In one of several transactions described in the Agee case, Fisher, referred to as Promoter A, formed an entity that agreed to pay $7 million in 2013 for control of 405 acres in Buncombe County, North Carolina. That same year, the entity donated an easement covering 281 acres of that property to a land conservancy through an easement valued at $66.2 million. The entity’s 107 investors then claimed charitable contributions of more than four times their capital contribution, court filings show.
Tax-Saving Pitch
The Agee brothers admitted that Promoter A caused appraisers to “falsely inflate” the value of an easement, which was pre-determined to market “the desired tax savings ratio to prospective ‘investors’ early on.” The government also claims some deals involved backdating of checks and documents to the previous year, when easements were donated.
Congress enacted legislation in 1980 to encourage land preservation, and it’s helped conserve 32.7 million acres, according to the National Conservation Easement Database. The vast majority of easements come from donors like individuals or families, not syndicated investors.
It’s “almost a certainty” the agency will audit the syndicated deals as well as the groups that promote them “because this area is so ripe for abuse,” said Richard Zuckerman, who led the Justice Department’s tax division until January.
Meanwhile, federal prosecutors are “looking to determine whether the investors are innocent babes in the woods, or do they know what they’re doing and they’re playing audit roulette, hoping that the IRS won’t find them,” Zuckerman said.
Crackdown Targets
Life has gotten more complicated for promoters since late 2016, when the IRS began targeting certain syndicated conservation easements as tax shelters. The agency focused on transactions since 2010 where investors received promotional material offering deductions of at least 2 ½ times their investment.
In the 2018 tax year, there were approximately 32,465 investors in syndicated easements, up from 21,000 a year earlier. In 2019, the agency estimated, taxpayers filed for deductions averaging 5.1 times their investment—with the ratio reaching 6.6 times for the top 10% of those filers.
The prospect of more IRS audits and unexpected tax obligations have prompted at least three class-action lawsuits by investors claiming organizers of syndicated conservation easements engaged in racketeering and lied about or omitted key facts on deals. The complaints are pending in Atlanta.
The Justice Department also filed suit in Georgia to stop six organizers in Georgia who allegedly generated more than $3 billion in “grossly overvalued” tax deductions from 138 syndicated easements.
One defendant in that case, Nancy Zak, was involved in 86 deals, according to the complaint. In court papers, she denied wrongdoing and accused the agency of using “minor violations of highly technical provisions” to wage an unfair attack on tax benefits that were intended by lawmakers. Without such tax benefits, “much if not all” of thousands of acres would “never become available for conservation,” Zak’s lawyers said in a court filing.
Tim Lindstrom, an attorney in Williamsburg, Virginia, who’s prepared hundreds of conservation easements for individual taxpayers in the past two decades, said he steers clients away from syndicated deals.
“What’s truly amazing is I get people who call, even now, and I say, ‘This is approaching criminal activity, why do it?”’ Lindstrom said. “They say, ‘I need to shelter income.’ I say ‘Don’t do it. It’s just not worth the risk.”’
—With assistance from Amanda Albright.