Many weeks ago, I posted a blog addressing the abusive nature of syndicated conservation easements being peddled by certain professionals. See blog here. The government made it clear then, and made it clear again, that the Department of Justice and the IRS does not take kindly to professionals promoting certain conservation easement transactions that, according to the Department of Justice and IRS, are "abusive tax shelters lacking in economic substance or business purpose.”
Recently, a federal grand jury sitting in Atlanta, Georgia, returned a superseding indictment charging seven individuals with conspiracy to defraud the United States and other crimes arising out of their promotion of fraudulent tax shelters involving syndicated conservation easements.
Vince Nardone Comment: This indictment includes CPAs, an attorney, and appraisers. It is a big deal. Advisors and taxpayers should pay attention, and take notice.
In fact, the Department of Justice stated that the scheme dates back nearly two decades and involved the alleged sale of more than $1.3 billion in "false and fraudulent tax deductions." According to the government, the seven indicted "engaged in a conspiracy to design, market and sell false and fraudulent charitable contribution tax deductions to high-income clients."
Two of the people "allegedly caused partnerships to donate conservation easements over land owned by the partnership," according to the Department of Justice’s release. They then allegedly used "two hand-picked appraisers … to generate fraudulent and inflated appraisals of the conservation easements that frequently valued the easements at amounts at least 10 times higher than the price that was actually paid for the partnership." The partnerships then claimed a tax deduction for a charitable contribution in the inflated amount of the conservation easement, resulting in a fraudulent deduction flowing to the clients who bought units in the partnership, the DOJ added.
The indictment makes it clear that the government believes the conservation easement transactions were "abusive tax shelters lacking in economic substance or business purpose." According to the government, attempts were made to disguise the transactions as real estate deals, but the deals were merely the illegal sale of inflated tax deductions.
I would encourage clients to read the full version of the indictment, and form your own opinion. And, as I will always say: It is proper and legal to plan for and participate in transactions that involve tax avoidance—as long as the transactions are motivated by a legitimate and substantial business purpose that includes economic substance. But, it is never proper to pursue transactions that involve tax avoidance, when the primary motive is tax avoidance, and the transaction itself lacks business purpose and economic substance. Why? Because, as the indictment makes clear, those transactions represent tax evasion, not tax avoidance. It is this simple: If it seems too good to be true, then it is too good to be true. Use your spider senses and stay away.
The DOJ indictment is available here: Download Indictment (04051846x9EF3B).
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