Government's Easement Syndication Complaint Survives Dismissal Motions

Published date01 February 2020
Date01 February 2020
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)).
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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and related law for nonprofit organiza-
tions and their professional advisors.
Volume 37 Number 2
February 2020
Also in This issue...
Another Round of Charitable
Deduction Regulations Issued 3
Tax Exemption Precluded in Part
Because of Stiftung Principles 4
After Three Efforts, Trust
Becomes Reformed Remainder
Trust 5
Final Regulations Issued
Concerning VEBA/SUB UBI
Calculations 5
Other Recent IRS Private Letter
Ruling 6
Tax-Exempt Organizations and
E-Filing 6
President Trump Ordered to
Pay Damages for Misuse of
Foundation 7
Universal Charitable Giving Act
Introduced 7
Qualified Opportunity Zones
Legislation Introduced 8
Other Developments 8

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