What is a Conservation Easement?

A conservation easement is a legal agreement that limits the use of land or property indefinitely in order to conserve its value. The property owner retains most of their rights as the proprietor while receiving significant tax benefits from both the state and federal governments. So while a piece of land that has a conservation easement might not be allowed to have a certain building or economic development, the owner retains many of the rights associated with private property.

What is a Syndicated Conservation Easement?

Over the past year the Treasury Department, IRS, and Justice Department have been working together to prosecute what they refer to as Syndicated Conservation Easement (SCE) schemes. A SCE is a group of individuals or entities which collectively agree to purchase a piece of land and claim it as a Conservation Easement in order to reap the tax benefits. SCEs are real tools which benefit landowners, municipalities, and environmental groups.

Much like any governmental program, people find a way to abuse it. In these prosecutions, law enforcement argues that individuals such as developers, accountants, etc. have crafted schemes with these SCEs to defraud the government in order to shelter their investors’ assets and avoid paying taxes. The abuse of the CSE rules is simple. The fraudsters buy a piece of land, obtain overvalued appraisals and pitch this “value” to a group of investors and promote a “legal” 4 to 1 tax deduction benefit as compared to the cash investment made by the individual (e.g. a $400k deduction for a $100k investment into the SCE). The fraudsters get commissions, tax benefits, fees, etc., and profit substantially while the government loses millions of dollars in tax revenue.

In December of 2020, a similar case was brought against two accountants in federal court in North Carolina. Two tax professionals entered guilty pleas in relation to a CSE. This was the first federal indictment of this nature. These two men are awaiting sentencing.

In June of this year, the Department of Justice (DOJ) indicted a Georgia CPA in promoting a fraudulent tax scheme. The IRS working alongside federal prosecutors claimed that accountant Herbert Lewis conducted a fraudulent SCE practice from 2014 to 2019. The Georgia CPA was charged with “one count of conspiracy to defraud the United States; 24 counts of wire fraud; 32 counts of aiding or assisting in the preparation of false federal tax returns; and five counts of filing false federal tax returns…”

In both these cases, these individuals face multiple years in jail and will be forced to pay the government large amounts in restitution.
The DOJ and IRS are focusing intently on fraudulent SCE schemes. Going forward we are likely to see more indictments being brought forth.