Conservation Easements have exploded in popularity as a tax shelter vehicle and many financial advisors are marketing them to their clients as sure things given the immediate tax savings and multiplier effect of the investment. Buyers need to be aware that they are not sure things and can land you in hot water with the IRS, and you may be on the hook for back taxes, interest, and penalties, not to mention the total loss of the initial investment into the conservation easement.
Here is what investors need to know:
What is a conservation easement?
A conservation easement provides for the preservation of property by permanently restricting development, commercial, industrial and other intrusive uses on the protected property. Typically used by landowners to permanently preserve existing natural environments and agricultural uses, conservation easements are a private action taken on private land that create a legally enforceable land preservation agreement between the landowner and a qualified land protection organization such as a land trust that is empowered and willing to enforce such an agreement. Following the recording of a conservation easement, the existing owner of the land remains the owner, and the property can be bought and sold. Use of the property is permanently restricted by the terms of the easements. Donors who follow the requirements set forth in Section 170 of the Internal Revenue Code (“IRC”), may be eligible for a federal income tax deduction equal to the value of their donation. The value of the easement donation, as determined by qualified appraisers, equals the difference between the fair market value of the property before and after the easement takes effect. Conservation Easements are considered by the Internal Revenue Service “IRS” to be charitable contributions and the easements must satisfy the criteria set forth by the IRS for special tax incentives.
One major problem with a conservation easement for any investor is that the amount allowable by the IRS as a deduction with respect to a charitable contribution of the property is the value determined by the fair market value of the property donated (i.e., the price at which the property would change hands between a willing buyer and a willing seller on the date of the gift.) (See Treas. Reg. Sec. 1.170A-1(C)(2). Conservation easements, however, normally are granted by deed of gift. As a result, there is rarely an established market that can be referred to in order to determine the value of the donated asset. The test the IRS will use is the fair market value of the property over which the easement was granted before the conveyance of the easement with the fair market value of the property after the easement is conveyed.
What are the Pit Falls?
Investors in conservation easements are subject to huge audit risks due to defective false and misleading appraisals. To make conservation easements attractive to investors many conservation easements “deals” dramatically over-inflate the price of the donated land to maximize the tax deduction. The IRS is reappraising many of these deals and our law firm has found that the discrepancy between the IRS’ appraisal and the appraisal done by the conservation easement has been, in some instances our investigation has found, a value discrepancy of over 50 times between the appraisals of the conservation easement and the IRS. That is a huge red flag and the IRS’ appraisal will more likely be founded in reality given that there is no incentive to artificially inflate the property value to maximize the tax deductions by the unit holders. These deals can be ripe with fraud and have discrepancies which are almost the equivalent of not being able to tell the difference between a double wide trailer and a beach front mansion.
What can you do about it?
If you were sold a conservation easement that is under audit from the IRS or recently disallowed by the IRS visit https://www.SecuritiesLawyer.com. An experienced securities attorney can file a claim against the financial advisor that sold the deal without doing adequate due diligence into the validity of the appraisal. Given that many of these representatives are FINRA registered representatives, the lawsuit will be filed in the FINRA forum against the brokerage firm where the representative was employed. Soreide Law Group handles claims in the FINRA forum nationwide and if you feel you were a victim of a conservation easement fraud sold to you by a financial advisor call 888-760-6552. We offer free consultations and there is no fee if we do not recover money.
Conservation Easement we are currently investigating:
Currently our firm is looking into the following conservation easement to potentially pursue claims against financial professionals that recommended the investment to their clients:
Glade Creek Conservation Easement, LLC located in Tennessee.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.