Originally published on Forbes.com.
EcoVest Capital is not rolling over and playing dead in response to a Justice Department complaint that, if acted on, would knock them out of the business of syndicating conservation easements. DOJ filed the complaint, on December 18. On December 26, an order staying the proceedings was issued because of, well you know, government shut down.
EcoVest Gets A Strong Team
I did not get any response from EcoVest or the individuals named in the complaint when I wrote about it last month. Well, now I have. For the trial in the public square they have engaged APCO Worldwide, a global communications consultancy. APCO has had some interesting clients over the years. I’ll leave googling them as an exercise for the reader. APCO has issued a press release – EcoVest Expects Full Vindication from Justice Claims on Land Conservation Easements.
For the courtroom, EcoVest has hired Covington & Burling. Trial attorney, Benjamin Razi is quoted:
this is an over-reaching government lawsuit that should never have been filed. It is based on gross misrepresentations about the conduct of EcoVest and its principals. While the government has unfortunately chosen to try to litigate the case by press release, we look forward to presenting the real facts in Court.
And we also hear from former Deputy Secretary of the Treasury Stuart Eizenstat, who once served as the lead U.S. negotiator for the Kyoto Protocol on Climate Change calls the complaint:
a mistake by government lawyers, and against the basic intent of what Congress enacted into U.S. law, which was to provide people tax incentives to use conservation easements to conserve land for the future. This is a clear plus for the environment.
The Dotted “i” And Crossed “t”
The gist of EcoVest’s defense according to the press release is:
EcoVest has undertaken its programs with scrupulous attention to these principles. Our programs are in full compliance with the legal requirements for conservation easements, while preserving open spaces, wildlife habitats and safeguarding natural resources for the long term. To date, EcoVest has helped protect nearly 20,000 acres of land, an area roughly the size of Manhattan.
Our business undertakes the most rigorous of processes to ensure that our investment programs and the appraisals of the value of conservation easements are valid. These appraisals are made by highly qualified appraisers which are then corroborated by secondary reviews from independent sources. We commission multiple third parties to perform independent due diligence and verify the validity of the independent, third-party appraisals and related work product.
There you have it. Reilly’s Fourth Law of Tax Planning – Execution isn’t everything, but it’s a lot.
What is not included is the secret sauce, that allows them to acquire property and not long after donate development rights that are worth four to five times as much as the cost of the property. To refer back to my laws of tax planning, they are violating the prime directive in that they don’t have a plausible story. Of course just because a story isn’t plausible doesn’t prevent it from being true.
Proposed Legislation
In a kind of odd coincidence Paul Streckfus of EO Tax Journal yesterday covered a legislative proposal to reign in abusive syndications:
U.S. Senator Steve Daines (R-MT) today introduced the bipartisan Charitable Conservation Easement Program Integrity Act of 2019, a bill that would curb abuses of the popular conservation easement tax benefit while allowing it to continue to serve as an important tool for conserving land and protecting family farms and ranches.
The bill limits qualifying conservations contributions, used for tax deductions, to those transactions that do not exceed 2.5 times (250%) of the partner’s adjusted basis. The bill excludes family owned partnerships from the proposal. The IRS recently informed the Finance Committee that $20 billion has been deducted through these abusive syndicated partnerships from 2010 to 2016. This amount costs taxpayers an estimated $8 billion.
Even 250% of basis strikes me as overly generous. Very roughly that would allow you to acquire the property as encumbered for free. At any rate, according to the newsletter support for the legislation has come from the Land Trust Alliance. Partnership For Conservation, on the other hand, thinks the legislation is terrible.
Land Trust People Respond
On the EcoVest press release, I have heard from Stephen Small, an attorney who represents land trusts.
I have seen the press release from EcoVest, which seems to emphasize conservation easements and land conservation. I don’t think the Justice Department is worried about conservation easements. Based on the filing from DOJ, I think the Justice Department is worried abusive tax shelters. This action appears to be aimed at ‘investments’ that throw off to ‘investors’ huge tax losses. I don’t think it’s any more complicated than that.
Joshua Lynsen of the Land Trust Alliance referred me to the Alliance’s release in response to the DOJ filing.
This is a watershed moment. Given the injunctive relief and severe penalties sought by the government, no investor in his or her right mind would now go near such a scheme.
Mr. Lynsen in a way is making EcoVest’s beef with DOJ “litigating by press release”. It is hard to see how EcoVest will be able to do any 2019 deals under the cloud that DOJ has created. When I spoke with their investor relations spokesperson, he indicated that there was nothing currently on offer, but that they tended to do their sales closer to year end.
Thought On Tax Policy
Evaluating conservation deals with high multiples as reasonable tax expenditures, they really come up kind of short. The government could actually buy the land for less than the tax expenditure. Tax incentives should really encourage people to do things, not do it for them and give them a bonus.
Other Coverage
The Cherokee Tribune & Ledger-News picked up the press release without much comment in Company alleges government overreach in tax lawsuit.
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