At the NYU Tax Controversy Forum last week, (former?) Acting IRS Chief Counsel Ken Kies commented on the IRS conservation easement settlement initiative and noted that the IRS is looking into what he calls “easement-like” charitable donations of medical devices. With the dog days of summer quickly approaching, Mr. Kies provided a helpful reminder that the IRS’s expensive crusade against charitable-minded taxpayers continues.
Wagging and Bragging: IRS Counsel Pushes Easement Settlement Initiative
With respect to the easement settlement initiative, Mr. Kies indicated that he expects more taxpayers will take the “new” settlement offer compared with the number of taxpayers that accepted previous offers. Given the Tax Court’s recent opinions in conservation easement cases, Mr. Kies may be correct that more easement partnerships will accept the settlement offer this time around. But there are a number of cases that are currently awaiting appellate court opinions which may impact the acceptance rate for the current settlement initiative.
Mr. Kies also suggested that the Tax Court may be considering sanctions in easement cases where litigants use certain arguments that the court previously rejected. Mr. Kies may have been referring to the use of the discounted cash flow method to value raw land. But even the Appraisal Institute recognizes the discounted cash flow method is an accepted methodology to value real property.
Regardless, Mr. Kies’s comments coupled with the IRS’s recent announcement of the settlement initiative show that the IRS’s ongoing battle against taxpayers that donated conservation easements will not end any time soon.
The Gift that Keeps on Barking: IRS Looks into Donations of Medical Devices and Other Property
With respect to the other charitable contribution transactions, Mr. Kies said that IRS Counsel is looking into “easement-like” charitable donations of medical devices. Given Mr. Kies’s comparison of medical device donations to conservation easements, it appears that IRS Counsel may be investigating purportedly overvalued donations of medical devices. The IRS’s Dirty Dozen for 2026 included non-cash charitable contribution “schemes” but only referenced conservation easements and art donations. Perhaps the IRS will add medical device donations to the Dirty Dozen list for 2027. Anything is paw-sible.
The bottom line is that the IRS is looking at all charitable contributions where the fair market value of the donation greatly exceeds the taxpayer’s basis in the property. This includes donations of easements, art, medical devices, and other property. Other charitable donations attracting IRS scrutiny include donations of limited liability company (LLC) interests which the IRS started targeting in late 2024. While Mr. Kies specifically mentioned medical devices, it is clear that the IRS intends to audit any purportedly overvalued charitable donations.
Gotcha Day: Prepare Now for IRS Audits
By now, taxpayers may be telling the IRS, “Quit hounding me!” But those taxpayers may be in for a ruff time if they don’t prepare for the inevitable IRS audit.
The organizers, partnerships, and taxpayers involved in donations of easements, medical devices, art, and other property should prepare now for potential IRS scrutiny, including reviewing appraisals and other documents supporting the reported value of the donated property. Other items to review include documents provided to or received from the charity that received the donation (e.g., gift acknowledgment letter, Form 8283, etc.). Preparing in advance for an IRS audit could substantially reduce audit defense (and potential litigation) costs. For example, compiling donation documents in advance could reduce time spent on responding to IRS Information Document Requests (IDR) during an audit.
There may be other ways in which a taxpayer can prepare for an IRS audit of a charitable deduction, but I ran out of puns and my dog (Walter) would rather go outside than hear more about this howlarious blog post.
If you have any questions about IRS audits, charitable donations, or anything related to tax, feel free to reach out by email at ayoung@foxrothschild.com or phone at 610-458-1416.