The Tax Times: Clock Beats Commissioner: IRS Loses $70M Easement Case on Late FPA Under BBA

The Tax Court allowed Olivian Holdings LLC to keep its full $70 million 2018 conservation easement deduction and avoid roughly $26 million of tax and all penalties, solely because the IRS issued the final partnership adjustment (FPA) too late under IRC Section 6235.

What the Tax Court Did

· The court entered a stipulated decision on March 27, 2026, granting Olivian its entire $70 million charitable contribution deduction for a Louisiana conservation easement for 2018.

· As part of that decision, Olivian owes no related tax underpayment (about $26 million) and no accuracy-related or civil fraud penalties for that year.

· The parties agreed that the IRS’s concession was based “solely” on the fact that the August 3, 2023 FPA was not timely under IRC Section 6235.

Statute of Limitations Issue

· The notice at issue was a final partnership adjustment, which is how the IRS communicates adjustments to partnership items under the BBA regime.

· Olivian argued that the IRS failed to issue the FPA within the applicable limitations period or obtain a valid extension.

· By February 20, in its summary judgment motion, Olivian pointed out that the IRS had effectively stopped arguing timeliness and instead tried to rely on the fraud exception to keep the statute of limitations open.

· On March 24, counsel for both sides signed a stipulation allowing the court to enter decision in Olivian’s favor based on the late notice.

IRS Fraud Allegations That Went Nowhere

· In earlier filings, the IRS alleged Olivian was part of a fraudulent syndicated easement shelter selling inflated deductions based on overstated appraisals.

· The IRS said managers knew of at least two lower appraisals, yet claimed an almost $700,000 per‑acre value for about 170 acres by positing infeasible clay mining, even though the land had been valued at under $3,000 per acre only 2.5 years earlier.

· The IRS asserted that the managers never intended to operate a clay mine and instead used the property purely to market pre‑packaged, overstated tax deductions.

· Despite these allegations, the court never reached the merits; the procedural defect (untimely FPA) controlled the outcome.

Parallel Agate Holdings Decision

· Earlier that same week, in a separate stipulated decision, the IRS also conceded a different 2018 Louisiana conservation easement deduction — about $48 million claimed by Agate Holdings LLC.

· In Agate, the IRS again lost all tax and penalties because the FPA notice was not timely under IRC Section 6235, amid allegations the Service had backdated extension documents to get around the statute.

· Together, Olivian and Agate underscore that, even in aggressive syndicated easement cases with asserted fraud, strict adherence to the BBA statute of limitations for FPAs can be outcome‑determinative.

Practitioner takeaway

· Treat 6235 like a hard stop. In BBA partnership exams, even in “bad facts” syndicated easement cases with strong fraud narratives, an untimely FPA is fatal to tax and penalties; Olivian and Agate show the court will not rescue the IRS from a blown 6235 deadline.

· Build a statute dossier early: calendar the base 3‑year period, track every Form 872 / Form 8984 or equivalent extension, and document when any modification requests were made and when they were fully “submitted” (which drives the 270‑day rule under 6235(a)(2)).

· Do not concede fraud‑exception arguments casually: force the IRS to prove that a valid fraud theory actually keeps the BBA assessment period open, rather than assuming fraud “automatically” rescues a late FPA.

· In any easement BBA case, make statute of limitations and notice validity a first‑tier issue alongside valuation and 170 compliance; as Olivian and Agate illustrate, clean procedural wins can obviate having to litigate abusive‑scheme allegations.

Have A Tax Problem?