Cracking Down on Conservation Easement Transactions
Conservation Easement Transactions
The IRS has been cracking down on conservation easement transactions for over ten years. Nevertheless, taxpayers have continued to claim charitable contribution deductions attributable to the donation of conservation easements.
Promoters have continued to assemble investments utilizing conservation easement charitable deductions.
The IRS began focusing on syndicated conservation easement transactions when it issued Notice 2017-10, designating syndicated conservation easement transactions as listed transactions.
These syndicated investments involve the use of partnerships to raise funds from investors, who are allocated a share of a charitable contribution deduction attributable to conservation easements donated on land owned by the partnership.
In the fall of 2018, the IRS doubled down on its attacks of these investments when syndicated conservation easements were added to the list of LB&I compliance campaigns. While the IRS continues to crack down on these arrangements, taxpayers have continued litigating the finer points of these transactions. On the flipside, DOJ has begun cracking down on promoters who market these transactions. Below are details on the most recent developments.
Lawsuits against Promoters
The government had has enlisted another tactic for shutting down conservation easements by bringing actions against the organizers of conservation easement syndication schemes. On December 28, 2018, the Department of Justice filed a compliant in the Northern District of Georgia asserting that a group of defendants assembled partnership which were nothing more than a thinly veiled sale of grossly overvalued federal tax deductions under the guise of investing in a partnership.
The complaint asserts that the defendants’ conservation easement syndicates have generated $2 billion in conservation easement charitable contribution deductions. The complaint seeks to enjoin the defendants from continuing to promote such schemes, and asks the court to order the defendants to disgorge all profits received as a result of the conservation easement syndicates.
The defendants include a conservation manager/broker dealer, an appraiser, and various professionals associated with EcoVest Capital, Inc., an entity that sponsors real estate investments focused on conservation.
The promotional materials mentioned in the compliant set forth an example where in exchange for a $750,000 investment, an investor would receive $2 million of deductions, generating tax savings of $1 million.
The syndicates were sold as securities exempt from registration through broker-dealers. The easement syndicates involved properties located in Alabama, Georgia, Indiana, Kentucky, North Carolina, South Caroline, Tennessee, and Texas.
Any taxpayer who may have invested in a syndicated conservation easement through Ecovest or any other investment advisor should carefully review Notice 2017-10 and related the disclosure requirements for listed transactions. Those taxpayers should also consult with a tax attorney to consider strategies for mitigating any damages.