Michele Weiss, principal at Holtz, Slavett & Drabkin, was quoted in a Bloomberg Tax article on the FTB’s recently announced settlement program for California taxpayers who invested in syndicated conservation easement transactions (“FTB Settlement Program”). The FTB Settlement Program will be open from July 10, 2023, through November 17, 2023.
The FTB Settlement Program offers California taxpayers reduced penalties for reversing their claimed charitable contribution deductions resulting from their investments in syndicated conservation easement transactions (“Conservation Easement Deductions”). However, a California taxpayer who opts for the FTB Settlement Program must sign a closing agreement pursuant to which they taxpayer must pay all California income tax and associated interest that results from reversing the full amount of the taxpayer’s Conservation Easement Deductions.
The FTB’s Settlement Program is a pivot from the FTB’s previous settlement offers for California taxpayers who claimed Conservation Easement Deductions. The FTB has been offering California taxpayers similar settlement terms, such as reduced penalties, in the FTB’s opening letter for an examination of the taxpayer’s Conservation Easement Deductions. In the opening audit letter, the FTB would require that the taxpayer to agree to the FTB’s settlement terms by filing an amended California income tax return reversing the taxpayer’s Conservation Easement Deductions. The taxpayer would need to pay the resulting income tax and associated interest. However, the FTB would offer the taxpayer reduced penalties. Filing an amended income tax return enables a taxpayer to file a protective refund claim for the taxpayer’s reversed Conservation Easement Deductions. The terms of the FTB Settlement Program require taxpayers to sign closing agreements.
Taxpayers should consider whether the terms of the FTB Settlement Program is in their best interest.
Signing a closing agreement forecloses a taxpayer from filing a protective refund claim for the Conservation Easement Deductions that are subject to the taxpayer’s closing agreement. Many syndicated conservation easement transactions are currently under audit or in litigation with the IRS. The IRS audits the LLC that engaged in the conservation easement transaction. Unlike the IRS, the FTB pursues individual California taxpayers for their claimed Conservation Easement Deductions. The results of current federal litigation and IRS examinations may be more favorable than a full disallowance of a taxpayer’s claimed Conservation Easement Deduction. Consequently, taxpayers may not want to forego the opportunity to file a protective refund claim for their Conservation Easement Deductions. However, entering into a closing agreement would provide a relatively quick resolution for a taxpayer’s Conservation Easement Deduction. Moreover, it is difficult to predict the results of pending IRS audits and litigation.
California taxpayers who invested in syndicated conservation easements may want to seek counsel to determine whether the FTB Settlement Program is a suitable resolution for their Conservation Easement Deductions. Michele Weiss is a former IRS Counsel attorney and a California State Bar certified specialist in taxation. She focuses her practice on tax controversy matters and has extensive experience working on FTB conservation easement matters. If you have questions about the FTB Settlement Program, or any other tax controversy matter, you can schedule a consultation with Michele. She can be reached at 310-550-6200 or firstname.lastname@example.org. Her profile can be accessed here.