Stranger Things With Syndicated Conservation Easements
My college-aged daughter is home for the holidays and she is a Netflix junky. Some of the things she recommends are pretty good. Like Stranger Things — I tried to explain that it was just a jazzed up version of Scooby-Doo and “those meddling kids” but she wasn’t impressed that old folks could possibly recognize anything new and IT related. You gotta be a person of a certain age to understand the reference, I guess. Anyway, I thought of the show — Stranger Things — as I was scouring the internet looking for something interesting to say about nonprofit law. Its a slow news day, I think, in Independent Sectorville but I did run across this U.S. Attorney’s press release from earlier this year. The PR announces an indictment against tax shelter promoters. More on that below. As near as I can tell, though, Stranger Things is about someone having let loose some kind of monster on the earth, and the meddling kids are involuntarily drafted into the effort to put the monster back into his confinement somewhere but neither in the real nor the virtual world. I guess that leaves the spiritual world but I really can’t figure out what seems easy and normal to my daughter.
Stranger Things’ basic plot, describes the on-going battle against Syndicated Conservation Easements (SCE). A monster has been loosed upon the tax landscape and those fearless government kids have been working feverishly to trap the monster back into its netherworld. Isn’t that how most tax shelter battles go? Every time we smash the monster, it reincarnates for another tax season and here we are on Season 5, I think, of Stranger Things. We have previously blogged about SCEs here and here. The only recent thing I found was a district court’s denial a few days ago of a motion to dismiss in United States Fischer, et. al. But I worked backwards and happened upon the indictment in that case. I swear I don’t know how I made it through law school back in the stone ages. It was all theory and argument, cost benefit, utilitarianism and all that jazz, usually too divorced from facts to be of interest except as required to pass the class. All with chalk and blackboards, if the Professor was really feeling the topic that day. I also walked ten miles in the snow with no shoes to make it to class, but kids these days have it so easy and interesting. They can find real life examples of pretty much every dry legal theory ever IRAC’d. Anyway, the indictment is informative because it almost puts the reader in the room while the nefarious conspirators — in short sleeve shirts and ties, glasses, number 2 pencil and pencils pocket in place, no doubt — plan out the monster’s release upon the tax landscape. I find these real life examples make students look up from their laptops more often than one of my dry old Dad jokes. I have cut and pasted liberally from the indictment below the fold but you can only really get the “in the room” otherworldly feel for how syndicated conservation easements are hatched and loosed by reading the whole indictment. The indictment describes what seems like an unbelievable plot that nevertheless persisted long enough to wreak havoc in some quarters of the tax landscape.
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Numbered allegations from the indictment:
23. The Code and associated regulations allowed taxpayers to take a deduction on their tax return for any charitable contribution” made within that tax year. The amount of the deduction generally equaled the fair market value of the contributed property on the date of the contribution.
24. When donating real property/ generally/ a taxpayer could not claim a charitable contribution deduction for a contribution of a partial interest in real property. However/ the Code and associated regulations made an exception for a qualified conservation contribution. A qualified conservation contribution was a contribution of a qualified real property interest/ to a qualified organization/ exclusively for conservation purposes.
25. Properly structured/ a conservation easement was one type of qualified real property interest/ recognized under the Code. A conservation easement was a legal agreement, through which a landowner and another party agreed to permanently restrict the development and use of the land with the purpose of achieving certain conservation and preservation goals in perpetuity.
26., To qualify for this specific charitable deduction/ the Code and associated regulations set out specific requirements/ including/ among other things/ that the value of a conservation easement be determined by a qualified appraisal prepared no earlier than 60 days before the date of contribution and no later than the due date of the tax return on which the charitable contribution deduction was first claimed.
27. Upon compliance with the requirements of the Code/ the donor of the conservation easement could take a charitable contribution deduction for the fair market value (as appraised) of the donated property on their tax return.
28. The fair market value of the conservation easement was generally determined to be the difference between the fair market value of the land before it was encumbered by the conservation easement and the fair market value of that same land after the easement was granted.
29. When properly structured in accordance with the Code/ a taxpayer could use the charitable deduction generated by the donation of the conservation easement to offset up to 50 percent of his or her taxable income for the relevant tax year of the donation. If the taxpayer could not use the entire amount of the charitable deduction because it exceeded more than 50 percent of the taxpayer s taxable income for the relevant tax year/ the taxpayer could carry forward the balance to use as a tax deduction against income for up to 15 years.
. . .
32. Typically the conspirators caused each Tax Shelter to purchase an ownership interest directly or through a holding entity in another entity that owned vacant land (a “Property Company”). Then each year the conspirators caused the Property Company to place a conservation easement over the land it owned and then donate the easement to a land conservancy. In a few Tax Shelters the conspirators caused the Property Company to also donate land in fee simple to charitable organizations.
33. As part of the scheme FISHER and SINNOTT hired an appraiser typically ROBERTS or WEIBEL to generate fraudulent and inflated appraisals of the conservation easements or the land. In every instance FISHER SINNOTT and other co-conspirators paid significantly less money to acquire the interest in the Property Company that held the land than the final inflated appraised value of the conservation easement or the land.
34. In total/ the defendants and their co-conspirators sold over $1.3 billion in false and fraudulent tax deductions through this syndicated conservation easement scheme.