The Internal Revenue Service has called a particular tax avoidance scheme “abusive” and one of “the worst of the worst tax scams,” and officials have been fighting to put an end to it for the past six years.
Tens of thousands of audits have been conducted by the IRS, and those who take advantage of it risk severe penalties.
With criminal accusations and civil lawsuits, the Justice Department has pursued prominent proponents of deals it deems “fraudulent,” resulting in several guilty pleas and a civil settlement.
Republicans and Democrats in Congress have joined forces to introduce legislation that would outlaw the practice.
But the industry has retaliated with a group of lobbyists, including Henry Waxman, a former congressman who has long been regarded as a liberal lion.
The conflict demonstrates how powerful interests can thwart a resolution even in rare cases when both parties agree to take action.
Consequently, the scheme is still being used. According to the IRS, lost taxes along the way cost the U.S. Treasury billions of dollars.
Senator Ron Wyden of Oregon, who serves as the head of the Senate Finance Committee, stated that there is a “gold mine” of tax shelters in this area, and they are working very hard to protect it.
As long as the volume of transactions keeps rising, there is a tremendous amount of money to be made. The influence of lobbyists is on full display in this situation.
The government is pursuing a tax deduction known by the awkward name of “syndicated conservation easement,” which takes advantage of a charitable tax break that Congress established to promote the preservation of open land.
Standard conservation easements allow landowners to receive a charitable deduction in exchange for giving up their acreage’s development rights, which are typically donated to a nonprofit land trust.
Public welfare and property owner benefit when conservation easements are applied as intended.
A piece of unspoiled land is preserved, sometimes as a park open to the public, and the donor receives a tax break.
Versions that are syndicated are different. Profit-driven middlemen have turned areas like deserted golf courses or remote scrubland into high-return investment opportunities instead of trying to protect a bucolic reserve for humans or wildlife.
These land developers seize vacant parcels that had little value before that. They then employ a qualified appraiser who will claim that the property has enormous, previously unappreciated development value and is, therefore, worth significantly more than what was paid for it.
This value may be for luxury vacation homes or solar farms. People who purchase stakes in the donation from the promoters can then donate four or five times as much as they paid for them and still deduct that amount from their taxes. Millions of dollars in fees go to the promoters.
ProPublica first looked into the burgeoning Georgia-based syndicated conservation easement market in 2017.
The Land Trust Alliance, a trade group with 950 members who manage conventional conservation easements, was leading efforts to have it shut down at the time.
Leaders of the Alliance, who had long supported the charitable tax deduction, were horrified to see it being used fraudulently by individuals they deemed to be “brazen” profiteers.
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The Alliance forbade its members from accepting easement donations from syndicated deals out of concern that doing so would jeopardize the conservation deduction entirely and urged the IRS to start a crackdown. That endeavour started in earnest by the year 2020.
The IRS audits and enforcement actions that had previously dismantled other tax schemes failed to deter the syndicators, but they perplexed their opponents by refusing to back down.
The Partnership for Conservation, a trade organization based in Washington, was established by the syndicators (or P4C). Millions of dollars started to be spent on public relations and lobbying Congress.
P4C claims that syndicated deals provide both conservation and profit, and it regrets the “chilling effect” of the government crackdown.
There is a grinding quality to the battle right now. According to the IRS’ most recent estimates, the use of syndicated easements increased from 249 deals in 2016 that generated $6 billion in charitable deductions to 296 deals in 2018 that generated $9.2 billion in deductions.
(In contrast, more than 2,000 non-syndicated easement deductions have led to about $1 billion in annual deductions.)
According to IRS Commissioner Charles Rettig, the trend is still present today. Rettig made this statement last month to the Senate Subcommittee on Financial Services and General Government. His frustration was clear to see.
Despite our efforts, Rettig said in court, “we have not really had an impact on slowing the volume of these transactions that we receive at the moment. Congress must lend a hand. To stop this activity, we require a law.
One attempt was made by a powerful bipartisan group of lawmakers. A 151-page investigative report written by Republican Charles Grassley of Iowa and Democrat Ron Wyden of Oregon referred to syndicated easements as a “dollar machine” for wealthy taxpayers.
According to the report, all you have to do is insert a dollar bill to have the Dollar Machine give you two dollars back.
The Federal government, in the form of lost tax revenue, gave back the two dollars, not the promoters. The only risk involved was whether or not the transaction would result in an audit.
Sens. Steve Daines of Montana, Debbie Stabenow of Michigan, and Mike Thompson and Mike Kelly of Pennsylvania, all Democrats, are among the Republicans in the House who want to put a stop to syndicated deals.
Together, a number of these legislators introduced the Charitable Conservation Easement Program Integrity Act of 2017; since then, it has been reintroduced eight times, most recently a year ago, in one or the other congressional chamber, in updated form.
With a restriction on taxpayers claiming easement deductions that exceed 2.5 times their investments, the legislation seeks to end syndicated deals by reducing their profitability.
The Office of Management and Budget estimates that closing this loophole would result in $12 billion in extra tax revenue through 2027. Lawmakers claim it’s not a coincidence that the legislation hasn’t advanced further.
According to publicly available disclosures of lobbying activity, syndicators have spent $11 million on lobbyists since 2017.
More than $6 million of it was covered by P4C. The Justice Department has filed a civil fraud lawsuit against EcoVest Capital, a major promoter with an Atlanta office.
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Syndication proponents have launched an offensive while enlisting support from lawmakers to defeat the Easement Program Integrity Act.
They have demanded (so far unsuccessfully) that Congress revoke the IRS’s funding for enforcing its 2017 listing notice that labels profit-making syndicated deals as abusive and requires participants to disclose their participation.
Promoters of the syndicate actively court Democratic support, adding Waxman Strategies, a self-described “progressive-minded public affairs firm” led by liberal former California representative Henry Waxman, 82, to their roster of powerful lobbyists.
Frank Schuler, the founder of P4C, advised top EcoVest executives on the move in April 2018.
At the time, his Atlanta-based company was one of the most active promoters. In an email made public in court documents, Schuler stated that P4C was about to start the Waxman group to work on the D side of things.
It was a requirement of Waxman’s to accept the engagement that they really believe in what we are doing. We are currently in the heat of battle, so now is the time to invest another $23k per month.
