Some IRS audits in the Richmond area turn on the gift of an easement. It may be a conservation easement on land, or a facade easement on a historic rowhouse. Because an unused deduction can carry forward, the IRS can review how you documented the gift years after you made it.
Whiteford Tax Defense represents people, businesses, and nonprofits across greater Richmond at every stage of an IRS audit. Acting early can keep a correspondence audit from growing into a bigger problem.
The IRS audits only a small share of returns. Most audits start because something on a return looks odd or inconsistent, not because of any evidence of wrongdoing. Locally, typical triggers include:
- Computer screening that singles out a return
- Income that differs from third-party reports
- Deductions that look large for your industry
Our guide to IRS audits covers the full range of triggers and audit types.
When the IRS audits a Richmond-area easement
Owners of land and historic buildings in the Richmond area sometimes face audits of conservation and facade easements. The federal charitable deduction for an easement depends on three tests. The IRS checks each one closely:
- A qualified real property interest, such as a restriction granted in perpetuity (forever)
- A gift to a qualified organization
- A gift made exclusively for conservation purposes
A facade easement protects the exterior of a historic building in perpetuity. It offers federal income tax benefits as long as the structure remains occasionally viewable to the public. Common disputes are about proving the easement is valid and dealing with anything that blocks the public's view. Our easement audit guide explains how these deductions work and what the IRS challenges.
In Richmond, the Fan Area and Monument Avenue historic districts are both listed in the National Register. A facade easement on a house in a listed district faces extra rules. The National Park Service must certify the house as significant to its district. You apply through the state historic preservation office on Kensington Avenue. The gift also needs a signed agreement and more attachments to the return.
How far back an audit can reach
Generally, the IRS can include in an audit any return filed in the last three years. A return filed early counts as filed on its due date. If the examiner finds a substantial error, the IRS may add earlier years, usually no more than six. Longer periods apply when a return leaves out a substantial amount of income. They also apply to a fraudulent return and to a year with no return. Our page on unfiled returns and the assessment clock explains them.
An easement gift, like those on Richmond-area land and historic buildings, can extend that reach. For an individual, the deduction is capped each year at a share of income. Any unused part can be carried forward for up to 15 years.
Each later return that uses the carryforward can be audited in its own right. The IRS's easement audit guide has the examiner pull the original return for the gift year, with all its attachments. The examiner uses it to check how the gift was documented. So a missing or inadequate appraisal can cost a deduction claimed years after the gift.
If an easement audit needs more time, the examiner may ask you to extend the three-year period on Form 872. You can request that the extension cover only the easement deduction, though the IRS may refuse.
How an audit begins
Every audit starts with a letter from the IRS. It names the items under review and the records the IRS wants. A correspondence audit stays in the mail. Office and field audits mean meeting an agent, at an IRS office or where you live or work. An attorney can attend most of those meetings for you. Our page on the types of IRS audits explains each kind. For what to send and how to reschedule, see our guide to responding to an audit.
When a civil audit could turn criminal
An eggshell audit is a civil audit where you know of a potentially serious problem the IRS may not have found. One careless step can lead to a referral to the Criminal Investigation Division. So an attorney controls what the IRS receives, and nothing goes out without a careful review. Our Richmond office sets up that control before the audit gets worse, not after. See our guide to eggshell audits for the warning signs and what is at stake.
How an audit ends
An audit ends in one of three ways: no change, a change you agree to, or a change you dispute. If you agree, you generally sign an agreement form and pay any extra tax, plus interest.
Disputing a change does not have to mean going to court. You can ask for a meeting with the examiner's manager or request mediation. A dispute that remains generally moves to the IRS Independent Office of Appeals through a 30-day letter. If Appeals cannot settle it either, watch for a notice of deficiency. From its date, you have 90 days to take the case to the U.S. Tax Court, which counts Richmond among its places of trial.
Common matters we handle
- IRS audits of the deduction for a conservation or facade easement
- Facade easement disputes over historic homes and buildings in the Richmond area
- Form 872 requests to extend the time to assess tax, including limiting an extension to certain issues
- Correspondence, office, and field audits of people and businesses in Richmond
- Small business audits over deductions that look too large or income left off a return
- Eggshell audits over unreported offshore income or cryptocurrency
- Disputing an IRS audit notice and writing a response
A note on admissions Federal tax matters are handled nationwide, including IRS examinations, appeals, collection, and Tax Court litigation. Virginia state and local tax matters are handled together with Whiteford attorneys admitted in Virginia, or with co-counsel where a matter requires it.
Why taxpayers choose Whiteford
- Local to Richmond and familiar with area IRS offices, procedures, and Virginia-specific tax nuances
- Experience ranging from routine correspondence audits to high-stakes eggshell audits
- A focus on controlling what is said and sent, so nothing reaches the IRS without a lawyer's review