A conservation easement is designed to protect property by limiting its use, allowing donors to set aside a portion of land subject to various restrictions. In doing so, the donor creates certain tax benefits tied to the conservation. These tax benefits in and of themselves may be and often are legitimate. But they can be abused to perpetrate fraud against unwitting investors, who in turn could become the target of IRS investigations for improper tax avoidance schemes. If your broker or investment advisor convinced you to invest in conservation easements, you may have a legal claim for any losses you sustained. The business litigation attorneys of Griffin Durham Tanner & Clarkson LLC are ready to advise you and advocate for your legal rights today.
What Are Conservation Easements in Business Litigation
Conservation easements are basically agreements between landowners and government agencies or land trusts to set aside portions of land to preserve their natural features. By creating a conservation easement, the landowner agrees to restrict use of the land which might otherwise be developed or have its natural resources exploited.
For example, the conservation easement may have these (and other) objectives:
- Protect existing forests and promote healthy forest growth
- Maintain and improve water quality on the land
- Create or improve upon a wildlife habitat
- Restrict or prohibit development entirely
- Permit only sustainable architectural improvements on the property
The donations are completely voluntary, and the landowner usually maintains substantial control over the land. Conservation easements help to protect land not only during the lifetime of the donor, but for future generations as well. They also create significant tax advantages, which is where the investment problems often begin.
What Are The Tax Incentives For a Conservation Easement?
Conservation easements are designed to permanently protect important land and natural resources. When they accomplish these goals, the donor may qualify for substantial charitable tax deductions on his or her income tax return.
These tax incentives were first implemented on a temporary basis in 2006, and then made permanent in 2015. Under the permanent incentive program, a landowner is eligible to receive the following tax benefits:
- Up to 50% charitable tax deduction off of his or her annual income
- Qualifying farmers and ranchers can deduct up to 100% of their income
- A carry-forward period allowing the deduction to run for 15 years
Because of both the amount of the deduction and the carry-forward period, a conservation easement can generate a substantial tax benefit.
What Is a Syndicated Conservation Easement?
Not to be confused with conservation easements, syndicated conservation easements have a precise legal meaning. They generally consist of a group of individuals or entities legally organized as a partnership or association with the intention of using conservation easements to take advantage of the above-indicated tax advantages. However, many of these syndicated conservation easements are nothing more than cleverly designed tax avoidance and tax shelter scams with little if any legitimate purpose. Here’s how it works:
Investment advisors, brokers, and other promoters create a pass-through legal entity, such as a partnership, designed solely to hold real property. Promoters then seek potential investors in the partnership with the promise of being able to claim a charitable tax deduction that greatly exceeds their initial investment.
The promoter then retains an appraiser to value the easement. Appraisers are supposed to attain this value by calculating the difference between the fair market value of the property before and after the easement is created. However, these appraisals are often inflated and based on unrealistic assumptions about the development potential of the property. In other words, the appraisals are in many cases fraudulent.
Tax Avoidance And Tax Shelter Schemes
False appraisals used to overvalue conservation easements create corresponding tax benefits that are grossly overvalued. Promoters often do not disclose the unrealistic nature of their syndicated conservation easements to investors. These investors, who are often high-income earners and high net worth individuals, were lured to the investment by promises of tax avoidance of up to 2.5 to 5 times (or more) every dollar invested.
Many of these syndicated conservation easements are therefore little more than schemes to defraud the IRS through illegitimate tax shelters. In turn, the investors themselves could face legal problems, including:
- IRS audits
- Substantial attorney costs and legal fees
- Back taxes
How Our Business Litigation Law Firm Can Help
Investors who have sustained losses because they were steered toward conservation easements as a tax shelter strategy may have a legal claim. Our law firm aggressively pursues business litigation against the advisors and brokerage firms who recommended these easements to unsuspecting investors. We can help reclaim the back taxes and other losses you experienced by taking legal action against those who failed to disclose the risks or engaged in fraudulent activity concerning conservation easements.
We also represent investors before the IRS. Investors who purchased these interests may have opened themselves to audits, back taxes, and other legal and financial problems. The IRS has made clear that it will challenge any misuse of conservation easements, so having dedicated legal counsel is essential to protecting your rights.
Our firm can also represent you in FINRA and AAA arbitration claims. Investors who were not adequately warned of the tax and legal risks associated with conservation easements have turned to arbitration to hold brokerage firms and investment advisors accountable. The damages these investors have suffered are in some cases significant, and we will work to demand compensation to cover your losses.
Contact Our Conservation Easement Investment Loss Attorney
If you experienced losses after investing in conservation easements, including IRS enforcement actions, reach out to Griffin Durham Tanner & Clarkson LLC. We understand what it takes to challenge fraudulent investment strategies so you can win the compensation you deserve. Schedule your confidential consultation with us today.