U.S. Senate investigative committee slams syndicated conservation easement tax shelter.
If you bought one, now is the time to talk to an attorney.
Tax shelter litigation attorney Gary Mauney has been sounding the alarm about syndicated conservation easement transactions. Minutes ago, the U.S. Senate Finance Committee released its investigative report on this tax shelter, and it's a doozy. According to Forbes, this bogus tax shelter generated $26.8 billion in charitable contributions between 2010 and 2017.
IT'S "DEJA VU" ALL OVER AGAIN: THE LATEST SENATE REPORT ON TAX SHELTERS.
The very first page of the report contains this quote from an email from an independent attorney to a potential investor in one of these transactions: "I would steer clear of this. It is a 'syndicated conservation easement' tax shelter deal. these have been labeled tax avoidance transactions by the IRS, and are 'listed transactions.' An audit is guaranteed. and the odds are heavily in favor of the IRS prevailing. How do you justify paying less than $3 million for a property that an appraiser says is worth $81 million, with a conservation easement worth $78 million?"
Well, that is a very good question. Typically, the common denominator in an abusive tax shelter deal is a fake or bogus financial or business instrument. Take a look at this 2003 tax shelter report from the U.S. Senate, if you have any doubt. In the BLIPS tax shelter, it was a bogus loan. In the FLIP tax shelter, it was a fake offshore transaction. In Son of BOSS, there were rigged derivatives. In POPS, the entire transaction pivoted off of a bogus appraisal of options on start-up technology companies. Once again, in the category of there being "nothing new under the sun," the syndicated conservation easement shelter has at its center "an inflated appraisal."
THE EQUATION: IMPROPER + BOGUS APPRAISALS = UNLAWFUL TAX SHELTERS
Using "friendly" and undoubtedly well-paid appraisers, the promoters of this shelter have "[c]ontinually and repeatedly . . . relied upon inappropriate assumptions, utilized inappropriate methodology and used various techniques to improperly inflate the value of . . . conservation easements." Like what, you may ask. Well, by falsely stating that no comparable values for property could be found, by falsely claiming property is accessible from multiple public roads, by ignoring wetlands on the property, by failing to include evidence of market demand for developed homes - and, well, you get the idea.
CONSERVATION EASEMENTS IN NORTH MYRTLE BEACH
One transaction the U.S. Senate focused on was in the city of North Myrtle Beach. In that transaction, EcoVest, and one of its directors, Ralph Teal, Jr., took center stage. By June 2011, the city of North Myrtle Beach, South Carolina had agreed to annex into its city limits approximately 1,647 acres of undeveloped land owned by four different companies that were each partially owned by Ralph Teal, Jr. North Myrtle Beach'’s interest in the annexation stemmed from the future tax revenue that development might generate, as Mr. Teal petitioned for the land to be zoned for residential and commercial development.
One member of the North Myrtle Beach city council understood that "the point of the annexation and rezoning of the North Myrtle Beach land at issue was to be for “commercial and high-density residential.... It was a logical growth area for residential communities.” However, during this process, city officials developed a suspicion that Mr. Teal might not develop the property, but rather, might place conservation easements on the land, forever preventing its development. According to local news reports at the time, one city spokesperson stated, “If [Mr. Teal’s company] Sandridge LLC is allowed to have the option to place its land under a conservation easement, there is the real risk that the land will never be developed, and its annexation into the city would be pointless.”
Ultimately, Mr. Teal validated the concerns of the North Myrtle Beach officials, as the majority of this land is now encumbered by conservation easements. In 2015 and 2016, Mr. Teal and EcoVest used approximately 1,300 acres of North Myrtle Beach, South Carolina land to generate over $919 million dollars of charitable tax deductions for taxpayer-investors by placing conservation easements on that land. They did this by claiming the 1,300 acres of land – once subdivided among 17 different pass-through entities for taxpayer-investors to invest in – was worth a collective $950,976,576, or $731, 200 per acre, and then granting conservation easements on all of it, with a collective after-easement value of $11,422,703, or $8,753 per acre.
EcoVest, the tax shelter promoter, “achieved” this tax result by claiming the lands they invested in were worth substantial amounts, generally because of the potential for residential development, before granting conservation easements on them. Then, once EcoVest granted conservation easements on the land, and the land could no longer be developed, it was worth a fraction of what it used to be worth the second before granting the easement. That diminution in value would be the charitable deduction claimed by EcoVest’s taxpayer-investors.
BOILERPLATE APPRAISALS FALSELY INFLATING VALUES
The problem for these North Myrtle Beach easements – such as at Azalea Bay Resort, LLC, Magnolia Bay Resort, LLC, and Long Bay Marina Holdings, LLC – is, as the U.S. Senate put it, that they all pivoted on appraisals that used “boilerplate language copied from an appraisal of a different piece of property,” with each of these appraisals falsely and improperly relying on a lack of “comparable properties,” “inflated” values, and an overstated “development potential.” You do not have to be a tax lawyer to understand that valid charitable deductions cannot be based on bogus factual circumstances. Once EcoVest investor, suffering from cold feet, sent one of the promoters an email that discussed “my CPA implying I am a moron, I am more than slightly concerned about my $60,000 investment. Can I get my money returned asap?”
THE SYNDICATED CONSERVATION EASEMENT'S TAX SHELTER PROMOTERS
Needless to say, if you invested in a syndicated conservation easement with any of the tax shelter promoters featured in the U.S. Senate report, you should be thinking about retaining counsel. The promoters in the Senate Report include: EcoVest Capital, Inc., EvrSource Capital, LLC Catalyst Wealth Management, Ornstein-Schuler Investments, Matt Ornstein, Kalos Capital, David Mirolli, Chip Pearson, Claud Clark, III, Clark-Davis, PC, Raymond E. Veal, Ralph Teal, Jr., and David R. Roberts.
ABUSIVE TAX SHELTER ATTORNEY - GARY MAUNEY OF MAUNEY PLLC
If you invested in a syndicated conservation easement, time is not on your side. Valuable evidence, statutes of limitation, and the continued ability of tax shelter promoters to pay damages for any civil liability, are all reasons to have your situation evaluated by an experienced tax shelter litigation attorney. Gary Mauney of Mauney PLLC is one of the most experienced tax shelter litigation attorneys in the United States. For a confidential evaluation contact Mauney PLLC at firstname.lastname@example.org or call 704/945-7185.