For the past six years, government officials have tried ever harder to kill a type of tax avoidance scheme that the Internal Revenue Service has branded “abusive” among “the worst of the worst tax scams.” The IRS has pursued tens of thousands of audits and warned of hefty penalties facing anyone who exploits it. The Justice Department has targeted top promoters of what it calls “fraudulent” deals with criminal charges and civil lawsuitsThe case was settled with several guilty pleas and a civil agreement. Democrats and Republicans in Congress have teamed up to support legislation to end the practice.
The industry has resisted with a group of lobbyists, including Henry Waxman, a former member of Congress who was long considered a liberal lion. This battle shows that even when both sides agree to take action on rare occasions, well-funded interests can impede a solution.
The result: The scheme continues to be used. According to the IRS, it has cost the U.S Treasury billions in lost taxes.
“There is a tax shelter gold mine here, and they’re fighting very hard to protect it,” Oregon Sen. Ron WydenChair of the Senate Finance Committee, he said. “There are enormous sums of money to be made as long as the number of transactions keeps increasing. This is a textbook case of the power of lobbyists.”
The government is targeting a tax deduction that goes by the cumbersome name “syndicated conservation easement,” which exploits a charitable tax break that Congress established to encourage preservation of open land. Landowners who give up their rights to develop their land, usually by donating them to a nonprofit, receive a charitable deduction. Both the property owner and the public both benefit from conservation easements when they are used as intended. Sometimes a piece of land is preserved as a park for the public to use and sometimes the donor receives a tax break.
The syndicated versions of the same thing are different. Instead of protecting a wildlife reserve or human habitat, profit-seeking intermediaries turned abandoned golf courses and remote scrubland into high return investment vehicles. These promoters buy up vacant land that was previously worth little. Then they hire an appraiser willing to declare that it has huge, previously unrecognized development value — perhaps for luxury vacation homes or a solar farm — and thus is really worth many times its purchase price. Individuals can claim charitable deductions of up to four to five times the amount they invested if they sell their stakes in the donation. The promoters make millions of dollars in fees.
ProPublicaFirst investigatedThe booming syndicated conservation business was founded in Georgia in 2017. The entrepreneur, who was also the leader of the effort to close it down, had already begun. Land Trust Alliance, a trade organization whose 950 members manage traditional conservation easements. As longtime advocates of the charitable tax break, Alliance leaders were horrified to see it exploited, in their view, by “brazen” profiteers claiming bogus deductions.
Fearing that this would compromise the conservation deduction, the Alliance banned its members accepting easement donations from syndicated agreements and urged the IRS to take action. That effort was in full swing by 2020.
But the syndicators flummoxed their opponentsDespite IRS audits, enforcement efforts and other attempts to stop other tax schemes, the syndicators refused to back down. The syndicators had created their own Washington trade group called the Partnership for Conservation (or P4C). They spent millions lobbying Congress for public relations and conservation. P4C argues that syndicated deals offer conservation and profit, and it rues what it has called the “chilling effect” of the government efforts to crack down.
Today, the fight has taken on an almost grinding quality. By the IRS’ most recent reckoning, the use of syndicated easements grew from 249 deals in 2016, generating $6 billion in charitable deductions, to 296 deals in 2018, producing $9.2 billion in deductions. (In contrast, approximately $1 billion in annual deductions are generated by nonsyndicated easement deductions.
Charles Rettig, IRS Commissioner, stated that the trend continues today to the Senate Subcommittee on Financial Services & General Government last month. He was clearly frustrated. “Notwithstanding our efforts,” Rettig testified, “we have not had an impact on essentially slowing the volume of these transactions that we receive currently. We need Congressional assistance. We need a statute to help us curb this activity.”
A bipartisan group influential legislators has tried. Democrat Wyden and Iowa Sen. Charles Grassley, the finance committee’s ranking Republican, jointly released a 151-page investigative report in 2020 that referred to syndicated easements as a “dollar machine” for wealthy taxpayers. “You simply insert the dollar bill and then watch the Dollar Machine return two dollar bills to you,” the report explained. “But it was not the promoters who gave back the two dollars; it was the Federal government by way of foregone tax revenue, and the only risk involved was whether or not the transaction would lead to an audit.”
Other states that are looking to rein in syndicated transactions include Montana Republican Sen. Steve Daines, Michigan Democratic Sen. Debbie StabenowHouse members Mike Thompson, a California Democrat. Mike Kelly, a Pennsylvania Republican. These legislators introduced the legislation together. Charitable Conservation Easement Program Integrity Act of 2017 — and have reintroduced it, in updated form, in one congressional chamber or the other, eight times since, most recently a year ago.
The legislation seeks to end syndicated transactions by eliminating their profitability. There is a ban on taxpayers being able to claim easement deductions greater than 2.5 times their investments. According to the Office of Management and Budget, closing this loophole would generate $12 million in additional tax revenue through 2027. But the legislation has never gotten far — and lawmakers say that’s no accident.
According to publicly filed lobbying disclosures, syndicators have spent $11,000,000 on lobbyists since 2017. P4C has paid more than $6million for this. EcoVest Capital is a large promoter in Atlanta who is currently facing a Justice Department civil fraud lawsuit. They have spent $3.3 million. (In contrast, the Land Trust Alliance spent $2.4 million on lobbyists in the same period.
While recruiting congressional allies to block the Easement Program Integrity Act, syndication advocates have also gone on the attack, pressing Congress (unsuccessfully, so far) to strip the IRS of funds used to enforce the agency’s 2017 listing noticeThis flags abusive profit-making syndicated agreements as abusive and requires participants report their involvement.
Syndication promoters have actively sought Democratic support. Waxman Strategies, a self-described “progressive-minded public affairs firm” chaired by Henry Waxman, 82, the liberal former California representative, to their lineup of heavyweight lobbyists. P4C founder Frank Schuler, who was at the time one of the most prolific promoters in Atlanta, advised EcoVest’s top executives about the move in April 2018. “P4C is about to get the Waxman group underway to work on the D side of things,” Schuler wrote, in an email disclosed in court filings. “They really believe in what we are doing and that was a condition of Waxman’s to undertake the engagement. This is another $23k per month but we are in the thick of the fight and now is the time.”
Waxman Strategies has been representing syndicators since then and has received $485,000. The former congressional representative is currently working with other members of the firm on the issue. “Partnership style conservation easements are an important tool for conserving land that is under development pressure,” Michael Goo, the firm’s managing director and a former staff director for a House environmental subcommittee, told ProPublicaHenry Waxman in a written reply to his questions. “We believe they can be used to mobilize private capital into conserving land that in fact would be developed sooner or later.” The reform legislation, he added, “would effectively remove the incentive for investors to mobilize private capital into conservation easements.”
Unable to move their Easement Program Integrity Act through a divided Congress, supporters managed late last year to get its language included in the “Build Back Better” provisions passed by the House Ways and Means Committee. It was hoped that it could be enacted alongside the spending measure. However, this would only require a majority vote in Senate.
Sen. Kyrsten SinemaThe enigmatic Arizona Democrat, who had a potentially decisive voice in her 50-50 chamber, ended that. She told the White House that she wanted the syndication killer language removed from the bill. press reports. It was removed. That prompted 13 conservation groups to write Sinema on Dec. 7, pleading with her to “stand with us” to “curb abuse and restore the integrity of this cherished and worthy conservation program.”
Sinema, whose objections remain unclarified, was not moved. “All efforts to persuade the AZ Senator to reconsider her position have failed,” one advocate for the measure told ProPublicaIn an email (Sinema’s staff did not respond to ProPublica’s requests for comment.)
Since then, President Joe Biden, signaling his support, has included the measure in his proposed 2023 budget in a section entitled “close loopholes.” But it remains far from enactment.
Rep. Thompson, the original sponsor of this measure, stated ProPublica his bill is “a no-brainer. It will stop a bunch people who have been taking the taxpayers for money and filling their pockets using taxpayer dollars. It’s one degree off criminal what they’re doing, and they’re getting away with it.” Thompson said he’s looking for “other places to put the language. If we can find a vehicle where it works, we’ll put it in. I’d do it today if I could.”
Syndication easement promoters have attacked the measure by claiming it would allow the IRS to “retroactively” disallow transactions that are now legal — even though the agency first warned taxpayers against engaging in syndicated deals back in early 2017, when it identified them in its listing notice as an abusive “tax avoidance transaction.” The IRS has been routinely auditing such deals since then.
P4C has taken up this cry on its web page and Facebook site, where it promotes its members’ work on behalf of “private land conservation” as essential to the survival of the planet. One post shows two trapped raccoons. next to the words, “Don’t let this happen to our wildlife”; it warns that “retroactive tax hikes will have devastating consequences on our natural lands and wildlife.” Robert Ramsay, the group’s president, told ProPublica that such a “punitive retroactive tax law change” would harm “a large swath of American taxpayers” eager to participate in land conservation, from “a variety of walks of life.”
Andrew Bowman, CEO of the Land Trust Alliance, called the fairness argument “a canard.” As he put it, “People were on very clear notice that the federal government was saying this was abuse. They haven’t seen the need to stop.” This, he said, is why congressional action is necessary: “The IRS has thrown everything they have at it.”
In 2020, after warning that it planned to audit every taxpayer return claiming a deduction for a syndicated easement, the IRS announced a “limited-term” settlement offer, allowing individual investors to pay back taxes with a reduced penalty. Few people accepted the offer by the IRS. In an internal IRS management review last year, agency officials lamented the poor response, noting, “Many taxpayers are undeterred and are opting for litigation, clogging up the Tax Court.” (One reason taxpayers are willing to fight: Syndicated easement deals routinely set aside $500,000 or more in advance to handle lengthy audits and tax court fights.)
Rettig stated that the IRS is currently examining 28,000 investors in syndicated easyments’ returns. According to testimony, Rettig, $21 billion was claimed in deductions between 2016 and 2018.
The Justice Department, for its part, has taken enforcement to the courts with legal actions that shed light on industry practices. December 2018 – government civil suit targeted Atlanta’s EcoVest Capital, which built a national client-feeder network of brokers, financial advisors and accountants, who received generous referral fees.
According to an amended DOJ complaint, EcoVest had been involved in 58 syndication deals between 2013 and 2018, generating nearly $3 billion in federal tax deductions — on average, a write-off of $4.39 for every dollar invested. For a $100,000 taxpayer, that would have resulted in a profit of approximately $60,000, sometimes in just a few months. Fifty-one of those 58 deals, according to the government complaint, relied on what the DOJ called “grossly overvalued” appraisals performed by a single appraiser, Claud Clark III, based in Magnolia Springs, Alabama.
The Justice Department wanted to ban EcoVest and five other individuals associated with the company (including Clark) from any future easement agreements. It has already made some inroads. Defendant Nancy Zak (syndicated easement pioneer), settled with government in March 2021. She denied wrongdoing and accepted a lifetime ban from easement business. She also agreed to pay an undisclosed amount. (According to lobbying registrations, it was one of Zak’s firms, called Greenth, that hired Waxman Strategies in 2018, paying $20,000 in fees. Waxman Strategies claimed that it cut all ties with Zak in the immediate aftermath of her lawsuit. The firm then began getting paid, $465,000 to date, by Red Oak Reserve LLC, a low-profile legal entity that previously listed Zak’s office number in SEC filings. Waxman Strategies’ Michael Goo said Red Oak Reserve was founded by Brian Sullivan, who is a former Nancy Zak associate. Sullivan declined comment.
EcoVest’s go-to appraiser, Clark, also now appears to be out of the syndicated easement business. According to a national database of the appraisal industry, Clark has given up all his appraisal licenses after he was subject to numerous complaints to state boards. His LinkedIn account now lists him as “Retired.” A recent filing in the DOJ case says he’s currently engaged in settlement talks with the government.
EcoVest’s CEO and Zak did not respond to ProPublica’s requests for comment. Clark and EcoVest, whose lawyer declined to comment, have denied any wrongdoing in court filings. Ornstein-Schuler from Atlanta, another syndicated easement promoter, announced in January 2019 that the company was closing down.
Industries practices are subject to criminal investigation reportedlyIn three states, the crackdown is currently underway. The crackdown’s most sensational case became public in February, when a federal grand jury in Atlanta indicted North Carolina developer Jack FisherInland Capital Management owner and major syndication deal promoter, Fisher and six others were indicted on 135 counts for their participation in a scheme to sell $1.3 Billion worth of illegal tax shelters. Fisher faces wire fraud, conspiracy and money laundering charges, as well as being charged with aiding in false tax returns filings. He has pleaded guilty.
The indictment was supported with a series of damning statements attributed Fisher. These included several secretly recorded by an unidentified government agent pretending to be an easement proponent.
The indictment, for example, charged that Fisher’s conservation deals relied on “fraudulent” and “grossly inflated” land appraisals, often valuing the easement properties at more than 10 times what he had paid for them just months earlier. It asserted that Fisher routinely “pre-determined” these valuations before any appraisal was actually performed, telling his two “hand-picked” appraisers what valuation he needed to generate the generous deductions he’d promised investors. In one recorded conversation described in the indictment, Fisher said one of the appraisers simply “puts down whatever we say.” In another, he said he always made sure easement valuations were high enough to make sure investors “can still get a good return on their money,” even if a later IRS audit reduced their charitable deduction.
The government also accused Fisher of orchestrating the illegal backdating tax documents and checks. This allowed him to continue offering investors unsold stakes in his deals up to nine months after year-end tax deadline. In one recording, Fisher acknowledged rewarding partners at an accounting firm with free shares in an easement deal because “they participated in basically backdating all the documents.” After learning he was under investigation, according to the indictment, Fisher told one associate he could claim that backdated checks weren’t deposited until after the close of the tax year because they had been “lost” on someone’s desk.
Both appraisers, now among Fisher’s fellow defendants, have pleaded not guilty. One says on his website that his firm decided in mid-2019 to stop doing conservation easement work “until there is greater clarity from the courts on conservation easements.”
Three accountants who had worked closely with Fisher were criminally charged before. Herbert Lewis, one, has pleaded not guilt. Two brothers, Corey and Stein Agee, are also guilty. pleaded guilty to conspiracy to defraud the United StatesThey are cooperating fully with prosecutors. According to the government each Agee received $1.7million in fees for promoting the syndicated agreements.
Fisher, a CPA himself once worked for IRS.
According to the indictment, Fisher made $60 million personal from 15 syndicated-easement deals he created between 2013 and 2020. The government claimed that Fisher bought a $2 million home in Bonaire, a luxury $450,000 recreational vehicle, a $750,000 show jump horse, and other items with those funds.
Fisher’s attorney, Russ Ferguson, said in a statement: “Jack Fisher looks forward to defending the allegations brought by the Department of Justice in court and hopes for a speedy trial. Jack Fisher has preserved nearly 10,000 acres worth of natural land through a congressionally authorized, IRS-approved tax deduction. In doing so, Mr. Fisher has not only followed the law but has acted in conformity with IRS regulations, agency guidance and audit guidelines.” The statement said Fisher stopped promoting easement donations in 2019 because the government “now considers such transactions criminal.”