As the April 15 tax deadline rapidly approaches, the Internal Revenue Service (IRS) reminded taxpayers that they have multiple filing and payment options. The IRS continues to recommend that taxpayers file returns electronically. The software used for electronic returns reduces possible tax errors. It also facilitates prompt refunds — most individuals receive a refund within 21 days.

Taxpayers with income of $79,000 or less may use the IRS Free File software. Individuals with higher incomes can use the IRS Free Fillable forms. A new option this filing season is IRS Direct File. The IRS tax software is available for basic returns in 12 pilot states. The IRS.gov website has additional information on the Direct File program.

The IRS also encourages individuals to use the Volunteer Income Tax Assistance (VITA) or the Tax Counseling for the Elderly (TCE) programs. These programs offer free tax preparation to most individuals or seniors. Members of the military also may benefit from MilTax, a Department of Defense program offering free tax return preparation.

Taxpayers are encouraged to use the "Where’s My Refund?" tool. This helpful program on the IRS.gov website is available if you have your Social Security number, your filing status and your exact refund amount. You can also use the "Where’s My Refund?" service on your smartphone with the IRS2Go app.

If you owe taxes, you must pay the correct amount by Monday, April 15. An exception is available for residents of Maine or Massachusetts. Due to state holidays, their tax deadline is Wednesday, April 17, 2024.

There are multiple options to pay your taxes. An excellent method is Direct Pay from your checking or savings account. You may also pay with a debit card, credit card or digital wallet. The Electronic Federal Tax Payment System (EFTPS) is a convenient method. Many taxpayers use an electronic funds withdrawal from their bank account. Other options include a check or money order or cash. The cash payment is more complex and is explained on IRS.gov/payments/pay-your-taxes-with-cash.

If you are not able to pay your tax in full, there are both short and long-term payment plan options. A tax bill of less than $100,000 may be paid over 180 days with the short-term plan. If you owe less than $50,000 in tax, penalties and interest, the long-term payment plan may allow you to stretch out payments for up to 72 months. You may go to the webpage IRS.gov/payments/payment-plans-installment-agreements to view qualifications for payment plans.

If you are unable to file by April 15, you can use IRS Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. The six-month deferral will allow you to file by October 15, 2024. However, you are required to pay the correct amount of tax by April 15th, even if you extend the filing date. You should estimate and pay your correct tax due. There are exceptions for individuals serving in a combat zone, those living outside the United States or taxpayers in certain disaster areas.

IRS Warning About Fake Charities

As part of an Internal Revenue Service’s (IRS) effort to protect taxpayers, each year the Security Summit publishes the "Dirty Dozen" tax scams. One of the scams that occurs each year is of fraudulent charities created after a natural disaster.

Americans are generous individuals and frequently make gifts to help those in need following a hurricane, flood, fire, earthquake or other natural disaster. However, scammers frequently use these natural disasters to create false charities and trick good-hearted individuals into making gifts that are used by a fraudster.

IRS Commissioner Danny Werfel stated, "We see repeated instances of scammers using major disasters as a way to prey on well-meaning taxpayers. In these tragic situations, many people want to help, but con artists frequently come in posing as charitable groups to take advantage of the situation, stealing money and personal information. People should remember it is important to never feel pressured to give donations immediately. They should do some research and only donate to clearly established charities that help victims."

The IRS and the Security Summit partners work with state taxing agencies and tax preparers to encourage good practices and protect taxpayers. The IRS emphasizes donors will receive a charitable deduction if they itemize deductions for gifts to qualified charities. However, contributions to fake charities do not qualify for a deduction. Individuals may find out if an organization is qualified on the Tax-Exempt Organization Search (TEOS) tool on IRS.gov. It is important to note that some religious organizations will not appear in the tool.

There are several guidelines to protect yourself from fraudsters. Fraudsters often target seniors and individuals with limited English proficiency.

1. Watch for Pressure — Fraudsters frequently will pressure individuals to make immediate donations. Qualified charities are always grateful and willing to receive donations at the time selected by the donor.

2. Donation Payment Methods — Exercise caution if anyone requests a gift card or a wire transfer. Most charitable gifts are executed by check or credit card by donors.

3. Verify the Charity — Fraudsters often create a fake charity with a name similar to a legitimate organization. You may ask the fundraiser for the name, website and mailing address of the charity. You can use this information to authenticate the organization.

4. Avoid Sharing Personal Information — Scammers often want to collect both your money and your personal data. Do not disclose your Social Security number, a credit card number or any type of Personal Identification Number.

If you are a victim of a fraudster, you can use the IRS Form 14242, Report Suspected Abusive Tax Promotions or Preparers. Go to IRS.gov for further information.

Conservation Easement Deduction Reduced 97%

In Savannah Shoals LLC et al. v. Commissioner; No. 3412-22; T.C. Memo. 2024-35, the Tax Court approved the appraisal based on substantial compliance, determined that the appraiser was qualified, even though some background was omitted, and held the partnership had commenced operation on the date of the gift. Therefore, the charitable deduction was authorized, but the fair market value was reduced from $23 million to $480,000.

The easement property was 103 acres of rural land near Lake Hartwell in Georgia. The purchaser had intended to develop the property in 2007, but experienced adverse market conditions due to the recession in 2008. In 2017, the River Club property owner had various offers for the property, with a highest amount of $2.1 million.

River Club hired Dr. Richard C. Capps to analyze the potential for the property to create a quarry for aggregate. While minable aggregate is abundant in the county, Dr. Capps estimated that the property could produce approximately $23 million worth of minable aggregate using a discounted cashflow analysis. On October 12, 2017, River Club sold the property to Savannah Shoals Investments, LLC (Shoals). On December 28, 2017, Shoals sold a 92% interest to an investment group. This constituted a technical termination of the Shoals partnership under Section 708(b)(1)(B). On the December 28 date of the termination, the partnership immediately granted a conservation easement to Southeast Regional Land Conservancy, Inc. (SERLC). This nonprofit was qualified to receive conservation easements under Section 170(h)(1)(B).

The new Shoals partnership that was created following the technical termination of the old Shoals partnership obtained an appraisal from Member of the Appraisal Institute Ronald Foster. Based upon the estimates by Dr. Capps on mining the aggregate, the appraisal used a "before and after" method. The before value was $23.1 million and the after value $103,000, producing a charitable deduction of approximately $23 million. The partnership submitted the IRS Form 8283 appraisal summary. However, there were two different forms submitted with different basis and fair market value numbers. The IRS denied the $23 million charitable deduction for the gift of the easement.

The taxpayer presented two experts at trial with valuations of approximately $30 million and $21 million for the easement. IRS appraiser Charles Brigden stated the highest and best property use was low-density residential and recreational use. In his opinion, there was no local demand for aggregate and it was not economically practical to create a quarry.

The IRS claimed that the termination on December 28 required the new tax year to start on December 29. Because the gift was made on December 28, the IRS’ position was that the gift was not valid. However, the Tax Court determined that Section 708(b)(1)(B) creates an immediate termination and the gift of the conservation easement on December 28 was permissible. In addition, while the qualified appraisal did not meet all the requirements because it did not have the sufficiently detailed description, omitted the date of the easement, donation, failed to disclose agreements for disposition of the property and was inadequate in explaining the appraiser's education and experience, the Tax Court determined there was substantial compliance because "the taxpayers had provided most of the information required."

Furthermore, the appraisal clearly stated it was for a conservation easement and the agreements to transfer the easement to other nonprofits were not likely to impact the easement. Finally, the appraiser provided sufficient information on his qualifications to alert the IRS. Therefore, New Shoals substantially complied with the reporting requirements. While the two different IRS Forms 8283 reported a different basis, they were not overstating the basis and the IRS was given fair notice. Therefore, the "misstatements of the cost basis, the fair market value, and the amount of the deduction do not rise to the level of the omissions and overstatements” that would result in a denial of the deduction.

Because the appraisal was in substantial compliance, the appraiser qualifications were sufficient to alert the IRS and the technical errors in the IRS Forms 8283 were not substantial, New Shoals was entitled to a charitable deduction for the easement donation.

The primary issue at hand was valuation. The court noted that comparable sales are "generally the most reliable method" for valuing vacant land. If the use, such as a quarry for aggregate is different from the current use, then there must be both "closeness in time" and "reasonable probability" that the new use would have been executed but for the easement contribution.

However, the Tax Court determined the IRS appraiser was correct in that there was no reasonable probability the quarry could have been economically viable. Therefore, the highest use was for low-density residential and recreational purposes. The IRS’ appraised value of $480,000 for the easement was therefore accepted by the Court.

Because the reported deduction was $23 million and the donation fair market value was $480,000, the Section 6662(e) and (h) gross valuation misstatement applied. The claimed value was more than 200% over the correct amount and the 40% gross valuation misstatement applies to any underpayment of tax.

Editor's Note: The conservation easement deduction cases now are transitioning to valuation cases. The key issue in these valuations is the determination of probability that the assumed highest use is practical.

Applicable Federal Rate of 5.2% for April; 2024-14 IRB 1 (15 March 2024)

The IRS has announced the Applicable Federal Rate (AFR) for April of 2024. The AFR under Sec. 7520 for the month of April is 5.2%. The rates for March of 5.0% or February of 4.8% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2024, pooled income funds in existence less than three tax years must use a 3.8% deemed rate of return. Charitable gift receipts should state, “No goods or services were provided in exchange for this gift and the nonprofit has exclusive legal control over the gift property.”