Congressional panel targets ‘abusive’ tax shelters popular in Ga.

May 8, 2017 - Clay County's one doctor is at this location in Fort Gaines. BOB ANDRES  /BANDRES@AJC.COM
May 8, 2017 - Clay County's one doctor is at this location in Fort Gaines. BOB ANDRES /BANDRES@AJC.COM

Credit: bandres@ajc.com

Credit: bandres@ajc.com

Syndicated land conservation easements draw scrutiny

There are no traffic lights or high schools in Clay County, a sparsely populated region about 50 miles west of Albany that’s one of the state’s poorest.

There aren’t any hospitals either. The county’s only doctor sends sick patients more than an hour away, across the Alabama line, to visit the emergency room.

All of that wasn’t enough to stop real estate developers from marketing Clay County, population 3,000, as an investment opportunity in 2013 for a 227-acre, 800-unit senior living facility.

But such a facility was never seriously considered, according to a bipartisan congressional investigation alleging the land deal was instead a smokescreen for wealthy investors hunting for massive tax deductions.

The transaction, flagged in last week’s U.S. Senate Finance Committee report, is an example of syndicated conservation easements that the panel said “appear to be highly abusive tax shelters.” Syndicated easements have become increasingly popular in Georgia over the last decade, where a cottage industry of promoters has emerged in Rome and metro Atlanta.

The IRS estimates that between 2010 and 2017, such deals generated nearly $27 billion in tax benefits for investors, including thousands of doctors, business owners, athletes and celebrities. Most of those investors, the Senate report notes, “appear to reside or work in the southeastern United States.”

Defenders say reports of abuse are overblown and that easements have conserved tens of millions of acres of land in the four decades since the law was created.

Key senators, meanwhile, are calling for legislation to curb syndicated transactions, as well as aggressive enforcement from federal agencies, which have cracked down over the last four years. Easements more broadly have come under scrutiny after several golf course owners, including President Donald Trump, took deductions.

Georgia a hot spot

Conservation easements are tax deductions given to landowners who agree to permanently ban development on their environmentally sensitive land. For example, if a property is valued at $5 million fully developed and $1 million undeveloped, investors could claim a $4 million charitable tax deduction.

In syndicated easements, like the one in Clay County, promoters sell interests in tracts of land to investors, who together decide whether to develop or conserve the land.

What’s become increasingly common, according to the Finance Committee, are crooked appraisals that inflate land valuations, jacking up the deductions investors receive for agreeing to conserve it.

Finance Committee Chairman Chuck Grassley, R-Iowa, and his Democratic counterpart Ron Wyden of Oregon have expressed concern that syndicated transactions are allowing wealthy investors to game the tax code, costing the federal government billions in lost tax revenue. The report estimates such investors typically reap two dollars in tax savings for every dollar invested with land promoters, who themselves pocket millions in fees.

Syndicated transactions have exploded in popularity in recent years, increasing by 44% between 2015 and 2017, according to IRS data.

More than one-third of all deductions for conservation easements were claimed by Georgians between 2010 and 2012, according to a 2017 Brookings Institution report.

A onetime state-level tax credit helped incentivize such deals, while some point to the Southeast’s relatively large amount of undeveloped land outside of rapidly growing cities.

Other observers credit the emergence of groups and individual promoters in Georgia — a half dozen of whom were subpoenaed for documents by the Finance Committee last year, including former state Sen. Eugene “Chip” Pearson — who made syndicated transactions a key part of their business strategy.

Robert Ramsay, the former head of the Georgia Conservancy, has been the most vocal defender of syndicated easement transactions. He now leads the nonprofit Partnership for Conservation.

Ramsay said the staff of the Senate Finance Committee had a “predetermined narrative” about syndicated transactions when they launched their investigation. “What I saw were examples of what some have said they don’t like. I didn’t see any instances where it was clear to me to anybody had broken any laws,” he said in an interview.

Ramsay warned that curtailing syndicated transactions would have a chilling effect on an important conservation method.

In the final days of Obama administration, the IRS began requiring taxpayers to flag large transactions in their returns, increasing the potential for audits. The IRS has also litigated easement cases, winning a string of them in Tax Court in recent months, according to The Wall Street Journal.

Clay County deal

The Senate report detailed the sales pitches of several Georgia-based promoters, including EcoVest Capital, an Atlanta-based real estate developer under federal investigation. EcoVest has denied any wrongdoing.

The U.S. Justice Department wants to shut down Atlanta-based EcoVest Capital over allegedly abusive conservation easement transactions, “resulting in hundreds of millions of dollars of tax harm,” according to a federal complaint. EcoVest has denied any wrongdoing. SPECIAL
The U.S. Justice Department wants to shut down Atlanta-based EcoVest Capital over allegedly abusive conservation easement transactions, “resulting in hundreds of millions of dollars of tax harm,” according to a federal complaint. EcoVest has denied any wrongdoing. SPECIAL

It also highlighted several case studies, including the Clay County land deal that netted investors $12 million in charitable deductions and about $4.8 million in tax savings.

The property’s promoter, Rome, Ga.-based Webb Creek Management Group, told investors in 2013 that a large parcel of undeveloped land along Eufaula Highway might be developed into a senior living facility. More than 50 investors paid more than $11,000 an acre after an appraiser estimated the property would be worth nearly $55,000 an acre if it were developed into a senior facility. The appraisal also determined that with a conservation easement, it would be worth only $1,300 an acre.

Within two days of the partnership’s close date on Dec. 26, 2013, 96% of investors voted to grant a conservation easement instead of developing the land. While investors split millions in tax benefits, Webb Creek pocketed $200,000 in fees, according to the Finance Committee.

“It seems unlikely that those investors had the time to make an informed decision on the property’s development prospects within the three days after Christmas 2013, given the scale of the purported 800-unit senior living facilities,” the report argues.

In a lengthy statement posted on its website, Webb Creek disagreed with the committee’s assessment. It said the land was seriously vetted for a senior living facility, initially called “The Villages at the Lake.”

“Contrary to the (committee’s) self-serving conclusion, at the time the development was originally contemplated in 2006, the lack of comparable property development in Clay County was a significant factor in the residential appraiser’s conclusion that ’The Villages on the Lake’ had good development potential,” Webb Creek stated.

The Finance Committee said courts and the IRS have “long held” that investors are “obligated to demonstrate that such alternative use is reasonably probable, not simply within the realm of possibility” to claim an easement.