Conservation Easement

Lance Wallach is investigating claims against various brokerage firms around the country that marketed and sold conservation easements to their customers as tax shelter investment opportunities. Many of the representations and sales pitches made to brokerage firm customers were unsubstantiated and without any attending ruling from the Internal Revenue Services (IRS) that those investments would be afforded advantageous tax treatment. A conservation easement is a securitized corporate structure that owns real estate. The landowner(s) sells the right to develop that land in exchange for favorable tax deductions. In many instances, investors are enticed with tax deductions worth multiples of the principal amount of the investment. These investment opportunities are pooled together so that they can be marketed and sold to a broad audience of investors across the country. In theory, there is less development and impact to the ecosystem, which makes the investments also appear socially conscious. Through a network of brokerage firms and Financial Advisors, retail investors are sold these opportunities and, in exchange, receive high commissions. However, the issuers of the conservation easements and the brokerage firms that are marketing and selling them to retail investors do not have opinion letters from the IRS confirming the advantageous tax treatment. The IRS and Department of Justice (DOJ) are believed to be narrowing in on selling groups who were involved in the marketing and sale of these fraudulent products. In November 2019, the IRS issued a notice indicating that it was “increasing its enforcement actions for syndicated conservation easement transactions, a priority compliance area for the agency.” https://www.irs.gov/newsroom/irs-increases-enforcement-action-on-syndicated-conservation-easements. The IRS went on to state that “we will not stop in our pursuit of everyone involved in the creation, marketing, promotion and wrongful acquisition of highly inflated deductions based on these aggressive transactions.” The conservation easement investments were among the “dirty dozen” investments. In a recently filed case against a large conservation easement issuer, Ecovest Capital, Inc., the Department of Justice alleges that the Ecovest conservation eastment was nothing more than “the sale of grossly overvalued federal tax deductions under the guise of investing in a partnership.” https://www.justice.gov/opa/press-release/file/1121451/download. The essence of the scheme involved the overvalued appraisal of the underlying property which, in turn, causes investors to improperly claim artificially inflated deductions on their personal tax returns. If and when the IRS determines that Ecovest and other conservation easement issues overstated the value of their properties in order to maximize the attractiveness of the investment, and nullifies the tax deductions, investors will potentially be on the hook for unpaid taxes in arrears, plus applicable penalties. In June 2020, the IRS announced a “time-limited settlement offer” to taxpayers with pending docketed Tax Court cases involving conservation easements. The IRS went on to say that it “will continue to actively identify, audit and litigate these syndicated conservation easement deals as part of its vigorous and relentless effort to combat abusive transactions,” said IRS Commissioner Chuck Rettig. “These abusive transactions undermine the public’s trust in private land conservation and defraud the government of revenue. Ending these abusive schemes remains a top priority for the IRS.” If your Financial Advisor recommended that you invest in conservation easements or other tax shelters, you may be able to recover your investment losses, including adverse tax consequences and penalties, through a FINRA arbitration claim. As an expert witness Lance Wallach has never lost a lawsuit. Contact Lance at 516-236-8440 or wallachinc@gmail.com