Senate Finance Committee Launches Tax Investigation of Conservation Easements

On March 27^th, the Senate Finance Committee launched an investigation into conservation easements by sending letters to 14 people involved in easement transactions. The letters ask for copies of appraisals, promotional materials and internal documents. The senators are also requesting investors’ names and addresses, along with information about promoters’ fees.  A copy of one of the letters is HERE .  The letters requesting the information were sent to the following people who, according to the committee, appear to be involved in easement deals:

Mr. John Steven Bush
Mr. Matthew Campbell
Mr. Andrew Kyle Carney
Mr. Thomas Jason Free
Mr. James Freeman
Mr. Christopher T. Graham
Mr. Bryan Kelley
Mr. Aaron J. Kowan
Mr. Robert McCullough
Mr. Matt Ornstein
Mr. Eugene “Chip” Pearson, Jr.
Mr. Mark A. Pickett
Mr. Ricky B. Novak
Mr. Frank Schuler

A Senate press release contained the following statements:

For several years now, the IRS has been investigating these transactions. They appear to involve promoters selling interests in tracts of land to taxpayers looking for large tax deductions. In such an arrangement, the taxpayers then get inflated appraisals of those tracts of land and grant conservation easements on that land. The resulting inflated charitable deductions are then split among the taxpayers.

There are very legitimate purposes for the conservation easement provisions of the tax code. But when a handful of individuals cook up a scheme to cash in at the expense of federal revenue and in violation of Congress’s intent, something needs to change. There’s no reason that the rest of the taxpaying American public should be left with such a raw deal.  This is just our first step in getting to the bottom of how these tax provisions are being abused, and it will inform what else ought to be done to fix the problem.

Groups of taxpayers appear to have used and continue to use syndicated conservation easements to reap tax benefits greater than their initial investments. These groups of investors will pool resources to buy land and grant conservation easements on it to prevent development. With very little oversight, many of these groups receive extravagantly high appraisals for that land, boosting their tax benefits.

According to the press release, the Brookings Institution found that conservation easements cost the federal government more than $3 billion dollars in 2014 alone with that amount expected to increase each subsequent year.

The investigation comes on the heels of the Justice Department suing Georgia based promoters, asking a court to stop them from being involved in further transactions.   The defendants in that case have vigorously denied any wrong doing.

Many tax professionals will recall that a Senate Finance Committee investigation was the genesis of the IRS investigation of many of the tax shelters promoted in the late 1990’s and early 2000’s, including the Son-of-Boss transaction.  The IRS investigation resulted in thousands of IRS examinations, payment of tax, interest and penalties by participating taxpayers and criminal prosecution of many of the promoters.

For any questions on this or any other tax-related matter, please feel free to contact Joel Crouch at (214) 749-2456 or jcrouch@meadowscollier.com.