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Introducing the New Georgia Voluntary Disclosure Agreement Program for Conservation Easements

Introducing the New Georgia Voluntary Disclosure Agreement Program for Conservation Easements

by Chris Stephens

By July 17, 2024Insights

Understanding Conservation Easements and Their Tax Implications

Conservation easements are legal agreements that permanently limit the use of land to protect its conservation values. These easements are often donated to a land trust or government agency, which then holds the right to enforce the restrictions. The primary goal is to preserve the land’s natural, scenic, or historical attributes, preventing development or significant alterations that could compromise its value.

From a tax perspective, conservation easements can provide significant benefits. The Internal Revenue Code (IRC) Section 170 allows for a charitable contribution deduction equal to the value of the easement donated. However, these deductions are subject to strict requirements, including ensuring that the easement is protected in perpetuity and that it serves a valid conservation purpose.

Despite these benefits, the IRS has scrutinized conservation easements heavily, particularly syndicated conservation easements, due to perceived abuses. This scrutiny has led to numerous examinations and disputes over the validity and value of the deductions claimed.

The Georgia DOR’s VDA Program for Conservation Easements

Recognizing the importance of encouraging land conservation while ensuring compliance with tax laws, the Georgia Department of Revenue (DOR) has introduced a new Voluntary Disclosure Agreement (VDA) program specifically for conservation easements. This program is designed to help taxpayers who have previously claimed a deduction but may have encountered issues with their claims. The Georgia DOR’s VDA program aims to provide a pathway for taxpayers to come forward voluntarily and disclose any discrepancies or errors related to their conservation easement deductions. By participating in this program, taxpayers can potentially avoid severe penalties and resolve their tax issues in a more favorable manner.

Key Points of the VDA Program

  1. Coverage Period: The VDA program covers the last three years the taxpayer was involved in the conservation easement for tax purposes, not the last three calendar years. This distinction is crucial for taxpayers to understand when assessing their eligibility for the program.
  2. Post-IRS Settlement Requirement: Taxpayers can only enter the VDA program after the IRS has made a final disposition or settlement regarding their conservation easement. This requirement ensures that the state’s settlement aligns with the federal resolution and is not based on estimates.
  3. Restrictions on Participation: Taxpayers are ineligible for the VDA program if Georgia has already contacted them about a conservation easement deduction issue. However, if the contact was regarding another tax issue, even another income tax issue, they may still qualify.
  4. Waiver of Penalties: If all requirements are met, the Georgia DOR will waive penalties related to the conservation easement deductions during the VDA period. This waiver can provide significant financial relief for taxpayers who meet the criteria.
  5. Active Program: The VDA program is currently active, and the Georgia DOR is accepting taxpayers into this program. This immediacy means that eligible taxpayers who have had a final disposition with the IRS can take action now to address their conservation easement-related tax issues.

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Why This Matters

The introduction of the Georgia DOR’s VDA program for conservation easements is a significant development for several reasons:

  1. Enhanced Compliance: The program encourages voluntary compliance with tax laws, helping to ensure that conservation easement deductions are claimed accurately and legitimately. This can lead to better overall adherence to tax regulations and reduce instances of non-compliance.
  2. Financial Relief: For taxpayers who have made errors in their conservation easement deductions, the VDA program offers a pathway to resolve these issues without incurring hefty penalties. This can result in considerable financial savings and reduce the stress associated with potential tax disputes.
  3. Promotion of Land Conservation: By providing a mechanism to address and resolve tax issues related to conservation easements, the program supports the broader goal of land conservation. Landowners may be more inclined to participate in conservation efforts if they know there is a clear process to address any tax-related concerns that may arise.
  4. IRS Tax Resolution: The requirement to settle with the IRS before entering the VDA program ensures consistency between federal and state tax resolutions. This alignment helps streamline the process for taxpayers and reduces the complexity of dealing with separate tax authorities.

How to Participate

For taxpayers interested in participating in the Georgia DOR’s VDA program for conservation easements, the process involves several key steps:

  1. Review Eligibility: The first step is to determine if you meet the eligibility criteria for the VDA program. Ensure you have not been previously contacted by the DOR regarding your conservation easement deduction and that you have a final IRS settlement on the matter.
  2. Gather Documentation: Collect all relevant documentation related to your conservation easement deductions, including the final IRS settlement, documentation of the easement donation, and any correspondence with tax authorities.
  3. Contact Georgia DOR: Reach out to the Georgia Department of Revenue to express your interest in participating in the VDA program. Provide the necessary documentation and information to initiate the process.
  4. Submit Application: Complete and submit the VDA program application as instructed by the Georgia DOR. Ensure that all information is accurate and complete to facilitate a smooth review process.
  5. Negotiate Terms: If accepted into the program, you may need to negotiate the terms of your tax settlement with the Georgia DOR. This may involve discussions on the waiver of penalties and the resolution of any outstanding tax liabilities.
  6. Finalize Settlement: Once the terms are agreed upon, finalize the settlement with the Georgia DOR. This step will include signing any necessary agreements and making any required payments to resolve your tax issues.

Example Scenario

Consider a taxpayer who claimed a conservation easement deduction in tax years 2015, 2016, 2017, 2018, 2019. In 2021, the IRS disallowed the deduction, resulting in a significant tax liability. After reaching a final settlement with the IRS, the taxpayer can now apply for the Georgia DOR’s VDA program to address the state tax implications. By participating in the VDA program, the taxpayer will voluntarily remit tax for 2017, 2018, and 2019 and penalties for those 3 years would be waived. In addition, the additional tax, penalties, and interest for 2015 and 2016 would be waived.

We’re Here to Help

If you are considering participating in the Georgia DOR’s VDA program or have questions about your eligibility, particularly regarding conservation easement tax benefits, reach out to one of oue experts by clicking the button below. It is highly recommended to consult with a tax professional or attorney who specializes in this area, which Bennett Thrasher does. Bennett Thrasher’s tax controversy practice can represent and advise you through the entire voluntary disclosure agreement process. For more information, you can contact Chris Stephens, Senior Manager, or  James Pickett, Director, in charge of the tax controversy practice, or call 770.396.2200.

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