The US Tax Scam That Won’t Die
Peter Elkind (ProPublica) 21 June 2022
This story was originally published by ProPublica.
The US Internal Revenue Service (IRS), the Justice Department and Congressional Republicans and Democrats are all trying to put an end to syndicated conservation easements. But with lobbyists like Henry Waxman helping lead the resistance, the efforts have had little effect.
For the past six years, government officials have tried ever harder to kill a type of tax avoidance scheme that the Internal Revenue Service has branded “abusive” and among “the worst of the worst tax scams.” The IRS has pursued tens of thousands of audits and warned of hefty penalties facing anyone who exploits it. The Justice Department has targeted top promoters of what it calls “fraudulent” deals with criminal charges and civil lawsuits, yielding several guilty pleas and a civil settlement. In Congress, Democrats and Republicans have united to sponsor legislation to abolish the practice.
But the industry has fought back with a coterie of lobbyists, including a onetime member of Congress long viewed as a liberal lion, Henry Waxman. The battle shows how even on those rare occasions when both parties agree to take action, well-funded interests can frustrate a solution.
The result: The use of the scheme continues unabated. Along the way it has cost the US Treasury billions in lost taxes, according to the IRS.
“There is a tax shelter gold mine here, and they’re fighting very hard to protect it,” Oregon Sen. Ron Wyden, chair of the Senate Finance Committee, said. “There are enormous sums of money to be made as long as the number of transactions keeps increasing. This is a textbook case of the power of lobbyists.”
The government is targeting a tax deduction that goes by the cumbersome name “syndicated conservation easement,” which exploits a charitable tax break that Congress established to encourage preservation of open land.
Under standard conservation easements, landowners who give up development rights for their acreage, usually by donating those rights to a nonprofit land trust, get a charitable deduction in return. When conservation easements are used as intended, both the public and the owner of the property benefit. A piece of pristine land is preserved, sometimes as a park that the public can use, and the donor gets a tax break.
The syndicated versions are different. Instead of seeking to protect a bucolic reserve for wildlife or humans, profit-seeking intermediaries have turned the likes of abandoned golf courses or remote scrubland into high-return investment vehicles. These promoters snatch up vacant land that till then was worth little. Then they hire an appraiser willing to declare that it has huge, previously unrecognized development value — perhaps for luxury vacation homes or a solar farm — and thus is really worth many times its purchase price. The promoters sell stakes in the donation to individuals, who claim charitable deductions that are four or five times their investment. The promoters reap millions in fees.
ProPublica first investigated the booming syndicated conservation easement business, which initially took root in Georgia, back in 2017. Efforts to shut it down were then already underway, led by the Land Trust Alliance, a trade association whose 950 members administer traditional conservation easements. As longtime advocates of the charitable tax break, Alliance leaders were horrified to see it exploited, in their view, by “brazen” profiteers claiming bogus deductions.
Fearful that this would jeopardize the conservation deduction altogether, the Alliance barred its members from accepting easement donations from syndicated deals and prodded the IRS to begin a crackdown. By 2020, that effort was underway in earnest.
But the syndicators flummoxed their opponents by refusing to back down, despite IRS audits and enforcement efforts, which had shut down other tax schemes in the past. The syndicators had formed their own Washington trade group, called the Partnership for Conservation (or P4C). They began spending millions on lobbying Congress and public relations. P4C argues that syndicated deals offer conservation and profit, and it rues what it has called the “chilling effect” of the government efforts to crack down.
Today, the fight has taken on a grinding quality. By the IRS’ most recent reckoning, the use of syndicated easements grew from 249 deals in 2016, generating $6 billion in charitable deductions, to 296 deals in 2018, producing $9.2 billion in deductions. (By contrast, more than 2,000 non-syndicated easement deductions have resulted in about $1 billion in annual deductions.) Continue Reading
Free Helpline
Legal Credit