The state of the conservation syndication easement industry brings to my mind one of my favorite Kingston Trio songs – Everglades.
The state of the conservation syndication easement industry brings to mind one of my favorite Kingston Trio songs – Everglades.
Where a man can hide and never be found
And have no fear of the bayin’ hound
But he better keep it movin’ and don’t stand still
If the skeeters don’t get him then the gators will
Last week there were four Tax Court decisions disallowing deductions totaling over $20 million claimed by partnerships sharing Effingham Managers LLC as tax matters partner. The swarm of revenue agents disallowing deductions are the skeeters. And then there is that DOJ effort against the industry leader Ecovest. DOJ can be one mean gator.
But another gator may now be causing even more aggravation. Class action attorneys led by David Deary have filed two lawsuits against promoter groups. Jay Adkisson covered Lechter et al v Aprio LLP et al on Forbes.com on March 28. That was the very day I started my Paycheck Protection frenzy from Tylertown Mississippi, which is why I did not get to it.
On July 3,2020, Deary filed a complaint on behalf of William N. Turk, Carlita B. Turk, Norman Radow and “all others similarly situated”. There are thirty defendants.
The plaintiffs invested in syndicated conservation easement partnerships and the IRS has issued Final Partnership Administrative Adjustments. Mr. Deary told me that the issuance of the FPAA is the point at which the investors are in a position to claim damages. In both cases, there was a Tax Court petition filed and the cases are presently docketed – Lakepoint Land II LLC and Industrial S&G LLC.
The Problem With Syndicated Conservation Easements
For what the problem is with syndicated conservation easements is I will refer you to my piece- Syndicated Conservation Easements – An Industry Based On Nonsense. It is just not possible to buy land and shortly give away the development rights and come out ahead from the tax savings without fibbing on the valuation. The market for commercial real estate is imperfect, but it does have quite a few very smart people
A Massive Conspiracy
At this point all there is a complaint and as Jay Adkisson pointed out in his piece, a complaint is a very one-sided narrative:
“Complaint is nothing like an adjudication of the issues that it contains but simply a number of allegations which can be utterly true or utterly false, and recalling the lawyer’s saying that “any fool with $500 can file a Complaint”.”
The picture that the complaint paints is of a massive conspiracy.
“This case involves the development and implementation of a fraudulent scheme to sell a flawed and defective tax-savings strategy: a Syndicated Conservation Easement Strategy (the “SCE Strategy”)…..
……the Defendants utilized a prepackaged collection of misrepresentations, omissions, deficient form documents, faulty conservation easement deeds, and bogus appraisals to promote, sell and implement the SCE Strategy, which the Internal Revenue Service (the “IRS”) has determined, as structured and implemented, does not comply with the requirements of Section 170(h) of the Code”
There are lawyers, accountants, consultants, not-for-profit leaders, appraisers and wild turkeys among the defendants. The complaint does not suggest that the wild turkeys were in on it, although it does not absolve them. The rest of the bunch. They are all bad.
The Mastermind
According to the complaint, the mastermind is Timothy Pollock, now retired from the law firm Morris, Manning & Martin. Pollock is still listed on the firm’s website where we learn that:
“Mr. Pollock is well known for his expertise related to conservation easement transactions. He has acted as lead tax counsel in over 250 syndicated and non-syndicated transactions over the past eight years. He was a founding board member of Partnership for Conservation (“P4C”), a diverse national coalition of stakeholders in more than 40 states representing the entire conservation easement ecosystem, where he served for two years. He remains an active member of P4C.”
Included in his “Representative Experience” we find:
“Representation of landowners and partnership donors of conservation easements involving more than $1 billion of federal charitable deductions.” (Emphasis added)
I was unable to contact Mr. Pollock, but I did reach Simon R. Malko, the Managing Partner of Morris, Manning. Mr. Malko had no comment on the litigation.
Atlantic Coast Conservancy
Atlantic Coast Conservancy Inc. stands out among the defendants along with its CEO Robert Keller. ACC and Keller also appear as defendants in the Aprio case filed in March. They were featured in a 2017 ProPublia piece by investigative reporter Peter Elkind – The Billion-Dollar Loophole.
Doctor Keller (he has a Ph. D. in conservation biology from Wake Forest University) had no comment for me either about the litigation or the state of the industry generally.
When it comes to ACC and Keller, a different narrative might be that he is passionate about conservation and considers any land set aside a victory for the future. The cost to the federal government in tax revenue is immaterial.
