Government's Easement Syndication Complaint Survives Dismissal Motions

• Published date: 01 February 2020
• Date: 01 February 2020
• DOI: http://doi.org/10.1002/npc.30681

THE LAW OF TAX-EXEMPT ORGANIZATIONS MONTHLY

GOVERNMENT’S

EASEMENT

SYNDICATION

COMPLAINT SURVIVES

DISMISSAL MOTIONS

The federal government, in one of the first of its complaints in conserva-

tion easement syndication tax shelter cases, persuaded the court to not dismiss

the case, particularly in relation to the claim of fraud (United States v. Zak (N.D.

Ga., December 10)).

Facts

The federal government brought this action against defendants, accusing

them of participation in a “highly structured — and abusive — tax scheme

involving the syndication of conservation easement donations.” This scheme,

the government alleges, is designed to “exploit” the federal tax law concern-

ing deductible conservation easement gifts (IRC § 170(h)). In its complaint, the

government laid out 11 discrete steps representing the “general pattern” of the

defendants in designing their conservation easement offerings.

This “conservation easement syndication scheme” is said to commence

with the defendants forming limited liability companies, for the sole purpose

of owning parcels of real estate. They hired an appraiser to appraise the land.

The defendants then marketed the ownership interests in the LLC — the value

of which, in the language of the opinion, is “derived only from the possible

future tax benefit of converting the land to a conservation easement — to

wealthy persons who may seek to maximize their tax benefits.” The market-

ing of these interests “clearly explains how the conservation easement might

benefit a person in a particular tax bracket by reducing his or her tax burden

substantially.” Once all stakes are sold, the LLC designates the land as subject

to the conservation easement, finalizes the appraisal of the land’s value, and

prepares its tax return.

Because the LLC is a pass-through entity, as this complaint notes, the “size-

able tax benefit it incurs for designation of the land [as subject to the easement] © 2020 Wiley Periodicals, Inc.

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DOI:10.1002/npc

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Volume 37 Number 2

February 2020

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