The United States’ national debt has ballooned in recent years, and it’s also a well-known fact that the federal government doesn’t have enough money to provide for basic needs. This is where conservation taxes come into play – they are placed on goods and services which can generate revenue without harming citizens financially or diminishing their quality of life.

The “conservation tax credit” is a type of tax that can be used to offset the cost of conservation. The “conservation tax credit” is available in many places, including Canada and the United States.

Conservation Tax

WASHINGTON— The agreements keep coming after more than six years of an Internal Revenue Service crackdown on what the agency claims are misuse of land-conservation tax incentives.

IRS authorities planned to shut down the most aggressive activities in a tax-avoidance mini-industry. Instead, they’re engaged in a lengthy fight with deal promoters. Some dealmakers were forced out by government inspection, but this opened the market to others who laid aside funds for legal costs and risks and banked on defeating the IRS via litigation.

Those that make deals have cause to be optimistic. After courts discovered flaws in decades-old standards, the IRS lost a major Alabama lawsuit. Sen. Kyrsten Sinema (D., Ariz.) stopped a bipartisan measure banning the most aggressive transactions from being included in Democratic budget legislation, and her office declined to comment. Other attempts to prosecute promoters and appraisers are taking their time in the courts.

So, even as the IRS raises warnings, dealmakers offer tax savings with a positive environmental spin, telling investors: “‘You can double your money from Uncle Sam and, by the way, you’re helping the Earth,’ ” said William Ellis, a Georgia accountant who is skeptical of the transactions. “These folks are earning a lot of money,” says the narrator.

Preservationists and policymakers have long used “conservation easements” to safeguard property and wildlife, which provide tax incentives to landowners who vow to never develop their land. These uncontroversial agreements, in their most basic form, protect forests, historical places, and even drinking water supplies.

The IRS has been paying close attention to a subgroup of conservation easements known as “syndicated” conservation easements. Officials claim that these depend on inflated property valuations, which allow promoters to get charity tax deductions for distribution to high-net-worth investors. Officials claim that investors often get $4 or more in deductions for every $1 invested, allowing for fast returns at taxpayer cost.

Conservation-Tax

Syndicated conservation agreements were among the IRS’s ‘dirty dozen’ tax frauds.

The Wall Street Journal’s Gabriella Demczuk took this photo.

“You don’t have to be a tax specialist to see that valuing property at several multiples of what the investors paid stinks,” said Tom Cullinan, acting IRS chief of staff.

Syndicated conservation arrangements are among the IRS’s “dirty dozen” tax schemes, and the agency is employing 200 attorneys to pursue easements and similar cases. The agency started requiring syndicated-easement promoters to submit the government with transaction data in 2016. The arrangements now come with a guarantee of an audit, and the following litigation is filling the docket of the United States Tax Court.

The specifics of promoters’ pitches were questioned by the Senate. Seven promoters, accountants, and appraisers were indicted by a federal grand jury in Atlanta in February for conspiring to cheat the government of $1.3 billion in deductions.

Supporters of the agreements created a trade association to fight legislative initiatives they see as unduly harsh and arbitrary, highlighting the environmental advantages. Meanwhile, the attention may have just promoted the deduction, piqued the interest of risk-averse real-estate developers, according to Anson Asbury, a Georgia lawyer who defends easements in court but advises clients against engaging in high-risk transactions.

“Those who have quit doing it have had someone else come onto the corner,” he continued, “frequently at the same volume or even higher.”

Syndicated easement deductions increased from $6 billion in 2016 to $9.2 billion in 2018, according to the most recent IRS statistics published in 2020, four years after the crackdown began. Evidence implies that trades have continued since then, generating significant profits to those who structure agreements.

According to a court filing, Birmingham, Ala.-based Green Rock LLC began conservation-easement arrangements in 2018 and completed 18 last year. According to Securities and Exchange Commission reports, it raised about $294 million from investors in 2020 and 2021. Broker commissions were $26 million, with more than $49 million going to Green Rock-affiliated persons and businesses. The profit margins aren’t revealed.

In a court filing dated April 15, Green Rock said that it was engaged on at least one easement deal. The corporation, however, announced it is abandoning the business in an April 26 answer to queries from The Wall Street Journal.

“Even though we feel some regulatory bodies are unjustly targeting the business,” the firm stated, “we have chosen to quit providing investment plans with the opportunity to protect land.”

Deals are made all around the country, and other promoters continue to market them. “Unique and deliberate alternative investments and company methods that are ecologically, socially, and economically beneficial,” says Sandy Bay Partners, situated in Florida. Sandy Bay raised around $150 million from investors in 2020 and 2021, according to SEC filings.

Sandy Bay’s managing partner, David Johnson, has expressed his opposition to proposed legislative curbs on syndicated transactions. “Unfair to millions, including small-business owners, medical providers, professionals, and the middle class, who could only engage in these sorts of possibilities via partnerships,” he added.

Conservation easements are eligible for tax advantages under federal law. Although the rules are specific, there is no general limit or public-sector priority setting. This gives landowners and investors the power to choose which conservation initiatives get funding.

Partnership-based deductions are appealing to high-income taxpayers who don’t own property but want to save money. The level of the deduction is usually equivalent to what investors lose up in terms of assessed value due to permanent conservation constraints. This leads to promoters finding locations that have the potential to become a profitable solar farm, luxury development, oil well, or granite mine, and then claiming tax benefits by vowing not to construct.

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As miners dig deeper into granite quarries like this one in Elbert County, Ga., they can generate many years of cemetery headstones. This possibility is one of the factors that may drive up the price of conservation easements that restrict such mining.

The Wall Street Journal/Richard Rubin photo

Farmland and wood tracts abound in Georgia’s Oglethorpe and Elbert counties, for example, with minimal traces of suburban encroachment from neighboring Athens. Land prices typically vary between $2,000 and $3,000 per acre. However, easement-deduction claims in the region have been reported to be near or over $100,000 per acre in tax court cases.

The counties lie on a slab of granite that is 35 miles long, 10 miles wide, and 2 miles thick, which is carved with diamond saws and polished into cemetery headstones and other monuments by local manufacturers.

Workers jackhammer rock and cranes load five-ton granite slabs from 100-foot-deep shafts in a quarry, which could potentially give decades of revenue. As a result, easement deal promoters who perform exploratory drilling for granite flock to the region. They then claim deductions by agreeing not to develop quarries, effectively alleging that previous owners were unaware of the full value they were sitting on.

Elbert County’s principal property-tax appraiser, Doug Kirkpatrick, estimates that operational mines are worth $25,000 per acre. That’s a lot less than the $100,000 price tag on certain easement sales and a lot more than the $2,000 to $3,000 price tag on bare property.

Mr. Kirkpatrick remarked, “You can find some appraisers who will create it as instructed—they’ll give you what you want.” “There’s a lot of mistreatment.” IRS investigators have reportedly visited the region and asked inquiries, according to local authorities.

Beyond agency-wide personnel constraints, the IRS confronts hurdles in combating misuse.

Appraisals are costly, unscientific, property-specific, and susceptible to judge-made split-the-difference decisions. As a result, the IRS often looks for technical faults in easement documents in order to completely invalidate deductions, in addition to attempting to win expert-witness fights. It takes years, and the IRS deed arguments have split the judges.

“We don’t think we’ve seen the full effect of our efforts yet,” Nikole Flax, the IRS’s commercial and international division chief, said. “We see it as abusive and harmful, and we will continue to use strong enforcement measures to combat it,” says the statement.

Green Rock was one of the most active promoters. In November 2021, a Green Rock subsidiary, Crawford Grove LLC, paid roughly $500,000 for a controlling stake in 302 acres in Oglethorpe County. According to an SEC filing, Crawford Grove Partners LLC began soliciting $10.6 million from investors on December 20.

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Crawford Grove conservation easement, located just outside the tiny county seat of Lexington in Oglethorpe County, Ga., is one of hundreds such easements signed in the region in recent years.

The Wall Street Journal/Richard Rubin photo

Crawford Grove granted a conservation easement to Heritage Preservation Trust, a charity whose founder is on the board of an industry body that protects syndicated agreements, on Dec. 22. The easement places permanent limits on the property’s usage. Heritage, which was founded in 2017, has 92 easements in 11 states by 2020, with another 19 in 2021.

“Our top priority is to protect conservation-worthy land,” Heritage CEO Doug Saunders said, adding that he is confident that most of the company’s 2021 easements were not syndicated deals subject to IRS disclosure and that IRS enforcement may be deterring landowners from making uncontroversial easements.

Green Rock committed not to mine in Crawford Grove, a dense grove of trees behind a poultry-equipment business, but limited forestry is permitted. The amount of the deduction isn’t made public.

Meanwhile, Green Rock has filed a federal lawsuit against the IRS over a 2016 letter requiring promoters to disclose syndicated easements on tax returns, a requirement that is a red flag for audits. The complaint claims that the government failed to follow a provision requiring public discussion before implementing the mandate, similar to prior successful lawsuits against IRS policies.

According to the complaint, the IRS letter harmed Green Rock’s image, made business partners and customers wary, and cost the company $250,000 in compliance fees. Green Rock has requested a court for a swift judgment after being represented by attorneys who won a comparable Supreme Court case and have resisted congressional demands for former President Donald Trump’s tax returns.

The Internal Revenue Service (IRS) does not comment on pending lawsuits or specific taxpayers. It just keeps on enforcing.

“They felt that by putting up that stop sign, everyone would come to a halt,” Mr. Asbury said. “There is still a need, and there are still individuals who can provide that desire.”

More information on the Easements Issue may be found here.

Richard Rubin can be reached at [email protected]

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

A conservation tax is a tax that’s imposed on the sale of real estate. The money collected from this type of tax can be used for land preservation and conservation purposes. Conservation easements are typically granted by a government entity to protect natural resources in an area. Are conservation easement payments taxable? Reference: are conservation easement payments taxable.

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