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Accountants, Appraisers, Attorneys Sued Over Alleged Tax Credit Fraud Scheme

An Atlanta commercial real estate executive invested nearly $150K in land just outside of Savannah in the hopes of netting a tax write-off of more than $500K in 2010.

Photo by Dhruva Reddy on Unsplash
More than 20 million acres of land is under conservation in the U.S.

Six years later, the IRS told Savills Studley Atlanta Vice Chairman Andrew Lechter otherwise, reducing his original write-off to just more than $40K.

Now Lechter is part of a larger class-action lawsuit, suing an Atlanta accounting firm and a host of other companies for defrauding investors into believing the IRS would grant those write-offs under a long-controversial program known as syndicated conservation easements.

“You're basically buying a deduction. That's the tax shelter portion of it. And that's completely and utterly abusive,” Las Vegas-based Adkisson PLLC partner Jay Adkisson said.

The lawsuit, involving Atlanta accounting firm Aprio and a host of other companies and property appraisers, including the law firm Burr & Forman and the Atlantic Coast Conservancy, alleges that Aprio led a scheme to defraud investors of its syndicated conservation easement program by luring investors to buy overly inflated properties.

In turn, the investors were promised IRS charitable deductions more than what they paid for their portion of the land, the suit alleges.

Ever since its adoption, the conservation easement has been a loophole — long a thorn in the side of the IRS. Last year, the IRS even added conservation easements as part of its "Dirty Dozen" tax scams to watch for list.

While its purpose is to incentivize landowners to prevent eligible properties from being developed commercially or otherwise, the IRS has alleged that many have abused the write-off as a tax loophole. The agency's main ire has been focused on syndicators — middlemen who buy up and package land, and potentially inflate their values with appraisers, and then create conservancy easements that they sell to investors with promises of larger charitable write-offs than the initial investments.

"We will not stop in our pursuit of everyone involved in the creation, marketing, promotion and wrongful acquisition of artificial, highly inflated deductions based on these aggressive transactions,” IRS Commissioner Chuck Rettig said in a 2019 release announcing stricter enforcement actions against syndicated conservation easement transactions.

“Every available enforcement option will be considered, including civil penalties and, where appropriate, criminal investigations that could lead to a criminal prosecution," he said.

Rettig said in the release that such schemes ultimately defraud the government of revenue.

Accountants, Appraisers, Attorneys Sued Over Alleged Tax Credit Fraud Scheme
IRS Commissioner Chuck Rettig

"Putting an end to these abusive schemes is a high priority for the IRS," he said.

The civil court lawsuit against Aprio, in this case, was not spawned by the IRS, nor is it directly involved in the litigation. Lechter does not identify himself as being with Savills in the suit but was described as a resident of Fulton County. The other plaintiffs named in the suit include Sylvia Thompson, Lawson Thompson, Russell Dalba and Kathryn Dalba.

When reached by phone, Lechter declined to comment and deferred questions to his attorneys, who did not return calls seeking comment. Officials with Aprio, the law firm Sirote & Permutt PC and the Georgia-Alabama Land Trust — all named as defendants — also declined to comment on the lawsuit.

“Founded in 1994, GALT is a 501(c)(3) nonprofit dedicated to protecting land for present and future generations. One tool utilized to protect land is a conservation easement,” Georgia-Alabama Land Trust Director of Legal Affairs Hal Robinson said in an email to Bisnow.

There are currently more than 167,700 conservation easements in the U.S., preserving more than 27 million acres of land, according to the National Conservation Easement Database. And their popularity has risen in recent years as well. Between 2012 and 2014, total deductions for easements rose from $971M to $3.2B, according to the Brookings Institute.

According to allegations in the lawsuit, Aprio spearheaded an effort that “was fatally flawed from the outset” with the help of a group of law firms, real estate agents, appraisers and conservancy holding companies to overvalue land holdings despite numerous warnings from the IRS that such behavior was going to be targeted. In turn, the groups earned fees to create these conservancy easement portfolios that were ultimately sold to investors, the lawsuit alleges.

“All of the Defendants (including the Appraiser Defendants) knew that these grossly inflated appraisals would be used by the Plaintiffs and the Class to claim charitable contribution deductions from the SCE strategy that, unbeknownst to Plaintiffs and the Class, were completely unsupportable,” attorneys allege in the suit.

For instance, in 2008, Lechter was part of a group that purchased 380 acres outside of Savannah. According to the suit, Lechter paid $141,312 to participate in what was known as the Oakhill Syndicate. With portions of the property officially dedicated for conservation and valued at more than $7.9M, Lechter was expecting to take a tax write-off of $635,900 in 2010.

In February, though, the IRS cried foul on this amount in the United States Tax Court, citing that the syndicate failed to report its “cost or adjusted basis” when filing for the claim, nor offer any explanation for why it failed to do so. The agency reduced the charitable write-off amount to more than $40K.

Lawyers in the suit recounted a U.S. Tax Court judge in a January hearing who questioned how the Oakhill acreage could appreciate by more than 800% “amid the worst real estate crisis since the Great Depression.”

The suit alleges Aprio submitted the 143-page appraisal form on the property without indicating the basis for the property’s value on the original 35-page tax form, forcing revenue agents to read the appraisal report to determine the cost basis of the acquisition.

“This is precisely the sort of information that Congress wished the IRS to have, and Oakhill’s refusal to supply this information contravenes the ‘essential requirements of the governing statute. [T]his was not a case of inadvertent omission, but of a conscious election not to supply the required information,'” the plaintiff attorneys stated, quoting the tax court in its lawsuit.

The plaintiffs' lawyers also allege that Aprio used parties — including appraisers — who knowingly colluded with them in the scheme, including law firms who validated the program and returns promised by Aprio to investors. The defendants have yet to respond to the suit in federal court.

One of the defendants — the Atlantic Coast Conservancy's Robert Keller — told ProPublica in a story about syndicated conservancy easements that the fight against the tax shelter scheme was a result of political pressure from the Land Trust Alliance — an organization that seeks to preserve land — on the IRS.

“For me, as a conservation biologist, this allows me to put away vast pieces of property,” Keller told ProPublica. “I want to save the world.”

Keller filed a Freedom of Information request with the IRS for its correspondence with the Land Trust Alliance, ProPublica reported, where they are seeking a smoking gun that the two groups colluded against syndicated providers.

Adkisson, whose work as an attorney has focused on tax shelters, said the scheme alleged in the class-action suit is not uncommon when it comes to syndicators who abuse the tax sheltering program. The key, he said, are the appraisers, who over-inflate the value of the land's potential in order to beef up the prices of the land being set aside for conservation. Adkisson read the suit but is not involved with any of the parties.

"The trouble at the IRS is distinguishing between the legitimate easement deals and the syndications. Shelters are hard for the IRS to bust for the reason that shelters are like lies. They all have a kernel of truth in them,” Adkisson said.

“Different people have different motivations," he said. "But I think if you look at the way it was being sold, a vast majority of the people got into it because they could buy a deduction at a small price. Here they were just trying to scam a deduction.”