Citing an Internal Revenue Service report, Bloomberg issued a warning about syndicated conservation easements, noting that the real estate opportunity previously derided by the IRS as an abusive tax shelter is making a comeback amongst some brokers and financial advisers, going so far as to use the phrase "tax scam."
The IRS in February 2021 warned of tax abuses related to conservation easements, with Bloomberg's report taking the investigation a step further, noting that the IRS has challenged $21 billion in tax deductions claimed for syndicated conservation easements from 2016 through 2018. The report warns investors that may have received unsolicited and unsuitable recommendations to invest in conservation easements that they may be on the hook for millions of dollars in back taxes and/or penalties that may have never been disclosed to them by their broker.
According to the report, some of the unsolicited email advertisements portray an opportunity to purchase undeveloped land and, in exchange, receive massive tax deductions and benefits that, according to the IRS, may not actually be valid, depending on certain circumstances.
Essentially, the "scam" works thusly: A broker or financial representative recommends an investor put their money in a conservation easement, advertising that the investor can enjoy large tax benefits as a result—for instance, a $100,000 conservation easement investment may be portrayed as capable of generating $400,000 in tax benefits. Unfortunately for the investor, the IRS has stated it doesn't always agree with these tax deductions and have accordingly begun to deny some of the claims, leaving investors liable for not just back taxes but substantial penalties as well.
FINRA in 2018 issued the report, Reasonable Diligence for Private Placements, warning that some firms failed to perform diligence on conservation tax easements, finding that firms failed to investigate red flags such as a significant risk of the IRS disallowing tax deductions.
As early as 2017, InvestmentNews cautioned that the advertised tax benefits of conservation easements might not actually exist, writing that the IRS planned to take a closer look at syndicated conservation easement deals, and apply increased scrutiny on the massive charitable contribution tax deductions associated with conservation easements.
For example, the IRS raised the alarm when it noticed certain conservation easement deals associated with tax deductions worth four to four-and-a-half times the investor's principal investment.
As a result of the potential IRS denials, investors previously promised massive tax deductions may instead face massive tax liabilities and penalties. If you invested with a firm or broker who unsuitably recommended investing in a syndicated conservation easement that has proven harmful to your financial interests, please call an experienced FINRA arbitration attorney at The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.