty at all.[197] This is based on the reasonableness of the taxpayers’ actions and assumptions.[198] If the court decides the taxpayers acted reasonably, then no penalty will be assessed.[199] However, in most cases in which the Tax Court invalidates a conservation easement and decides the partners acted unreasonably, the court imposes the 40% maximum penalty.[200] This might be different for cases in which valuation is the only issue. Since the taxpayers would be overvaluing a deduction rather than claiming one they do not have, the penalty might be less severe—like the typical 10%-20%.

The uncertainty regarding penalties is a crucial issue for those contemplating the recent SI offer. There are four key terms of the settlement agreement—one condition and three effects.[201] To accept the settlement, “[a]ll partners must agree to settle, and the partnership must pay the full amount of tax, penalties, and interest before settlement.”[202]  Once the taxpayers accept the offer:

  1. The deduction for the conservation easement is disallowed in full;
  2. “Investor” partners can deduct their cost of acquiring their partnership interests and pay a reduced penalty of 10% to 20% depending on the ratio of the deduction claimed to partnership investment;
  3. Partners who provided services in connection with any SCE transaction (promoters) must pay the maximum penalty asserted by the IRS (typically 40%) with no deduction for their costs.[203]

The settlement offers only the 10-20% penalty and gives a deduction for the partner’s initial investment. This might be intriguing, but the promoters get nothing and are subject to the maximum 40% penalty.

At the end of the day, the SI pits investor partners against promoters.[204] This puts additional pressure on taxpayers because participation in the SI requires the unanimous consent of all partners. Litigation promises only uncertainty, but settlement might only offer minimal relief for investors while ensuring disappointment for promoters. Taxpayers should carefully consider the strength of their cases, the durability of their valuations, the penalties at stake, and the costs of litigation as they contemplate the SI offer.

Although the IRS’ legal position on conservation easements is questionable, it may not be worth the fight. Those taxpayers with subpar easement deeds[205] or extremely inflated valuations will likely find the SI to be an attractive option. However, those taxpayers who are confident in the viability of their conservation easements and believe their valuation is accurate enough for them to break-even on their investments might resist folding to the IRS’ demands.

Furthermore, appraisers themselves are currently at a heightened level risk of being assessed a penalty for their valuation of conservation easements.[206] Normally, appraisals are a matter of judgment guided by certain valuation procedures and standards such as the Uniform Standards of Professional Appraisal Practice mentioned in Part IV.[207] Such judgment is typically subject to a review process before an IRS penalty is applied.[208] This process would usually include input from at least five experienced opinions from IRS employees and a second opinion from another appraiser.[209] However, the IRS recently eliminated this review process entirely.[210] Thus, “under the revised IRS procedure, a single IRS employee, who may have no background whatsoever in the land appraisal, could advance a penalty assessment.”[211] This action destroys all checks and balances in the review process, meaning appraisers now have little ability to defend their valuations.[212] In the end, the IRS gets to make an arbitrary decision on the validity of valuations. 

Such an aggressive regulatory change tips the IRS’ hand. It seems that the IRS may not actually care about the true valuation of conservation easements. Rather, it seems the IRS would prefer to eliminate the deduction for conservation easements entirely. However, as the saying goes, “deductions are a matter of legislative grace.”[213] The IRS does not have the right to decide what deductions a taxpayer is entitled to.[214] It may disagree with the value, but not with the deduction itself.[215] Effectively, this is what the IRS is attempting to do. The agency does not like the way taxpayers and appraisers are playing under the statutory and regulatory rules, so it simply changes the rules to stack against the taxpayer. The commandeering of authority on conservation easement valuations shows that the IRS cares more about winning on all SCE audits than it does about solely targeting abusive SCE transactions.

Conclusion: The IRS is waging war on SCE transactions

The IRS is waging war on SCE transactions. Moreover, the Tax Court seems skeptical—if not hostile—towards these transactions as well. The two main attacks on SCEs are (1) that they do not contribute a “qualified real property interest”[216] and (2) that they are not made “exclusively for conservation purposes.”[217] Both of these are required for the donation of a conservation easement to be considered a “qualified conservation contribution.”[218] If there is no “qualified conservation contribution,” there is no deduction allowed for the donors.[219] While some taxpayers have been able to fend off these attacks, the IRS has mostly been successful in these attacks in the Tax Court. Appellate courts have been more sympathetic towards taxpayers, but the Tax Court has maintained course when possible.[220]

Taxpayers will eventually figure out how to construct their easement deeds to avoid the pitfalls of the recent cases (e.g. extinguishment clauses). When that happens, valuation will be the main issue. Unfortunately for taxpayers, the road gets even foggier at this point as it is difficult to predict how the courts will come out on valuation. Regardless, we do know that such a determination is extremely fact intensive and will vary from case to case. On top of everything else, taxpayers must worry about the possibility of significant penalties if they lose their cases.

For those contemplating the current settlement offer, they likely cannot do anything about issues with their deeds, if they have them, considering  Oakbrook. Since those taxpayers are facing a likely disallowance of the entire easement, the SI is probably a better deal even without considering the possibility of a 40% penalty. However, there could easily be multiple scenarios where there is a proper extinguishment clause and where the rest of the deed complies with the regulations. In those cases, valuation will be the key issue. If so, the decision on whether to take the SI offer becomes more complicated than it already is—considering litigation fees and the strength of the taxpayers’ valuation.

The evidence is mounting that the IRS’s attack on SCEs is overly aggressive. The cumulative effect of recent IRS actions such as eliminating the appraisal penalty review process, attempting to completely strike down conservation easements, and offering a one-sided SI, has the effect of heavily discouraging the donation of conservation easements. This cuts against congressional intention to incentivize the conservation of land and it is arguably a regulatory over-step by the agency. The IRS is demanding surrender on syndicated conservation easements. They may or may not be well-positioned to make such demands. Regardless, the battle ahead for taxpayers is long, treacherous, and unforgiving. Some might lose their entire deduction. Some of those might wind up paying an additional 40% penalty. Others might successfully defend their deduction, but many of those will lose on valuation. The likelihood of a taxpayer escaping with their full deduction is slim to none. The last time that happened was in 2009, before the dramatic rise of SCE transactions.[221] The fate of SCE transactions will be revealed in due time. For now, taxpayers have a difficult decision to make—potentially premature surrender or a tedious gamble.

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[1] Beckett G. Cantley, Esq. teaches International Taxation at Northeastern University and is a shareholder in Cantley Dietrich, P.C. Prof. Cantley would like to thank Melissa Cantley and his law clerk, Austin Young, for their contributions to this article.

[2] Geoffrey C. Dietrich, Esq. is a shareholder in Cantley Dietrich, P.C.

[3] See 26 USCA § 170 (West).

[4] See id. at § 170(h).

[5] 26 CFR § 1.170A-14.

[6] Guinevere Moore, IRS Settlement Program For Syndicated Conservation Easements Announced, Forbes (Jun. 26, 2020, 12:23 PM),

[7] IRS News Release IR-2020-130 (Jun. 25, 2020) (hereinafter “IR-2020-130“).

[8] Listing Notice--Syndicated Conservation Easement Transactions, 2017-4 IRB 544 (2016).

[9] IRS News Release IR-2019-182 (Nov. 12, 2019).

[10] See e.g. Pine Mountain Pres., LLLP v. Comm'r of Internal Revenue, 151 TC 247 (2018); see also Oakbrook Land Holdings, LLC, William Duane Horton, Tax Matters Partner, Petitioner v. Commissioner of Internal Revenue, Respondent, 119 TCM (CCH) 1352 (TC 2020).

[11] IR-2020-130.

[12] Kaustuv Basu and Aysha Bagchi, IRS Land Deal Offer Has Little to Entice Challengers to Settle, Bloomberg Law (Jul. 9, 2020, 3:46 PM),

[13] Id.

[14] Nancy Ortmeyer Kuhn, INSIGHT: Charitable Conservation Easements—IRS and Tax Court Act To Shut Them Down, Bloomberg Law (Jul. 22, 2020, 3:01 AM),

[15] See, e.g., Gorra v. Comm'r, 106 TCM (CCH) 523 (TC 2013).

[16] In 2009, the taxpayers won a near outright victory. Kiva Dunes Conservation, LLC v. Comm'r, 97 T.C.M. (CCH) 1818 (T.C. 2009).

[17] See Oakbrook Land Holdings, LLC, William Duane Horton, Tax Matters Partner, Petitioner v. Commissioner of Internal Revenue, Respondent, 119 T.C.M. (CCH) 1352 (T.C. 2020).

[18] See, e.g., Champions Retreat Golf Founders, LLC v. Comm'r of IRS, 959 F.3d 1033 (11th Cir. 2020) (remanded to Tax Court for valuation).

[19] See Oakbrook.

[20] See, e.g., compare Pine Mountain Pres., LLLP v. Comm'r of Internal Revenue, 151 TC 247 (2018), with BC Ranch II, LP v. Comm'r of Internal Revenue, 867 F.3d 547 (5th Cir. 2017).

[21] 26 USCA § 170(h) (West).

[22] See §170(f)(3)(B)(iii).

[23] See §170(h).

[24] Kuhn, supra note 14.

[25] 26 USCA § 170(h)(2) (West).

[26] 26 CFR § 1.170A-14

[27] Id.

[28] See infra Part III(C).

[29] Belk v. Comm'r, 774 F.3d 221 (4th Cir. 2014).

[30] Id. at 223.

[31] Id.

[32] Id.

[33] Id.

[34] Id. at 223-24.

[35] Id. at 230.

[36] See id.

[37] Id. at 225-26.

[38] Id.

[39] Id.

[40] Id.

[41] Id.

[42] Id.

[43] Gorra v. Comm'r, 106 T.C.M. (CCH) 523 (T.C. 2013).

[44] Id. at 1.

[45] Amended Reply Brief for Respondent at 93, Gorra v. Comm'r, 106 TCM (CCH) 523 (TC 2013) (No. 15336-10).

[46] Gorra at 9.

[47] Id.

[48] Id.

[49] Id. at 8-9.

[50] Id.

[51] Id. at 24-25.

[52] Id.

[53] Id. at 25.

[54] BC Ranch II, LP v. Comm'r of Internal Revenue, 867 F.3d 547 (5th Cir. 2017).

[55] Id. at 549-51.

[56] Id.

[57] Id. at 552.

[58] Bosque Canyon Ranch, LP v. Comm'r, 110 TCM (CCH) 48 (TC 2015), vacated and remanded sub nom. BC Ranch II, LP v. Comm'r of Internal Revenue, 867 F.3d 547 (5th Cir. 2017).

[59] Id.

[60] BC Ranch II, LP v. Comm'r of Internal Revenue, 867 F.3d 547 (5th Cir. 2017).

[61] Id. at 552-53.

[62] See id. at 562.

[63] See id. at 552-53.

[64] Id. at 554.

[65] Id. at 560.

[66] Balsam Mountain Investments, LLC v. Comm'r, 109 TCM (CCH) 1214 (TC 2015).

[67] Id. at 2.

[68] See id. at 3.

[69] Id.

[70] Id.

[71] Pine Mountain Pres., LLLP v. Comm'r of Internal Revenue, 151 TC 247 (2018).

[72] See id. at 256-60.

[73] See id. at 272-73.

[74] See id. at 273-74.

[75] Id.

[76] Id.

[77] Id.

[78] Balsam Mountain Investments at 3.

[79] See Balsam Mountain Investments; see also Pine Mountain Pres., LLLP v. Comm'r of Internal Revenue, 151 TC 247 (2018).

[80] See BC Ranch II, LP v. Comm'r of Internal Revenue, 867 F.3d 547 (5th Cir. 2017).

[81] Oakbrook Land Holdings, LLC, William Duane Horton, Tax Matters Partner, Petitioner v. Commissioner of Internal Revenue, Respondent, 119 T.C.M. (CCH) 1352 (T.C. 2020).

[82] See Pine Mountain.

[83] 26 USCA § 170(h)(4)(A) (West).

[84] Id. at (ii).

[85] 26 C.F.R. § 1.170A-14(d)(3)(i).

[86] See id.

[87] Champions Retreat Golf Founders, LLC v. Comm'r of IRS, 959 F.3d 1033 (11th Cir. 2020).

[88] Id. at 1034-35.

[89] Id. 

[90] Id. 

[91] Id.

[92] Id. at 1034.

[93] The word “significant” is added to account for the regulation; see supra note 80.

[94] See generally, Champions.

[95] See Champions.

[96] See id 1036-38.

[97] Id. at 1038.

[98] Id. 

[99] Id.

[100] Id. at 1039.

[101] Id. at 1041.

[102] Id.

[103] See, e.g., Pine Mountain Pres., LLLP v. Comm'r of Internal Revenue, 151 TC 247 (2018).

[104] See 26 U.S.C.A. § 170(c) (West).

[105] Pollard v. Comm'r, 105 T.C.M. (CCH) 1249 (T.C. 2013).

[106] Id.

[107] Id.

[108] Graev v. Comm'r, 140 T.C. 377 (2013).

[109] Id.

[110] Id.; 26 C.F.R. § 1.170A-1(e).

[111] Graev at 409.

[112] See 26 U.S.C.A. § 170 (West).

[113] 26 C.F.R. § 1.170A-1(e).

[114] 26 U.S.C.A. § 170(h)(5) (West).

[115] Id.

[116] See Ann Taylor Schwing, Perpetuity Is Forever, Almost Always: Why It Is Wrong to Promote Amendment and Termination of Perpetual Conservation Easements, 37 Harv. Envtl. L. Rev. 217, 221 (2013). There is only one limited exception to perpetuity, discussed infra note 131 and accompanying text.

[117] See IR-2020-130.

[118] See, e.g., BC Ranch II, LP v. Comm'r of Internal Revenue, 867 F.3d 547 (5th Cir. 2017); Gorra v. Comm'r, 106 TCM (CCH) 523 (TC 2013).

[119] See, e.g. Oakbrook Land Holdings, LLC, William Duane Horton, Tax Matters Partner, Petitioner v. Commissioner of Internal Revenue, Respondent, 119 T.C.M. (CCH) 1352 (TC 2020).

[120] See infra Part II(A).

[121] Id.

[122] See, e.g. Oakbrook.

[123] Irby v. Comm'r, 139 TC 371 (2012).

[124] Id.

[125] Id. at 380. As we will see later, this is a typical IRS argument on this issue

[126] Id.

[127] Id. at 376-77.

[128] Id. at 380.

[129] Id. at 380-85.

[130] Id.

[131] Id.

[132] Oakbrook Land Holdings, LLC, William Duane Horton, Tax Matters Partner, Petitioner v. Commissioner of Internal Revenue, Respondent, 119 T.C.M. (CCH) 1352 (T.C. 2020).

[133] See, e.g., Plateau Holdings, LLC v. Comm'r of Internal Revenue, TCM (RIA) 2020-093 (TC 2020); Lumpkin HC, LLC v. Comm'r of Internal Revenue, TCM (RIA) 2020-095 (TC 2020).

[134] Oakbrook at 3.

[135] Id. at 5.

[136] Id. at 11.

[137] Id. at 2.

[138] Id.

[139] 26 C.F.R. § 1.170A-14(g)(6)(i) (emphasis added).

[140] 26 C.F.R. § 1.170A-14(g)(6)(ii) (emphasis added).

[141] See id. at (i) and (ii).

[142] Id.

[143] Oakbrook at 11.

[144] Id. at 6-7.

[145] Id. at 21-22.

[146] Id.

[147] Id. In a companion case, Oakbrook challenged the validity of the regulation and failed.

[148] Id. at 25.

[149] Id.

[150] See id.

[151] See id.

[152] Hoffman Properties II, LP v. Comm'r of Internal Revenue, 956 F.3d 832 (6th Cir. 2020), reh'g and suggestion for reh'g en banc denied, No. 19-1831, 2020 WL 3839687 (6th Cir. June 17, 2020).

[153] Glass v. Comm'r, 471 F.3d 698 (6th Cir. 2006).

[154] Id.

[155] Id.

[156] Hoffman Properties II.

[157] Id.

[158] Id.

[159] See Glass; Hoffman Properties II.

[160] See id.

[161] See id.

[162] See, e.g., Plateau Holdings, LLC v. Comm'r of Internal Revenue, TCM (RIA) 2020-093 (TC 2020); Lumpkin HC, LLC v. Comm'r of Internal Revenue, TCM (RIA) 2020-095 (TC 2020).

[163] See Oakbrook; see also IR-2020-130.

[164] Kristen A. Parillo, Criticism of Easement Settlement Deal Doesn’t Worry IRS, taxnotes (Jul. 15, 2020),

[165] See Oakbrook; Irby v. Comm'r, 139 T.C. 371 (2012).

[166] See Oakbrook.

[167] See Oakbrook.

[168] See Irby.

[169] Oakbrook at 23.

[170] Id. (citing PBBM-Rose Hill, Ltd. v. Comm'r of Internal Revenue, 900 F.3d 193, 205-07 (5th Cir. 2018).

[171] Id.

[172] Id. at 25.

[173] Id.

[174] Id.

[175] See, e.g., Kaufman v. Shulman, 687 F.3d 21 (1st Cir. 2012); PBBM-Rose Hill, Ltd. v. Comm'r of Internal Revenue, 900 F.3d 193, 205-07 (5th Cir. 2018).

[176] See Kuhn, supra note 14.

[177] Parillo, supra note 164.

[178] See IR-2020-130.

[179] 26 C.F.R. § 1.170A-14(h)(3)(i).

[180] See Frazee v. Comm'r, 98 TC 554, 563 (1992).

[181] See 26 C.F.R. § 1.170A-14(h)(3)(i).

[182] See id.

[183] William E. Ellis, Syndicated Conservation Easements, Valuation Abuse, and Penalties, taxnotes (July 27, 2020)

[184] Id.

[185] Id.

[186] Id.

[187] Id.

[188] Id.

[189] Id.

[190] Id.

[191] Id.

[192] See, e.g., Oakbrook Land Holdings, LLC, William Duane Horton, Tax Matters Partner, Petitioner v. Commissioner of Internal Revenue, Respondent, 119 T.C.M. (CCH) 1352 (TC 2020).

[193] See, e.g., Champions Retreat Golf Founders, LLC v. Comm'r of IRS, 959 F.3d 1033 (11th Cir. 2020).

[194] 26 U.S.C.A. §6662(a) (West).

[195] 26 U.S.C.A. §6662(h) (West).

[196] See, e.g., Gorra v. Comm'r, 106 T.C.M. (CCH) 523 (T.C. 2013).

[197] See Oakbrook.

[198] See id. 

[199] See id.

[200] See e.g., Plateau Holdings, LLC, Waterfall Development Manager, LLC, Tax Matters Partner, Petitioner v. Commissioner of Internal Revenue, Respondent, T.C.M. (RIA) 2020-093 (TC 2020).

[201] IR-2020-130.

[202] Id.

[203] Id.

[204] Moore, supra note 6.

[205] For example, those deeds that will lose in the Tax Court following Oakbrook Land Holdings, LLC, William Duane Horton, Tax Matters Partner, Petitioner v. Commissioner of Internal Revenue, Respondent, 119 T.C.M. (CCH) 1352 (TC 2020).

[206] Jeff Kauttu, Conservation Easements at Risk Because of IRS Appraisal Penalties, taxnotes (Aug. 12, 2020)

[207] Id.

[208] Id.

[209] Id.

[210] Internal Revenue Service, Memorandum for All LB&I and SB/SE Employees (Jan. 22, 2020)

[211] Kauttu, supra note 206.

[212] Id.

[213] New Colonial Ice Co. v. Helvering, 292 US 435, 440 (1934).

[214] See id.

[215] Id.

[216] See, e.g., Belk v. Comm'r, 774 F.3d 221 (4th Cir. 2014).

[217] See, e.g., Champions Retreat Golf Founders, LLC v. Comm'r of IRS, 959 F.3d 1033 (11th Cir. 2020); see also Oakbrook Land Holdings, LLC, William Duane Horton, Tax Matters Partner, Petitioner v. Commissioner of Internal Revenue, Respondent, 119 TCM (CCH) 1352 (TC 2020).

[218] 26 USCA § 170(h) (West).

[219] Id.

[220] See, e.g., Pine Mountain Pres., LLLP v. Comm'r of Internal Revenue, 151 TC 247 (2018).

[221] See supra, note 16.

Risks You Can Avoid by Using Attorney Paymaster Services


Attorney paymaster services

Anyone who is conducting business internationally or making large transactions should be aware of attorney paymaster services. These services are designed to protect you and others involved in your high-dollar transaction from fraud, and to offer legal protections by ensuring that all the proper steps are followed to comply with financial regulations, including KYC, AML, CDDand EDD. Beloware just a few of the risks that an attorney paymaster can protect against. Attorney paymaster services


Whenever you conduct high-dollar transactions (such as real estate, jet fuel or precious diamonds and metals), or work with an overseas buyer or seller, there is a risk that you could be participating in a fraudulent transaction. This is especially true in transactions in which you may have never met the person face to face or talked to them except electronically. With an attorney paymaster acting as an escrow account, you can hold funds in the reserve account until you verify that the transaction is legitimate. This is prudent on both the buyer’s and the seller’s side—if you are selling goods, the attorney paymaster can confirm that payment is made before you release the items. If you are buying, the attorney paymaster can release your funds to the seller and track the shipment of goods.

Money Laundering

Another potential risk that people face when they are doing business with entities or individuals they have never met is inadvertently becoming a participant in a money laundering transaction. Your attorney paymaster can help you verify the person or entity on the other end of the transaction using KYC (know your customer), CDD or EDD (customer due diligence or enhanced due diligence) and AML (anti-money laundering) verifications. It is often easier for an attorney paymaster to perform these checks than it would be for you, as they can be time-consuming and difficult if you don’t have experience in these areas. These checks are also required by law, so it’s important that you have them done by someone who knows how to do it right.

Clerical Errors

Even legitimate transactions with buyers who have checked out through KYC, CDD and AML can run into issues when it comes to the paperwork. A lot of information must be confirmed, filled out, filed with various regulatory bodies and shared in the process of your transaction. Missing a key piece of information or filling out some of the forms incorrectly can still land you in trouble or significantly slow down a transaction. Working with an attorney paymaster service ensures that all the i’s are dotted and t’s are crossed, so you can move forward confidently in your transaction. Cantley Dietrich is available to provide attorney paymaster services for your high-value domestic or international transactions. Contact us today to learn more.

Why Privacy Matters in Asset Protection Strategies


asset protection strategies

High-net-worth individuals have a lot to consider when it comes to asset protection, but one important factor that not everyone thinks to take into account is how well your asset protection strategy protects your privacy. How does your attorney or financial advisor work to protect your privacy? If you’re not sure, you could be putting yourself at unnecessary risk. asset protection strategies

Most Info Is Just a Click Away

The internet provides us with a lot of connectivity tools, and nowhere has it had more of an impact than on privacy. Sensitive information is easily available with just a few website clicks. In fact, people with high net worth might be at even higher risk for the exposure of personal information. This is because they are more likely to have transactions recorded that can be traced electronically through the internet than someone who has lower net worth and fewer assets (property ownership, public salary information, asset registrations, etc.). Even information you would prefer to keep private is more accessible than ever, which can make financial planning more difficult without the right strategies and tools.

Opportunistic Plaintiffs Can Make Life Harder

When financial information is readily available online, it can make you the target of an opportunistic plaintiff looking to make a quick buck from a frivolous lawsuit. With so much information available online about assets, properties, bank accounts, salaries, net worth and more, anyone who is wealthy could quickly find themselves embroiled in a lawsuit or on the receiving end of demands for money. Information that is readily available about your net worth or the extent of your assets could also come back to harm you in civil or personal cases—for example, a divorced spouse or an ex-business partner who decides to sue. You never know who might be keeping tabs on your overall net worth online, so the more privacy you can get, the better.

Commercial or Business Interests

The more public your financial information, the more likely you will be exposed to commercial sales calls, business propositions and other unwanted requests as well. While not as troublesome as lawsuits, it is certainly an inconvenience when you are constantly interrupted by phone calls, emails or even in-person solicitations for donations. For all these reasons, it’s important to work with an attorney and financial advisor who understands the tools available to protect your assets, and the importance of protecting your privacy in the process. Find out how Cantley Dietrich can help by contacting us about your asset protection and financial planning needs today.

Who Should Use Attorney Paymaster Services?


Attorney paymaster services

For some transactions, it’s important to protect yourself and others by engaging an attorney paymaster. These services are available for both domestic and foreign transactions, and while there are no set rules about what you can and cannot use attorney paymaster services for, there are a few transaction types or industries in which these services are more common. Attorney paymaster services

Understanding Paymaster Services

Engaging an attorney for paymaster services is a pretty straightforward transaction:
  • You hire the attorney to act as a paymaster.
  • The attorney verifies both parties in the transaction for compliance with KYC, CDD/EDD, and AML requirements.
  • The attorney holds funds in escrow and helps complete all necessary paperwork to satisfy legal requirements.
  • The attorney paymaster releases the funds to the seller upon completion and verification of the information.
In order to offer paymaster services, an attorney must ensure that all aspects of the transaction are in full compliance with the U.S. Treasury, Department of Homeland Security and other agencies as required.

When Attorney Paymaster Services Make Sense

The use of attorney paymaster services can provide an added layer of security and protection in large transactions, particularly ones involving foreign buyers or sellers. The most common situations in which people utilize an attorney paymaster include:
  • Real estate, particularly large transactions or international deals
  • Oil or jet fuel transactions
  • The purchase or sale of gold, diamonds or other precious metals
  • Steel transactions
  • Note transactions
Since the attorney paymaster is not part of the transaction, they have limited information about when it will occur and will only receive and disburse funds as directed. These services also help you avoid the hassle of Letters of Credit or the requirement to have an established history with a bank or financial institution to participate in a transaction. This can speed up large transactions significantly because the paymaster doesn’t check your credit or references.

Other Important Notes About Paymaster Services

Before you can participate in any attorney paymaster transaction, all parties in the transaction will need to verify their identity and provide additional information to the attorney. You will need:
  • A valid driver’s license or passport
  • IRS form W-9 (U.S. citizens only)
  • IRS form W-8BEN (for non-U.S. citizens)
  • Copy of payment agreement and other transaction documentation
  • Other documentation or identity verification as requested by the attorney
While you can technically use someone besides an attorney to fill the same role of paymaster, there is an added layer of security when you work with an attorney. They use short-term escrow accounts called IOLTAs that are monitored by the state bar to prevent fraud or illegal activity. If they fail to handle your funds properly, they face disbarment and significant financial penalties. The attorney you select for paymaster services also cannot provide other legal services to you or the third party in your transaction. This would be considered a conflict of interest.

Learn More About Paymaster Services at Cantley Dietrich

To find out more about the attorney paymaster services available at Cantley Dietrich and get your questions answered, contact us today.

IRS Audit Priorities After COVID-19 Break (Part 2)


IRS audit priorities

In part one of this blog post, we covered two things that the IRS is focusing on now that they are back after a break during the COVID-19 pandemic. Between April 1 and July 15, they announced the People First Initiative, which would halt many of their normal audit, investigation and enforcement activities in an effort to protect their employees and help those affected by COVID-19. Once the break ended in mid-July, the IRS stepped up their efforts in these areas once again. IRS audit priorities

Focus: Abusive Tax Preparers and Promoters

The IRS hired a new coordinator to oversee investigations of promoters pushing aggressive (and unlawful) tax arrangements. They plan to monitor a wide variety of civil investigations with the goal of ensuring that tax promoters known to engage in questionable tactics remain in compliance with injunctions and other enforcement. What it means for taxpayers: You hire a tax attorney or advisor for their expertise, and most taxpayers—including businesses and high-net-worth individuals — don’t have a deep knowledge of which tax strategies are illegal. It’s important to vet a tax advisor before you hire them, checking for a history of abusive or illegal activity. Fortunately, there are still many effective tax strategies you can employ to protect your earnings, and working with a reputable advisor or firm will help you avoid the negative legal consequences.

Focus: Syndicated Conservative Easements

Earlier this year, the IRS extended an offer to settle cases involving syndicated conservative easements after announcing in 2016 that it would be looking more closely at these transactions. The IRS discovered that taxpayers were using conservative easement donations to claim deductions for more than the actual value of donated property. What it means for taxpayers: After several years of auditing and litigating, the IRS has extended a settlement offer to conservative easement cases pending litigation. They are strongly encouraging taxpayers to accept the settlement terms, and have committed to pursue further litigation (including a trial) for those who do not. If you’ve invested in a syndicated conservative easement, talk to your tax attorney about next steps.

Focus: Fraudulent Micro-Captive Insurance Tax Shelters

The IRS has included micro-captive insurance companies on the Dirty Dozen list of tax scams for several years in a row, and will continue to pursue them aggressively in 2020 and beyond. They announced the creation of 12 new investigative teams to pursue audits and litigation when they deem a captive insurance company (CIC) to be an abusive tax vehicle. What it means for taxpayers: If you have an 831(b) CIC as part of your investment strategy, it’s important to talk to a knowledgeable and trustworthy tax attorney. CICs can be useful for risk management and mitigation when used appropriately, so it’s best to have yours reviewed before the IRS contacts you for an audit.

Find a Trusted Tax Advisor

The IRS remains committed to identifying, auditing and litigating abusive tax shelters or unethical tax practices. High-net-worth individuals and businesses should find a trustworthy tax attorney to help them identify appropriate, legal and ethical tax strategies. Talk to Cantley Dietrich today to learn more.

IRS Audit Priorities After COVID-19 Break (Part 1)


IRS Audit Priorities After COVID-19

As with many different jobs and industries, COVID-19 caused significant closures at the Internal Revenue Service (IRS), with service centers and offices nationwide shutting down operations and sending employees home to work. A March 25 announcement released by the IRS outlined the steps they were planning to take as part of the “People First Initiative” to help those facing challenges as a result of COVID-19. It included:

  • Extending tax-filing deadlines
  • Postponing payments for Installment Agreements and Offers in Compromise
  • Limiting enforcement actions
  • Suspending field collection activities
  • Suspending new systemic liens and levies
  • Stopping new delinquent accounts from being forwarded to private collection agencies
  • Postponing any new field, office or correspondence audits
The announcement specified that IRS activities would be limited or suspended through July 15, 2020. Now the IRS has reopened in some capacities and will resume some normal activities. For taxpayers and corporations, it’s important to understand what that means for audits, collections, investigations and more, as well as what the focus and priorities will be in the coming months. IRS Audit Priorities After COVID-19

Focus: High-Net-Worth Taxpayer Audits

The IRS said they would resume audits for high-net-worth individuals starting July 15, with the intent of auditing hundreds of returns by the end of the third quarter. While their examination and audit methods may be slightly different — with limited in-person and face-to-face interactions — they still intend to thoroughly examine entities such as partnerships, pass-through entities, S corporations, trusts and international financial activities. This follows the June announcement that the Large Business and International (LB&I) Division would make high-net-worth individuals a focus this year for “Wealth Squad” investigations. What it means for taxpayers: If you fall into the category of a high-net-worth individual for tax purposes, you need to recognize that the IRS has a stated goal of uncovering sophisticated planning tools and aggressive tax vehicles used for purposes of reducing tax liability. The audits are conducted by a team with specialized knowledge of foreign and domestic financial structures and are comprehensive, even if you have not filed a tax return yet for the year. It’s important to understand and utilize effective (and legal) tax-planning tools that won’t put you at risk.

Focus: Fraud Enforcement

In mid-March, the IRS formed a new Fraud Enforcement Office, appointing an experienced criminal investigator to lead the team and strengthen the link between criminal and civil IRS agents. While much of their work was likely halted in the wake of COVID-19, there is an expectation that the new office will provide a boost for fraud detection and deterrent efforts. What it means for taxpayers: There will likely be an increase in the number of fraud referrals, as well as more coordination between civil and criminal divisions, which may result in more civil penalties along with the potential for criminal charges.

Get the Tax Help You Need

As with any situation involving the IRS, the most important preventive action you can take is to have knowledgeable tax advisors to sort through complex financial and legal tax issues. In part two of this blog post, we’ll cover a few more areas the IRS intends to focus on in the coming months. In the meantime, contact Cantley Dietrich for help if you think you might be the target of increased IRS enforcement, audits or investigations.

Do Elections Cause Market Volatility? What You Need to Know as November 2020 Gets Closer


do markets impact elections

Even those who don’t follow politics closely know that there’s a consequential election coming near the end of 2020. With only a few weeks left to go before the nation casts a vote on who will lead the country for the next four years, now is a good time to look at how elections affect markets in general, and some specifics to understand about what is unique about this year. do markets impact elections

Historical Effects of Presidential Elections on the Markets

If you look at the last 60 years of data related to presidential elections and stock market activity, most of the volatility occurs before the election takes place. September tends to be the worst month for market volatility, with stocks losing an average of 0.51% historically (although that trend has reversed somewhat in the last 25 years). In fact, most election years have less volatility in the markets leading up to an election than non-election years. On the whole, market trends are positive for election years. In 19 of 23 presidential election years (going back to 1928), only four years have negative returns. But the election itself is not the only factor that can influence market performance. In 2008, a recession dramatically changed the “normal” cycles of the market. In 2020, a combination of many factors brought on by the global pandemic are once again influencing the markets far more than the presidential election.

What Experts Predict for 2020 and the Markets

This year’s election is likely to be consequential for many reasons. From a tax perspective, the policies of the two nominees are very different. In the 2016 election between Donald Trump and Hillary Clinton, the markets focused heavily on tax policies, primarily because that is one of the most direct ways lawmakers can impact corporations and individuals. The same is true in 2020, with investors expecting that a Trump second term would continue a similar tax-cutting trend, while a Biden victory would potentially lead to an increase in taxes for high-income earners and a full or partial reversal of the corporate tax reduction from the Tax Cuts and Jobs Act. COVID-19 has also dramatically altered the market landscape for 2020. After hitting a record high of 29,551.42 on Feb. 12, the Dow Jones Industrial Average was down 35% just a few weeks later on March 20. Two of the top five largest single-day drops in history occurred on March 16 and March 12 when the Dow lost 12.93% and 9.99%, respectively. Since that time, it has regained most of the losses, but remains volatile as the election approaches. Recent events such as the death of Supreme Court Justice Ruth Bader Ginsberg have further amplified Wall Street’s worries ahead of what was already promising to be a volatile election season.

What Does This Mean for Investors?

If you are worried about your own portfolio or what potential election results could mean for your company and personal financial situation, now is the time to talk to an experienced tax advisor. Cantley Dietrich can help you identify personal estate and planning opportunities, even during a pandemic and presidential election.

The Financial Benefits of an Experienced Tax Compliance Attorney


Making a mistake with tax compliance can be expensive; it’s better to leave it to the pros.

There are a few things in life that you should leave to the professionals, and tax compliance is one of them. According to a 2012 report to Congress from the Taxpayer Advocate Service (TAS), individuals and businesses spend 6.1 billion hours every year complying with tax code regulations, and that calculation doesn’t even take audits or investigations into account. Beyond just the time you can save working with a tax compliance attorney, you must consider the potential costs of not working with one. Companies and high-net-worth individuals who try the DIY approach to tax compliance issues may find out the hard way that it can be expensive to make a mistake in this arena. Making a mistake with tax compliance can be expensive; it’s better to leave it to the pros.

Audits, Fines and Fees

In 2019, the IRS assessed over $40 billion in civil penalties. The category with the highest penalties ($14.2 billion) was individual and estate and trust income tax returns. Close behind that were employment tax penalties at around $13.7 billion, with business income tax penalties over $5 billion. Those fines were the result of more than 73,000 cases that the IRS closed in 2019, some of which began more than a year prior. The IRS has a virtually unlimited capacity to assess fines and fees if they find anything wrong in your tax returns, even if it was an unintentional error or omission. They audit millions of individuals and corporations each year, and pursue criminal and civil charges to collect.

Time and Effort to Respond

In addition to the financial risks of getting hit with fines and fees, companies and high-net-worth individuals also need to consider how much it costs to respond to and participate in an audit. The sheer volume of information that the IRS requests can leave you or your staff buried in financial documents for weeks, months or years in some cases. Once the IRS opens an audit or investigation, they will spend as much time as it takes to see it through.

Hiring a Tax Attorney is the Better Way

As Benjamin Franklin is quoted saying in a 1789 letter to Jean-Baptiste Leroy, “… In this world nothing can be said to be certain, except death and taxes.” Though there is not any way to avoid taxes entirely, with the help of a tax compliance attorney, you can feel confident that you are not unintentionally violating any of the myriad tax laws and regulations. That doesn’t mean the IRS will never bother you, but it does significantly diminish the risk that you will be the subject of an investigation for noncompliance. Contact Cantley Dietrich to discuss your tax compliance needs with our experts.

Preparing to Hire a Firm for Attorney Paymaster Services


Hiring an attorney paymaster is beneficial for large transactions, but requires some prep.

Attorney paymaster services are an important part of transactions in certain industries. When you are looking for an attorney who offers these services, it’s important to be prepared for what you will encounter prior to and during your relationship with a firm. Attorney paymasters must follow strict and specific rules to participate in these transactions, so you will need to be ready to comply with requests related to your business activities. Hiring an attorney paymaster is beneficial for large transactions, but requires some prep.

Preparing to Work with an Attorney Paymaster

The most important thing that an attorney will need to do in advance of any transaction is learn more about you, your business and your transaction(s). In the industry, it’s referred to as “Know Your Customer (KYC)” and “Customer Due Diligence” (CDD). Both these activities are required to comply with anti-money laundering (AML) laws and regulations and will be part of the process no matter what industry you work in or what type of transaction you are planning.

Know Your Customer

These processes generally consist of identification and compliance checks. Your attorney paymaster will do some preliminary screening with various government watchlists and databases. During KYC, you will need to provide a variety of personal and/or business documents, including:
  • Government-issued personal identification
  • Articles of incorporation
  • Business licenses
  • Organizational charts
  • Activity profile for your business
  • Size, frequency and types of transactions
  • Additional information for KYC on individual corporate officers
  • Documents and information about any other corporations or entities that your business owns (including overseas entities)
The specific item(s) your attorney needs will vary, depending on your business. Not every KYC will involve each of these items, but it’s important to be prepared to keep the process moving.

Customer Due Diligence

The next step is due diligence, which includes a risk assessment and “scoring” related to your occupation, industry or entity type. The attorney paymaster will use this information to identify your expected transaction size, frequency, geographies, products and other relevant information. Ultimately, this is used to create a “risk matrix” and activity profile, which allows the attorney paymaster to monitor and flag suspicious activity in the future.

Compliance with KYC and CDD Protocols

Your attorney paymaster is required to comply with federal and international laws and regulations related to financial transactions, and courts have upheld that responsibility for attorneys who failed to perform adequate checks and ultimately were party to internet scams or other money-laundering activities. While the process may seem frustrating, it’s important to understand why it’s necessary. Being prepared with the right paperwork can help speed the process, especially for large or complex organizations. Contact us to find out more about the attorney paymaster services available at Cantley Dietrich.