Chicago-based securities law firm Stoltmann Law Offices continues to represent investors nationwide in claims involving bogus tax-shelter investments like syndicated conservation easements. One of the most troublesome products sold by brokers in recent years have been vehicles that offer investors substantial tax breaks that skirt the US tax code. Although the promise of reducing taxes is always a powerful incentive for high net-worth investors, the vehicles themselves may not be allowed by the Internal Revenue Service (IRS) or Tax Courts. The IRS can be ruthless and unforgiving and an investor invested in a “tax shelter” that the IRS determines lacks legitimacy, it is the investor that will owe every nickel of those tax savings back, plus penalties and possible criminal prosecution. It can be a scary and expensive situation.
Syndicated conservation easements offer buyers generous tax deductions for donating property for conservation purposes. Although mostly done by landowners for ecological preservation and restoration, brokers have “bundled” these vehicles to sell them to unsuspecting clients, who buy them thinking they will be gaining outsized tax write-offs. Last year, the IRS announced that it would step up enforcement on these vehicles, which it included in its “Dirty Dozen” list of abusive tax scams to avoid. Two years ago, the U.S. Department of Justice shut down a Georgia-based firm marketing these schemes.
The way a conservation easement scheme works is initially based on a legitimate tax write-off. Say you have a piece of property that has some significant ecological or preservation value. Under IRS rules, you can directly donate the real estate by placing it in a land trust or gift it to a charity, ensuring that it won’t be developed in perpetuity. If it’s a legitimate transaction, you can take a write-off based on the fair value of the land.