Syndicated conservation easements (“SCE”) are a new area of Department of Justice scrutiny. Prosecutors are significantly ramping up enforcement efforts. This post will explore brief background of these alleged “schemes” and recent DOJ activity.
Conservation Tax Easements
Syndicated conservation easement donations, as they are often called by the DOJ, involve a “scheme” as one where tax shelters were designed to produce tax deductions for high-income taxpayers through partnerships that purported to make “real estate investments.” While a well-grounded (and sometimes creative) tax strategy is common among high-income taxpayers across the country, the DOJ has taken the view that these kinds of partnerships are often a sham. Specifically, according to recent DOJ press releases and charging documents, this tax strategy is viewed as a “sham” by investigators because they lack any real economic substance and serve no legitimate business purpose. The DOJ’s view is that the placement of conservation easements over real estate fraudulently enables the investors to shelter their income from the IRS with no economic risk and to claim substantial tax deductions to which they were not entitled. Oftentimes, there are efforts to obscure these transactions through sophisticated documentation to conceal the “scheme” from the Internal Revenue Service (“IRS”).
Department of Justice Scrutiny
In one recent case, the DOJ obtained a conviction from two Georgia tax professionals for promoting more than $1.2 Billion in alleged fraudulent conservation easements. Additional charges have been filed in Atlanta and elsewhere involving similar schemes. In that indictment, the government alleged that the conservation tax shelters allegedly enabled high-income taxpayers to purchase membership interests in purported real estate investment funds. These the funds served no legitimate business purpose, but instead were used to generate large fraudulent tax deductions for its participants based on the donated value of the conservation easements. In total, the conservation easement donations allegedly generated hundreds of millions of dollars in tax deductions that were passed through to the SCE shelters and client taxpayers.
Penalties
The DOJ has been charging defendants with crimes that carry with it significant penalties. If found guilty, defendants face a statutory maximum sentence of 20 years in prison for each count of wire or mail fraud, up to twenty years in prison for conspiracy, multiple years of supervised release, monetary penalties, and restitution.
If you think you may have engaged in an arrangement the DOJ may suspect as being a problematic syndicated conservation easement, you should consult an attorney promptly. All the partners at Griffin Durham Tanner & Clarkson LLC are former federal prosecutors who represent those under investigation in connection with DOJ investigations. Please contact us today.