Letter 2846C: What It Means for Your Tax Deduction

Last updated 11/11/2024 by

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Summary:

Letter 2846C is issued by the IRS in cases where misreported or improper deductions are linked to conservation easements. This letter notifies taxpayers of potential issues with their charitable deductions, typically involving overvalued or improperly classified contributions. Receiving this letter means the IRS suspects an error in reporting, requiring the taxpayer to clarify or correct the claimed deduction to avoid penalties. This guide provides everything you need to know about responding to Letter 2846C, including key actions, deadlines, and ways to prevent issues in future filings.

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Receiving a letter from the IRS can be unsettling, especially when it questions your charitable deductions. Letter 2846C is commonly sent to taxpayers involved in misreported or inflated conservation easement deductions. This notice serves as an alert that the IRS suspects errors in the deduction amount or the classification of land contributed for conservation purposes. Properly addressing the letter is essential to avoid further penalties, interest, or denial of the deduction altogether. In this article, we’ll explain what Letter 2846C means, why you received it, and the steps you should take to resolve the issue effectively.

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What is IRS letter 2846C?

Letter 2846C is a formal notice from the IRS indicating concerns about misreported charitable deductions, specifically related to conservation easements. Conservation easements are a form of charitable contribution involving the donation of land rights to a qualified organization, typically for environmental preservation. These contributions can lead to significant tax deductions. However, the IRS closely scrutinizes these claims because of frequent overvaluation, incorrect categorization, or improper documentation.

Understanding conservation easement deductions

A conservation easement is a legal agreement allowing a landowner to donate certain rights over their property to a qualified organization, such as a land trust, while retaining ownership. The primary aim is to preserve the land’s natural features, often to protect wildlife, prevent deforestation, or maintain the land in its current undeveloped state.

While conservation easement donations can yield substantial tax benefits, the IRS requires these contributions to meet strict guidelines. Misreporting or inflating the value of the easement can lead to tax penalties. Letter 2846C is issued to taxpayers suspected of reporting an easement improperly, either by inflating its value or by misclassifying the type of conservation.

Why is the IRS concerned with conservation easements?

Over recent years, the IRS has identified a rise in improperly claimed conservation easement deductions, which has resulted in lost tax revenue. In response, the IRS heightened its review processes for these claims, especially for transactions involving syndicated conservation easements (where multiple investors are involved). When discrepancies appear in valuation or classification, the IRS sends Letter 2846C, giving taxpayers a chance to explain or amend their deductions.

How receiving letter 2846C affects you

Receiving Letter 2846C can significantly impact your tax situation. Here’s how it affects you:

Suspension of deduction benefits: When you receive this letter, any deduction related to the conservation easement may be suspended until the IRS reviews and accepts your documentation.
Possible penalties: If the IRS confirms inaccuracies, penalties or interest could be applied to the underpaid taxes due to the misreported deduction.
Potential legal implications: In severe cases involving fraudulent claims, legal action may follow, especially in syndicated easement scenarios.

Acting quickly is crucial to prevent penalties, retain potential deductions, and resolve the issue smoothly.

Pro Tip

Work with a qualified appraiser who specializes in conservation easements. An accurate appraisal that follows IRS guidelines can significantly reduce the chance of issues arising with your deduction.

Steps to take when you receive IRS letter 2846C

Upon receiving Letter 2846C, you’ll need to take a series of steps to respond accurately and promptly:

Read the letter carefully

Begin by carefully reading through Letter 2846C. The IRS typically includes a detailed explanation of why they sent the letter and what specific issues they identified with your conservation easement claim. Ensure you understand the discrepancies mentioned, as this will guide your response.

Gather necessary documents

Assemble any supporting documentation that could clarify or justify your deduction. Important documents may include:

A formal appraisal of the conservation easement, ideally prepared by a certified appraiser.
Legal documents related to the easement agreement.
Records of any transactions or valuations relevant to the easement donation.

These records should be thorough and up-to-date, as the IRS will closely scrutinize their accuracy.

Contact a tax professional or attorney

Consider consulting a tax professional experienced with conservation easements. They can help ensure your documentation is complete and offer guidance on how to respond to the IRS accurately. In cases involving syndicated conservation easements, an attorney specializing in tax law may be beneficial, as the laws and regulations for such transactions are complex.

Respond by the deadline

The IRS will include a specific response deadline in Letter 2846C. Ensure you submit your response, including all required documents, within this timeframe to avoid further penalties or interest charges. Delays in response may lead to the IRS disallowing the deduction entirely or assessing additional penalties.

Pro Tip

Keep thorough records of all conservation easement-related documents, including appraisals, legal agreements, and correspondence with the IRS. Having organized records can streamline the process if the IRS requests additional documentation.

How to respond to IRS letter 2846C

Preparing a thorough response

When responding to Letter 2846C, it’s essential to provide a complete and organized packet of information for the IRS. Follow these steps to prepare:

1. Include a cover letter explaining why you believe your deduction is valid.
2. Attach copies of the conservation easement appraisal, legal agreements, and any other relevant documentation.
3. Provide detailed explanations for any areas the IRS has questioned, including why the appraisal value is appropriate and aligns with IRS regulations.

Consider additional measures if your deduction is rejected

If the IRS decides not to accept your conservation easement deduction, you may have options to contest the decision:

Request a conference with an IRS Appeals Officer to discuss your case further.
Seek guidance from a tax attorney who can represent you if your case requires additional appeal or if you decide to challenge the IRS in tax court.

Further support options for addressing letter 2846C

Navigating a response to Letter 2846C can be complicated, but resources are available to assist you:

Consult a certified public accountant (CPA) with expertise in charitable deductions.
Consider engaging a tax attorney, especially if your case involves syndicated conservation easements.
Use the IRS Taxpayer Advocate Service if you need additional assistance or are experiencing financial hardship due to this notice.

What if you ignore letter 2846C?

Ignoring Letter 2846C can have serious consequences:

Your deduction may be disallowed entirely, leading to a higher tax bill and potential penalties.
Interest may accumulate on any underpaid tax balance, increasing your financial liability.
In rare cases, failure to respond could result in legal repercussions, especially if fraud is suspected.

Taking immediate action is critical to avoid these outcomes and resolve the matter efficiently.

Pro Tip

If you’re unsure about any part of the IRS notice or conservation easement rules, consult a tax professional. They can help you navigate complex requirements, avoid errors, and potentially save you from penalties.

Possible outcomes after responding

Once you respond to Letter 2846C, several outcomes are possible:

If the IRS accepts your documentation: The deduction may be reinstated, or adjustments could be made based on the appraisal value.
If further investigation is needed: The IRS may request additional documentation or ask for clarification on specific points.
If the deduction is disallowed: The IRS will notify you of the final decision, and you may choose to appeal or pay the adjusted tax.

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Frequently asked questions

What is a conservation easement, and how does it work?

A conservation easement is a legal agreement between a property owner and a qualified organization, such as a land trust or government entity, where the property owner voluntarily restricts the use or development of their land. This agreement aims to preserve the natural or historic features of the land. In exchange, the property owner may qualify for a charitable tax deduction based on the easement’s appraised value, which reflects the reduction in land value due to these restrictions.

How do I calculate the value of my conservation easement for tax deduction purposes?

The value of a conservation easement is determined by an appraisal performed by a qualified appraiser. The appraiser will assess the fair market value of the property before and after the easement is applied. The difference between these two values, known as the “before and after method,” represents the deduction amount. It’s essential to use an IRS-approved appraiser and to document the appraisal thoroughly, as the IRS closely scrutinizes easement valuations.

Why does the IRS issue letter 2846C specifically for conservation easement deductions?

The IRS issues letter 2846C for conservation easements because these deductions have become a focus due to frequent overvaluations and compliance issues. In some cases, taxpayers claim higher deductions than allowed or fail to meet the IRS requirements for valid conservation purposes. By sending letter 2846C, the IRS aims to verify that the claimed deduction meets all legal requirements and is accurately reported.

What documentation should I provide to support my conservation easement deduction?

To support a conservation easement deduction, you should provide a comprehensive appraisal report from a qualified appraiser, a copy of the conservation easement agreement, any legal or title documents related to the property, and records of land assessments if available. If the IRS requests additional information or if you receive letter 2846C, having these documents organized and ready can help resolve any questions more efficiently.

Can I appeal if the IRS disallows my conservation easement deduction?

Yes, if the IRS disallows your deduction after reviewing your response to letter 2846C, you have the right to appeal the decision. You can request a meeting with an IRS Appeals Officer, where you can present your case and any supporting evidence. In some cases, taxpayers may consult with a tax attorney or take their appeal to the U.S. Tax Court if further resolution is needed. Be sure to follow IRS procedures and deadlines if you choose to pursue an appeal.

Need help understanding other IRS letters and notices? Visit our comprehensive guide to IRS Letters and Notices or search for the document you received in the table below.

IRS Letter or Notice Number

Notice Description

CP01	The IRS verified your claim of identity theft and will monitor your account.
CP01H	The IRS received a tax return with a social security number that belongs to a dead person.
CP02H	Money is due on an amended return based on a grant received due to Hurricane Katrina, Rita, or Wilma.
CP03C	You received the First-Time Homebuyer Credit for a house you purchased.
CP04	You may be eligible for tax deferment because either you or a spouse served in a combat zone, a qualified contingency operation, or a hazardous duty station during the tax year specified on your notice.
CP08	You may be entitled to additional money due to the Additional Child Tax Credit.
CP10	Your tax return changed due to a miscalculation, and the refund you wanted to apply to an estimated tax payment has changed.
CP10A	Your tax return changed due to a miscalculation of the Earned Income Credit, and the refund you wanted to apply to an estimated tax payment has changed.
CP11	You owe money because the IRS amended your return due to a miscalculation.
CP11A	Your tax return changed due to a miscalculation of the Earned Income Credit, and the refund you wanted to apply to an estimated tax payment also changed.
CP11M	Your tax return changed due to a miscalculation of the Making Work Pay and Government Retiree Credit, and the refund you wanted to apply to an estimated tax payment has changed.
CP12	You are due a bigger refund because the IRS corrected one or more mistakes on your tax return.
CP12A	The IRS made changes to correct the Earned Income Credit (EIC) claimed on your tax return.
CP12E or CP12F	The IRS corrected a miscalculation on your return.
CP12M	The IRS made changes to the computation of the Making Work Pay and/or Government Retiree Credits on your return.
CP12R	The IRS made changes to the computation of the Rebate Recovery Credit on your return.
CP13	The IRS made changes to your return due to a miscalculation. There is no refund or amount due. Your balance is zero.
CP13A	The IRS made changes to your return due to a miscalculation of the Earned Income Credit. There is no refund or amount due. Your balance is zero.
CP13M	The IRS made changes to your return due to a miscalculation of the Making Work Pay credit or the Government Retiree Credit. There is no refund or amount due. Your balance is zero.
CP13R	The IRS made changes to your return due to a miscalculation of the Recovery Rebate Credit. There is no refund or amount due. Your balance is zero.
CP14	You owe money on unpaid taxes.
CP16	The IRS made changes to your return due to a miscalculation. The refund you were due was applied to other tax debts.
CP21A	You owe money due to the changes you requested that the IRS make on your tax returns.
CP21B	You are due a refund due to the changes you requested that the IRS make on your tax returns. The money should arrive within 2 to 3 weeks.
CP21C	The IRS made the requested changes to your tax return. You will not receive a refund, and there is no tax due. Your balance is zero.
CP21E	As a result of your recent audit, the IRS made changes to your tax return, and you owe money as a result of those changes.
CP21I	The IRS made changes to your tax return relating to the Individual Retirement Arrangement (IRA) taxes. You owe money due to the changes.
CP22A	The IRS made the changes you requested, and you owe money as a result.
CP22E	As a result of your recent audit, the IRS changed your tax return, and you now owe money.
CP22I	The IRS made changes to your tax return relating to the Individual Retirement Arrangement (IRA) taxes. You owe money due to the changes.
CP23	The IRS changed your return because there was a difference between the amount of estimated tax payments listed on your tax return and the amount actually posted to your account. You owe taxes due to these changes.
CP24	The IRS changed your return because there was a difference between the amount of estimated tax payments listed on your tax return and the amount actually posted to your account. This resulted in an overpayment of estimated taxes.
CP24E	The IRS changed your return because there was a difference between the amount of estimated tax payments listed on your tax return and the amount actually posted to your account. This resulted in an overpayment of estimated taxes.
CP25	The IRS changed your return because there was a difference between the amount of estimated tax payments listed on your tax return and the amount actually posted to your account. You are not due a refund, nor do you owe any money. Your balance is zero.
CP31	You need to update your address because your refund check was returned to the IRS.
CP45	The IRS was unable to apply your overpayment to your estimated tax as you requested.
CP49	The IRS used all or part of your refund to pay a tax debt.
CP53	Your refund check will be sent by mail because the IRS can’t provide your refund through direct deposit.
CP57	The bank declined your payment, so the IRS was unable to draft funds from your bank account.
CP71	A reminder of the amount you owe in tax, penalty, and interest.
CP71A	A reminder of the amount you owe in tax, penalty, and interest.
CP71C	A reminder of the amount you owe in tax, penalty, and interest.
CP71D	A reminder of the amount you owe in tax, penalty, and interest.
CP88	The IRS is holding your refund because you haven't filed one or more tax returns, and it believes you will owe tax.
CP90	The IRS is notifying you of its intent to levy certain assets for unpaid taxes. You have the right to dispute the levy in a Collection Due Process hearing.
CP91	The IRS will levy up to 15% of your social security benefits for unpaid taxes.
CP120	The IRS needs documentation of your tax-exempt status.
CP120A	Your organization’s tax-exempt status has been revoked because it failed to file a Form 990 series return for three consecutive years.
CP130	You may no longer need to pay the Alternative Minimum Tax (AMT) because your tax return filing requirements changed.
CP152	The IRS received your return.
CP153	The IRS will send your refund by mail because your direct deposit did not go through.
CP161	You have an unpaid balance due to the IRS.
CP166	Your monthly payment to the IRS did not go through due to insufficient funds in your bank account.
CP178	You may no longer owe excise tax because your tax return filing requirements changed.
CP231	You need to update your address because your refund was returned to the IRS.
CP259	You did not file the business tax return identified in the notice.
CP259A	You should have filed these forms but did not – Form 990/990-EZ, Return of Organization Exempt From Income Tax, or Form 990-N (e-Postcard).
CP259B	The IRS requires you to file these forms but did not – Form 990-PF, Return of Private Foundation or Section 4947(a)(1) Nonexempt Charitable Trust Treated as a Private Foundation.
CP259C	The IRS believes that you are a private foundation, but did not file the required Form 990-PF, Return of Private Foundation or Section 4947(a)(1) Nonexempt Charitable Trust Treated as a Private Foundation.
CP259D	You must file this form, but you did not – Form 990-T, Exempt Organization Business Income Tax Return.
CP259E	You should have filed this form, but you did not – Form 990-N (e-Postcard) or Form 990/990-EZ, Return of Organization Exempt From Income Tax.
CP259F	The IRS requires you to file this form but did not – Form 5227, Split-Interest Trust Information Return.
CP259G	The IRS requires you to file this form, but you didn’t – Form 1120-POL, U.S. Income Tax Return for Certain Political Organizations.
CP259H	As a tax-exempt political organization, you must file this form, but you did not – Form 990/990-EZ, Return of Organization Exempt From Income Tax.
CP276A	You submitted your tax liability schedule incorrectly. The IRS typically charges a Federal Tax Deposit (FTD) penalty for this but did not this time.
CP276B	The IRS did not receive the correct amount of tax deposits. It normally charges a Federal Tax Deposit (FTD) penalty but did not this time.
CP297	The IRS is notifying you of its intent to levy certain assets for unpaid taxes. You have the right to dispute the levy at a Collection Due Process hearing.
CP297A	The IRS has levied your assets for unpaid taxes. You have the right to dispute the levy at a Collection Due Process hearing.
CP298	The IRS notifying you of its intent to levy up to 15% of your social security benefits for unpaid taxes.
CP501	You have a balance due on one of your tax accounts.
CP503	You have an unpaid balance on one of your accounts, and the IRS has not heard from you.
CP504	You have an unpaid amount due on your account. If you do not pay immediately, the IRS will levy your state income tax refund to apply it to the amount you owe.
CP504B	You have an unpaid amount due on your account. If you do not pay immediately, the IRS will levy certain property or rights to property to apply it to the amount you owe.
CP521	A reminder that you have an installment agreement payment due.
CP523	You have defaulted on your payment agreement. Therefore the IRS is terminating the agreement and will levy your assets.
CP601	Usted tiene un saldo pendiente de pago (dinero que le debe al IRS) en una de sus cuentas contributivas.
CP603	No hemos recibido respuesta de parte de usted y todavía tiene un saldo sin pagar en una de sus cuentas contributivas.
CP604	Usted tiene un saldo sin pagar en su cuenta. De no pagar esta cantidad inmediatemente, el IRS embargará cualquier reembolso de impuestos estatales al que tenga derecho y aplicarlo al pago de su deuda.
CP604B	Usted tiene un saldo sin pagar en su cuenta. De no pagar esta cantidad inmediatemente, el IRS embargará ciertas propiedades o derechos de propiedad y lo aplicará al pago de su deuda.
CP621	Este aviso es para notificarle que usted tiene un plan de pagos a plazos vencido. Por favor, envíe el pago inmediatamente.
CP623	Este aviso es para informarle nuestra intención de cancelar su plan de pagos a plazos y confiscar (embargar) sus bienes. Usted incumplió en su acuerdo.
CP711	Nosotros realizamos cambios a su planilla debido a que entendemos que hubo un cálculo erróneo. Como resultado de estos cambios, usted adeuda dinero por sus contribuciones.
CP721	Hicimos el(los) cambio(s) que usted solicitó a su declaración de impuestos para el año tributario que aparece en su aviso. Como resultado de éste(estos) cambio(s) usted debe dinero en sus impuestos.
CP722	Hicimos el(los) cambio(s) que usted solicitó a su declaración de impuestos para el año tributario que aparece en su aviso. Como resultado de éste(estos) cambio(s) usted debe dinero en sus impuestos.
CP771	Usted recibió este aviso para recordarle sobre la cantidad que adeuda en contribuciones, multas e intereses.
CP772	Usted recibió este aviso para recordarle sobre la cantidad que adeuda en contribuciones, multas e intereses.
CP773	Usted recibió este aviso para recordarle sobre la cantidad que adeuda en contribuciones, multas e intereses.
CP774	Usted recibió este aviso para recordarle sobre la cantidad que adeuda en contribuciones, multas e intereses.
CP959	Usted no radicó su planilla de contribución de negocios identificada en este aviso.
CP2000	The income or payment information on file doesn’t match your tax return. The discrepancy may result in an increase or decrease in your tax due.
CP3219A	The IRS has received information that is different from what you reported on your tax return. This may result in an increase or decrease in your tax.
CP3219N	The IRS didn’t receive your tax return, so it calculated your return based on the information received from employers, financial institutions, and others. If you want to challenge the proposed tax, you have 90 days from the date of this notice. If you are outside the country, you have 150 days.
Letter 0012C	The IRS needs additional information to process your tax return.
Letter 0484C	The IRS wants a completed
Letter 0525	Updates you on proposed changes after an IRS examination. Any changes are explained and details the refund due or taxes owed.
Letter 531	IRS Notice of Deficiency. The information the IRS received about you was different from what you reported on your return.
Letter 0668D(LP 68)	The IRS released their levy.
Letter 0549C	Your tax bill was paid.
Letter 0681C	The IRS accepted your payment proposal. However, this is not a formal Installment Agreement.
Letter 0757C	You did not adhere to the terms of your Installment Agreement.
Letter LT 11	The IRS plans to seize your property or rights to property.
Letter 1058	The IRS has not received your payment. It plans to seize your property or rights to property.
Letter 1615 (LT 18)	You must respond to the IRS within 10 days of this notice regarding past due tax returns.
Letter 1737 (LT 27)	Complete and sign Form 433F, Collection Information Statement.
Letter 1961C	Your application for a Direct Debit Installment Agreement was declined. It explains why and what you need to do to qualify.
Letter 1962C	Your application for a
Letter 2050 (LT 16)	The IRS is trying to collect unpaid taxes from you from returns that have been filed or from returns that have not been filed.
Letter 2257C	The IRS is providing the payoff amount that you requested.
Letter 226-J	An IRS letter to large employers notifying them that they may be liable for an Employer Shared Responsibility Payment (ESRP).
Letter 2271C	A request for an Installment Agreement has been approved. It explains the fees and how to qualify for a Low Income Fee Reduction. The letter may also request missing information.
Letter 2272C	An IRS letter explaining why your request to pay the balance due in installments was declined.
Letter 2273C	A confirmation letter of your request to pay the balance due in installments. It contained the amount to pay, fees charged, and where to send payment. Instructions on how to apply for the Low Income Fee Reduction included.
Letter 2318C	A response to a request to pay taxes due to payroll deductions. It also explains the fees that are charged.
Letter 2357C	The IRS is admitting that it did not send you the balance due notices that it should have.
Letter 2603C	The IRS accepted your installment agreement. The IRS will file a Notice of Federal Tax Lien on your personal property.
Letter 2604C	The IRS has accepted your request for installment payments. This IRS letter provides the monthly payment, the address where to send it, and the fees charged. The letter also provides instructions on how to apply for the Low Income Fee Reduction.
Letter 2761C	The IRS is requesting your combat zone service dates to ensure that it provides you with the special provisions and protection of the combat zone deferment. Copies of military orders or other documentation to support your time served may be requested. Civilians working in support of the Armed Forces may be required to provide a Letter of Authorization or a letter from their employer.
Letter 2789C	An annual reminder notice, as required by law, of the balance due to the IRS. It explains that penalties and interest continue to accrue until the balance is fully paid.
Letter 2840C	Confirms your Installment Agreement request and includes the payment amount and due date. This IRS letter explains the fees charged for paying monthly and explains how to apply for the Low Income Fee Reduction (if you qualify).
Letter 3030C	Provides an explanation of the tax, penalty, and interest still due on your account.
Letter 3127C	A confirmation of your request to make a change to your Installment Agreement. This IRS letter explains the fees for the change. Changes can be to the payment amount or due date, or it can include additional liabilities.
Letter 3174	A reminder of taxes due after the IRS has sent a Notice of Intent to Levy.
Letter 3217C	The IRS has accepted your request to pay the balance in installments. This IRS letter provides your payment amount, the due date, and fees charged. The letter also provides instructions on applying for the Low Income Fee Reduction (if you qualify).
Letter 3228 (LT 39)	A request to pay the balance due within 10 days using the envelope provided.
Letter 3500	The IRS has received your documents, and it needs additional time to review them.
Letter 3572	Your Federal Income Tax Return has been selected for examination. The IRS auditor requests that you call to schedule an audit appointment.
Letter 4883C	The IRS received your federal income tax return but needs more information to verify your identity in order to process your tax return accurately.
Letter 4903 (LT 26)	You must file your tax returns immediately. The IRS has previously contacted you, but it did not receive a response.
Letter LP 47	The IRS is trying to locate the person identified in the letter and is requesting that you provide their new address.
Letter LP 59	The IRS has not received a response to the notice of levy it previously sent.
Audit Letter 2205	The IRS manages audits either by mail or through an in-person interview to review your records. The interview may be at an IRS office (office audit) or the taxpayer’s home, place of business, or accountant’s office (field audit).
Letter 915	You recently underwent an audit, and the IRS informs you that you now owe taxes.

Key takeaways

Letter 2846C is sent when the IRS questions the validity of a conservation easement deduction.
Responding promptly and with thorough documentation can help resolve the issue effectively.
Consulting a tax professional is recommended, especially for complex or syndicated easement cases.
Ignoring this letter could lead to disallowed deductions, penalties, or even legal action.

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