Seven charged in conservation easement tax scheme
|A federal grand jury in Atlanta, GA, returned a superseding indictment on Feb 24, 2022, charging seven individuals with conspiracy to defraud the US and other crimes. |
Their alleged crime? Nearly two decades of a coordinated scheme to promote fraudulent tax shelters through Conservation Easements.
A conservation easement (also called conservation covenant, conservation restriction or conservation servitude) is a voluntary agreement between a landowner and the government (municipal, county, state or federal) that permanently limits the use of the land to protect its conservation value. Placing a conservation easement on a piece of land allows the owner to continue to control it (but usually not develop it) and also take advantage of a tax deduction.
In this case, three certified public accountants (CPA) and two licensed land appraisers engaged in a conspiracy to design, market, and sell false and fraudulent charitable contribution tax deductions to high-income clients.
Here’s how it worked.
Jack Fisher (a CPA in the Atlanta area) began organizing, promoting and selling SCE Tax Shelters as early as 2002. From 2002 until 2012, he organized and promoted approximately 11 SCE Tax Shelters, which placed conservation easements over land located within Fisher’s two land development projects located in Western North Carolina: The Preserve at Little Pine and French Broad Crossing.
From 2013 through 2020, Fisher and his co-conspirators expanded the operation to include land not directly related to Fisher’s own developments. During that time, they sold at least 15 SCE Tax Shelters for the purpose of generating fraudulent tax deductions for high-income taxpayers to shelter their income from taxes. They promoted the Tax Shelters as “tax advantaged real estate investments.” In reality, they were illegal tax shelters that allowed taxpayers to buy tax deductions at the end of the tax year – and sometimes even after the tax year ended – to illegally shelter their income from taxes for that year.
Jack Fisher, Yekaterina Lopuhina (known as Kate Joy), James Sinnott, Lewis and Victor Smith, were all CPA’s in the Atlanta area. They allegedly caused partnerships to donate conservation easements over land owned by the partnerships. As part of the scheme, they used two hand-picked appraisers, Clayton Weibel and Walter Roberts to generate inflated appraisals of the conservation easements that frequently valued the land at least ten (10) times higher than the price that was actually paid for the partnership. These inflated appraisals were often made within months of the appraisals. Then the partnerships claimed a charitable contribution tax deduction in the inflated amount of the conservation easement.
The result was a large, though fraudulent, tax deduction for the clients who purchased units in the partnership.
Fisher, Sinnott, Joy, Lewis, Smith and others allegedly promoted, marketed and sold partnership units for $25,000, guaranteeing at least a 4-to-1 tax deduction. To demonstrate the scam, consider an investor purchasing units worth $100,000. After the inflated appraisal, the land would yield a tax deduction of $400,000 and a tax return of $170,000. This was all within months of purchasing the partnership for $100,000.
To ensure the clients received the earnings promised in the marketing materials, Fisher, Sinnott, and Joy provided the appraisers, Lewis and Smith, with spreadsheets containing information that indicated the value needed to deliver the promised tax deductions.
In addition, the syndication were abusive tax shelters lacking in economic substance or a business purpose. Although they tried to disguise the transactions as real estate deals, the indictment alleges the transactions were no more than the illegal sale of inflated tax deductions.
Furthermore, Fisher, Sinnott, Joy, Lewis and Smith helped clients claim charitable contribution tax deductions after the close of the tax year by accepting late sales, generating backdated documents, and preparing false and fraudulent tax returns.
In total, the defendants allegedly sold over $1.3 billion in false and fraudulent tax deductions through this scheme.
All of the defendants are charged with conspiring to defraud the United States and face a maximum sentence of five years in prison. Each has additional charged depending on their involvement which include such fraudulent activities as conspiracy to commit wire fraud, aiding and assisting in the preparation of false returns, filing false personal tax returns, money laundering. In addition to the standard statutory incarceration periods, each of the defendants also faces a period of supervised release, monetary penalties, restitution and forfeiture. Of course these are indictments, so those indicted are presumed innocent until found gulity in a court of law.
The IRS Criminal Investigation’s group has prioritized the detection and prosecution of fraudulent tax shelters which enable taxpayers to pay far less than their fair share.
I’ve added some additional information below about Conservation Easements for those who want to learn more.
More About Conservation Easements
Even the most experienced land buyers may not know about conservative easements.
A conservative easement is a voluntary agreement that permanently limits the use of land to protect its conservation values. The owner is still allowed to continue to control it but usually cannot develop it. In exchange, the owner gets a tax deduction, calculated according to the value that the land would have had if it had been developed.
Landowners can customize conservation easements to meet their needs. The goals is for everyone to benefit – land owner and the land trust or government agency. It won’t dictate what others can or cannot do to your property. Although, some agreements, include public access to your property, that is not required or even the usual requirement.
Once the easement is established, the easement “runs with the land” meaning the limits of the agreement are applicable to both present and future owners of the land. The grant of conservation easement, as with any real property interest, is part of the chain of title for the property and is normally recorded in local land records.
Ultimately, it is important to create an agreement that fits your needs and goals. The downside is that you are forgoing future development rights on the land you already own.
The most that would happen is that the government would scrutinize or audit your conservation easement transaction, such as in the case above, and declare it fraudulent when you overstate the value of the conservation easement. Larger deductions (more than $500,000) require an appraisal.
Otherwise, there might also be compatible management and maintenance requirements consistent with the protection of the property’s conservation resources and the landowner’s vision. The agreement generally includes the requirement that the land trust (the government) will need to physically inspect your land at least once a year. might include annual inspections.
Finally, not all land qualifies as a conservation easement. You must meet one of these four categories (IRS Code, Section 1.170A-14(d):
· You are preserving a relative natural habitat of wildlife, fish or plants
· You wish to preserve forests or agricultural lands that have open spaces
· You want to allow public access to a portion of your land
· You are protecting the property in response to a clearly delineated government policy that is identified in local open-space plans.
In general, conservation easements must provide public benefits, including such things as water quality, farm and ranchland preservation, scenic views, wildlife habitat, protecting endangered species, outdoor recreation, education and historic preservation.
In the end, conservation easements are one of the most effective tools available for the permanent conservation of private lands. The practice results in millions of protected acres across the United States.