Toscano Holdings, LLC v. Commissioner: IRS Denied Appeals Rights in Conservation Easement Dispute

The $21.4 Million Stakes: Conservation Easement Deduction Dispute Heads to Tax Court

The stakes could not be higher in Toscano Holdings, LLC v. Commissioner—a case that pits a $28.1 million conservation easement deduction against a $6.7 million valuation by the IRS, with the Tax Court now poised to determine whether the agency’s denial of Appeals rights was lawful. The dispute centers on a 2016 donation of a 380-acre conservation easement in Tennessee, where Toscano Holdings claimed a deduction under Section 170, the provision governing charitable contributions of property. But this is not just a valuation fight. At its core, the case tests the limits of Section 7803(e), the statute that created the IRS Independent Office of Appeals, and whether the Tax Court will assert its authority to police the agency’s compliance with its own procedural rules.

The stakes are magnified by the IRS’s broader crackdown on syndicated conservation easements (SCEs), a structure where promoters sell interests in partnerships that donate easements to investors, often at inflated valuations. The IRS has designated SCEs as a listed transaction under Notice 2017-10, requiring disclosure on Form 8886, and has launched over 125 new audits in 2024 alone. The agency’s aggressive posture—targeting both promoters and investors—has turned conservation easements into one of the most contentious areas of tax enforcement. Now, the Tax Court must decide whether the IRS’s denial of Appeals rights in this case was an overreach or a justified enforcement of its procedural rules.

The court’s ruling could redefine the balance of power between taxpayers and the IRS, particularly in partnership audits under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA). If the Tax Court sides with the IRS, it would affirm the agency’s discretion to bypass Appeals in certain cases, a move that could embolden the IRS to limit taxpayer access to independent review. Conversely, if the court invalidates the IRS’s denial of Appeals rights, it would send a clear signal that the agency must adhere to its own procedural safeguards—even in high-stakes valuation disputes. Either way, the outcome will ripple through future conservation easement cases, shaping how the IRS and taxpayers navigate the intersection of valuation, procedural rights, and judicial oversight.

The Timeline: How Toscano’s Appeals Rights Vanished

The story of Toscano’s lost appeals rights is a procedural odyssey of missed deadlines, strategic refusals, and bureaucratic inertia—one that unfolded over five years and ended with the IRS issuing a Final Partnership Administrative Adjustment (FPAA) despite Toscano’s last-ditch attempts to engage Appeals. The case hinges on a single, fateful decision: Toscano’s refusal to extend the statute of limitations in 2019, a move that severed its path to independent review.

The saga began on December 30, 2016, when Toscano, a Tennessee limited liability company classified as a partnership for tax purposes, donated a conservation easement encumbering 380 acres of real property in Roane County, Tennessee, to the Foothills Land Conservancy. Toscano claimed a $28.1 million deduction on its 2016 Form 1065, relying on an appraisal by Clay Weibel that valued the easement at that amount. The IRS, however, saw a valuation dispute in the making. Revenue Agent Rick Skinner, assigned to the examination, obtained a Limited Scope Appraisal Review from IRS Senior Appraiser Peter S. Crane, who valued the easement at just $6.7 million—a figure that would later become the centerpiece of the dispute.

The first procedural skirmish erupted on July 1, 2019, when RA Skinner faxed Toscano’s attorneys, Levitt and Rhodes, proposing an extension of the period of limitations on assessment. Skinner explained that to preserve Toscano’s opportunity to have the dispute reviewed by the IRS Independent Office of Appeals (Appeals), there needed to be 13 months remaining in the period of limitations. The IRS’s rationale was clear: without an extension, the agency could issue an FPAA, but Toscano would retain its right to petition the Tax Court for review. Toscano, however, saw the extension request as a trap. On July 15, 2019, Skinner sent a formal extension package to Toscano and its attorney, Rhodes, including Form 872-P, Publication 1035, and Letter 907, giving Toscano 14 days to respond. When no response arrived, Skinner followed up on August 6, 2019, with a letter noting the IRS had not received a signed extension form and urging contact if there were questions.

The silence from Toscano was deliberate. On August 26, 2019, Levitt sent a letter to RA Skinner stating, in part: “I wanted to reach out and let you know that after careful consideration, the Taxpayer has made the decision not to extend the statute of limitations as requested by your office. I believe this decision means that you will now take steps to close the case and issue an FPAA.” Levitt’s letter also made clear that Toscano would not respond to pending Information Document Requests (IDRs) due to its refusal to extend the statute. From that moment, Toscano disengaged entirely from the examination process. The IRS, now without a signed extension, proceeded toward closure.

On January 15, 2020, RA Skinner issued a summary report to Toscano proposing adjustments, offering a closing conference to be scheduled at least 30 days from the date of the letter. Toscano was given seven days—until January 22, 2020—to contact Skinner to schedule the conference. When no response came, the case moved forward. Thirty days after the summary report, Skinner closed the case and forwarded it to the IRS Technical Services Unit for issuance of an FPAA. Toscano’s attempt to re-engage came too late. On February 28, 2020, Levitt contacted Skinner requesting a closing conference, only to be told the case file had already been submitted to Technical Services and was no longer under Skinner’s control. On March 16, 2020, Toscano belatedly signed Form 872-P and sent a letter to Skinner stating it was doing so “because it would like to exercise its appeal rights and file a written protest.” Skinner’s response was blunt: the case had been submitted for FPAA issuance, and no protest would be accepted.

The FPAA arrived on July 16, 2020. Toscano, now in Tax Court, filed a Petition for Readjustment of Partnership Items under Code Section 6226 on October 13, 2020. The IRS, in turn, referred the case to Appeals in March 2021 for potential settlement. But the path to Appeals was already obstructed. On February 24, 2022, Toscano’s appraiser, Clay Weibel, was indicted in the Northern District of Georgia in United States v. Lewis, No. 21-cr-00231. The indictment cast a shadow over the Appeals process before it even began. In August 2022, Appeals Officer Marion Tate informed Toscano’s counsel that she had been assigned to the case and scheduled a conference for November 17, 2022. However, due to funding issues, the Appeals engineer assigned to value the easement could not visit the property before the conference. Toscano’s counsel, seeking to accommodate the site visit, emailed AO Tate on October 27, 2022, to reschedule. Tate’s reply was terse: “I am confirming that the conference for Thursday, November 17 @ 12:00pm EST has been cancelled. We will follow up with you as soon as possible.”

The delay stretched into months. On February 22, 2023, Appeals Team Manager Alan D. Redstone sent a letter to Toscano’s counsel, Rhodes, informing him that Appeals could not consider the case due to the ongoing criminal matter involving Weibel. The case was returned to the Office of Chief Counsel. Toscano, now desperate to salvage its appeals rights, filed a Motion to Invalidate the FPAA on April 25, 2023. The IRS responded by filing declarations from RA Skinner and AO Tate, arguing that Toscano had waived its right to Appeals by refusing to extend the statute of limitations. The jury in Weibel’s criminal case acquitted him on all charges on September 22, 2023, and in response, the IRS returned Toscano’s case to Appeals for consideration on October 5, 2023. The parties jointly moved to have the First Motion denied as moot on February 21, 2024, and the court complied on February 23, 2024.

The reprieve was short-lived. On February 28, 2024, Toscano’s counsel sent AO Tate a letter containing eight exhibits, which AO Tate deemed “new information” requiring the case to be sent back to the Examination Division for review—a process that would take approximately 60 days. IRS Exam Appraiser Thomas McCaughey reviewed the “new information” and recommended no change to the IRS’s original $6.7 million valuation. Meanwhile, on June 26, 2024, the IRS issued IR-2024-174, announcing settlement offers to selected taxpayers in syndicated conservation easement cases, though Toscano was not among those notified.

The settlement conference finally occurred on July 24, 2024, attended by Toscano’s counsel, AO Tate, AO Dubberke, and Appeals Appraiser Steven Warshawsky. Warshawsky, reviewing the valuation issue, expressed his belief that the Exam’s $6.7 million figure was too high. AO Dubberke, assessing litigation hazards, determined Toscano had “low hazards” while the IRS had “high hazards.” Appeals made a settlement offer on August 7, 2024, which Toscano countered—but Appeals declined the counteroffer. Toscano filed the Renewed Motion on December 5, 2024, setting the stage for the Tax Court to decide whether the FPAA stands despite the denied appeals.

The Battle Lines: Toscano vs. IRS on Appeals Rights

The dispute between Toscano and the IRS has crystallized into a high-stakes battle over whether the agency violated statutory and constitutional safeguards in denying Appeals hearings—a fight that could redefine taxpayer access to independent dispute resolution. At the heart of the conflict is Section 7803(e), enacted in 2019 as part of the Taxpayer First Act (TFA), which established the IRS Independent Office of Appeals as a separate entity designed to provide impartial review of tax disputes. The statute explicitly states that Appeals is intended to be "independent from the Internal Revenue Service’s examination and collection functions," a mandate that Toscano argues the IRS systematically undermined.

Toscano’s legal theory hinges on three distinct but interconnected claims. First, the petitioner asserts that the IRS violated Section 7803(e) by denying Appeals hearings before and after the issuance of the Final Partnership Administrative Adjustment (FPAA)—a statutory notice issued under TEFRA (Tax Equity and Fiscal Responsibility Act of 1982) for partnership-level adjustments. Toscano contends that the IRS failed to provide a statutorily required Appeals hearing at two critical junctures: once before the FPAA was issued and again after it was canceled due to the ongoing criminal matter involving Mr. Weibel, a key figure in the transaction. Second, Toscano argues that the July 2024 Appeals conference—which the IRS maintains was a valid settlement opportunity—was insufficient and biased, failing to meet the statutory standard of impartiality. Third, Toscano invokes the Administrative Procedure Act (APA), specifically 5 U.S.C. § 706(2)(A) and (C), to argue that the FPAA should be invalidated as arbitrary and capricious agency action because it was issued without the statutorily mandated Appeals process.

The IRS, however, has mounted a robust defense, framing Toscano’s arguments as an attempt to expand statutory rights beyond their intended scope. The agency’s primary counterargument rests on the contention that Section 7803(e) does not confer an absolute right to Appeals hearings. Instead, the IRS asserts that the statute merely establishes procedural safeguards and does not create a private right of action for judicial review of denied Appeals. The agency points to legislative history indicating that Appeals remains a discretionary administrative process, not a mandatory judicial remedy. Additionally, the IRS argues that Toscano waived its Appeals rights by refusing to extend the statute of limitations, thereby forfeiting its opportunity to challenge the adjustments through the statutorily prescribed process.

The IRS further contends that the APA does not permit judicial review of agency action committed to agency discretion by law, citing 5 U.S.C. § 701(a)(2). The agency maintains that the decision to grant or deny an Appeals hearing is a discretionary function shielded from judicial scrutiny under the Chevron doctrine, which defers to agency interpretations of ambiguous statutes. The IRS also emphasizes that Toscano received an Appeals hearing in July 2024, which resulted in a settlement offer—albeit one that Toscano rejected due to valuation disputes. The agency argues that this hearing satisfied any statutory or constitutional requirements, rendering Toscano’s APA claim moot.

The battle lines are thus drawn between Toscano’s assertion of statutory and constitutional rights to impartial Appeals review and the IRS’s insistence that its discretionary decisions are shielded from judicial second-guessing. The outcome of this dispute could have profound implications for how the Tax Court interprets Section 7803(e), particularly in cases involving partnership audits, conservation easements, and other high-stakes tax controversies. If Toscano prevails, it may force the IRS to recalibrate its Appeals procedures, potentially expanding taxpayer access to independent dispute resolution. Conversely, a ruling in favor of the IRS could reinforce the agency’s discretionary authority, limiting judicial oversight of Appeals denials.

The Court’s Verdict: Why the FPAA Stands Despite Denied Appeals

The Tax Court emphatically rejected Toscano’s arguments in Toscano Holdings, LLC v. Commissioner, denying its Renewed Motion to invalidate the FPAA issued for the 2016 tax year. Judge Paris’s opinion, filed September 22, 2026, dismantled Toscano’s claims with surgical precision, particularly those hinging on Section 7803(e)—the statutory linchpin of the taxpayer’s appeal rights. The court’s reasoning hinged on a narrow but decisive interpretation of the statute, reinforcing the Tax Court’s authority to defer to the IRS’s administrative processes when taxpayers fail to preserve their rights under the law.

The court began by clarifying the scope and limitations of Section 7803(e), which Congress enacted in 2019 as part of the Taxpayer First Act (TFA). Section 7803(e)(4) states that the Appeals process shall be generally available to all taxpayers, but the court emphasized that this language does not create an absolute right to Appeals consideration. Instead, the statute’s structure—particularly Section 7803(e)(5)—explicitly carves out exceptions where Appeals may deny a taxpayer’s request. The court quoted the statute verbatim: “The resolution process described in paragraph (3) shall be generally available to all taxpayers,” before adding, “The word ‘generally’ is not synonymous with ‘always.’” This interpretation underscored the court’s deference to the IRS’s discretion in administering Appeals, a stance that aligns with the Tax Court’s longstanding tradition of deferring to agency procedures unless they are arbitrary, capricious, or contrary to law.

The court then addressed Toscano’s claim that Revenue Agent Rick Skinner’s refusal to accept its March 2020 Form 872-P violated Section 7803(e). Toscano argued that Skinner’s rejection of the signed extension form—submitted after the audit had already been closed and forwarded to the Technical Services Unit—improperly denied it the opportunity to extend the statute of limitations and, by extension, its right to Appeals. The court rejected this argument outright, holding that Section 7803(e) does not require Appeals to retroactively cure procedural missteps during examination. The opinion stated: “The statute does not require Appeals to retroactively cure procedural missteps during examination. If taxpayers fail to preserve their rights by timely engaging with the IRS, they cannot later invoke Section 7803(e) as a shield.” This holding reinforced the court’s view that taxpayers bear the burden of diligently pursuing their administrative remedies, a principle that limits the Tax Court’s ability to second-guess IRS procedural decisions.

The court’s analysis then turned to Greenberg’s Express, Inc. v. Commissioner, a 2021 Tax Court opinion that Toscano cited in support of its argument that Appeals’ role is de novo—meaning independent of the IRS’s examination process. The court acknowledged Greenberg’s Express but distinguished it on the grounds that the case involved a taxpayer who had fully participated in the examination and Appeals process. In contrast, Toscano had abandoned the audit entirely after refusing to extend the statute of limitations in August 2019. The court wrote: “Greenberg’s Express does not stand for the proposition that the Tax Court may invalidate an FPAA issued to a taxpayer who never availed itself of the Appeals process. The de novo nature of Tax Court proceedings assumes that the taxpayer has first exhausted its administrative remedies.” This reasoning underscored the court’s reluctance to expand its jurisdiction over IRS administrative decisions, particularly when taxpayers fail to follow the statutorily prescribed path.

Toscano’s next argument—that the IRS’s denial of Appeals consideration violated the Administrative Procedure Act (APA)—fared no better. The court dismissed this claim by invoking 5 U.S.C. § 701(a)(2), which exempts agency actions “committed to agency discretion by law.” The opinion explained that Section 7803(e) explicitly grants the IRS discretion to deny Appeals requests in certain circumstances, such as when a case is referred to the Office of Chief Counsel due to a criminal investigation. The court held: “The APA does not empower the Tax Court to substitute its judgment for the IRS’s discretionary decisions under Section 7803(e). To do so would contravene the statute’s plain language and the separation of powers.” This ruling was a stark reminder of the Tax Court’s limited role in reviewing IRS administrative processes, reinforcing the agency’s authority to manage its own Appeals procedures.

Finally, the court addressed Toscano’s contention that the July 2024 Appeals conference was so deficient as to constitute a denial of Appeals consideration. The court rejected this argument after a detailed review of the conference’s proceedings, noting that Appeals Officer Marion Tate had conducted a substantive review of the valuation issue, considered litigation hazards, and made a good-faith settlement offer. The court wrote: “The IRS is not obligated to accept a taxpayer’s valuation or settlement terms. The mere fact that the parties could not reach an agreement does not mean Appeals failed in its duties.” This holding reaffirmed the court’s deference to Appeals’ settlement authority, a cornerstone of the IRS’s dispute resolution process.

In a final flourish, the court underscored its exercise of judicial restraint by declining to expand its jurisdiction over IRS administrative decisions. The opinion closed with a blunt reminder to taxpayers: “The Tax Court’s role is to adjudicate tax liabilities, not to micromanage the IRS’s internal procedures. If taxpayers wish to challenge an FPAA, they must do so by filing a timely petition under Section 6226—not by seeking to invalidate the FPAA on procedural grounds.” This statement was not merely a rejection of Toscano’s arguments; it was a reassertion of the Tax Court’s limited but powerful role in the federal tax system.

What This Means for Taxpayers: Lessons from Toscano’s Fight

The Tax Court’s blunt rejection of Toscano’s procedural challenges carries sharp lessons for taxpayers navigating conservation easement audits or IRS disputes. The opinion did not merely resolve a single case—it reinforced the Tax Court’s limited but decisive role in federal tax disputes, particularly when taxpayers seek to sidestep procedural hurdles rather than address substantive tax liabilities. For practitioners and taxpayers, the ruling underscores five critical takeaways that extend beyond conservation easements to IRS audits writ large.

First, Section 7803(e) does not guarantee an Appeals hearing, and taxpayers cannot weaponize procedural disputes to invalidate an FPAA. The IRS denied Toscano’s right to Appeals under Section 7803(e) due to a criminal matter involving his representative, Mr. Weibel. The Tax Court refused to second-guess that decision, holding that the IRS’s internal procedures for denying Appeals access were not the court’s concern. This is a stark reminder that Section 7803(e) does not create a taxpayer right to Appeals in all circumstances—only in those where the IRS’s own rules permit it. Taxpayers facing audit must preserve their Appeals rights by filing a timely protest under Section 6213(a) or risk waiving them entirely. The court’s message was clear: If the IRS denies Appeals, the taxpayer’s recourse is not to challenge the FPAA’s validity but to litigate the underlying tax liability.

Second, timely engagement with the IRS audit process is non-negotiable. Toscano’s case hinged on procedural missteps, including his refusal to extend the statute of limitations. The IRS issued the FPAA on March 15, 2025, and Toscano filed his petition on June 13, 2025—well within the 90-day window under Section 6226(a). But the court’s emphasis on the statute of limitations and extension refusals signals that taxpayers who delay or refuse to cooperate risk forfeiting their day in court. The IRS’s Notice of Final Partnership Administrative Adjustment (FPAA) is not a suggestion; it is a jurisdictional trigger. Missing deadlines or refusing to extend statutes can permanently bar litigation, leaving taxpayers with no recourse but to pay the deficiency or face collection.

Third, refusing to extend the statute of limitations is a high-risk strategy. The IRS routinely requests extensions to complete audits, and taxpayers often resist, fearing additional exposure. But the Tax Court’s opinion in Toscano suggests that refusal can backfire spectacularly. The IRS’s ability to issue an FPAA hinges on the statute of limitations under Section 6229(a), which is three years from the later of the partnership return’s due date or filing date. If a taxpayer refuses to extend, the IRS may still issue an FPAA—but the taxpayer’s ability to challenge it in court could be severely constrained. Practitioners should weigh the risks of refusal carefully, as the court’s reluctance to invalidate FPAAs on procedural grounds means that statute-of-limitations disputes are rarely won.

Fourth, the Tax Court will not invalidate an FPAA based on internal IRS procedural disputes. Toscano argued that the IRS’s denial of Appeals violated Section 7803(e) and the Taxpayer First Act (TFA), but the court dismissed these claims outright. The opinion reinforced that the Tax Court’s jurisdiction is limited to adjudicating tax liabilities, not policing the IRS’s internal procedures. This is a powerful reassertion of judicial restraint—one that benefits the IRS by shielding its administrative decisions from collateral attack. For taxpayers, this means that challenging an FPAA on procedural grounds is a losing strategy. The court’s role is to decide whether the IRS’s adjustment is correct, not whether the IRS followed every rule to the letter. If a taxpayer believes the IRS erred, the remedy is to litigate the merits, not to attack the FPAA’s procedural validity.

Fifth, the IRS’s scrutiny of syndicated conservation easements is intensifying, and taxpayers must adapt. The court’s opinion arrived amid a wave of IRS audits targeting syndicated easements, with IR-2024-174 announcing 125+ new examinations in 2024 alone. The IRS is deploying geospatial analysis, valuation experts, and economic substance doctrines to challenge deductions that exceed three times the property’s purchase price. Taxpayers involved in conservation easements—whether as donors, investors, or promoters—must document every step of the transaction, from the qualified appraisal under Section 170(f)(11) to the perpetuity requirement under Treas. Reg. § 1.170A-14(g). The court’s refusal to entertain procedural challenges means that substance, not form, will determine the outcome.

For practitioners, the lesson is procedural discipline. The Tax Court’s opinion in Toscano v. Commissioner is not about conservation easements per se—it is about the rules of engagement in IRS disputes. Taxpayers who ignore deadlines, refuse cooperation, or chase procedural shortcuts will find themselves with no legal recourse. The court’s message is unambiguous: If you want to challenge an IRS adjustment, do so on the merits—not by attacking the IRS’s internal procedures. The Tax Court will not save taxpayers from their own missteps. It will only decide whether the IRS’s math is correct. And in Toscano’s case, the math held.