IRS Struggling To Make Progress In Battle Against Abuse Of Conservation Tax Break

For the past few years, the IRS has been working to crack down on investors who use a tax break meant for preserving natural resources to profit at taxpayer expense. It hasn't been going very well.

Attempts by the federal government to prosecute fraudulent use of syndicated conservation easements in courts have been slow-moving and not consistently successful, while legislative attempts to close the perceived loophole have been blocked, The Wall Street Journal reports. Conservation easements give tax breaks to property owners who promise to preserve land they own based on the theoretical value of commercial development or resource extraction on that land.

Syndicated conservation easement deals involve private equity investors or brokers gathering groups of investors to purchase a tract of land for the specific purpose of preserving it, while assessing the property's value far above the purchase price based on the theoretical economic activity the buyers prevent. Lawsuits and criminal charges have been brought against practitioners accused of artificially inflating the assessment of potential economic value, by both private parties, financial regulators and the IRS itself, the WSJ reports.

Brokers, tax advisers, attorneys and other services professionals who promote and advise on such deals stand to rake in fees for the practice, like the seven Atlanta accountants indicted on federal charges in March for allegedly recruiting high net worth individuals for a $1.3B conservation easement scheme. The practice remains widespread, and some of the largest operators continue to advertise the tax benefits to potential investors.

One such practitioner, North American Land Trust, has assisted landowners on conservation easement deals that the IRS has audited for fraud more often than any similar entity, including for facilitating a $21M easement for President Donald Trump at a New York estate he owns, the Philadelphia Inquirer reports. Trump has taken out easements on other properties, including golf courses, that New York Attorney General Letitia James alleges overstate the value of the protected land.

The IRS has promised to devote even more resources toward exploring strategies to more effectively deter the practice. Its litigation has already caused one major syndicator, Alabama's Green Rock LLC, to declare conservation easement investments not worth the trouble, the WSJ reports, even as it advances a lawsuit against the IRS alleging reputational harm from the agency's investigations.

CORRECTION, MAY 5, 11:15 A.M. ET: A previous version of this article misstated North American Land Trust's relationship to IRS audits of conservation easement deals. This article has been updated.

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