The pitch was for what’s known as a syndicated conservation easement, a land deal that the Internal Revenue Service says is often an abusive tax shelter.
While no one has alleged anything improper with the Mississippi deal, Beer rejected it as “economically absurd.” Still, plenty of others have said “yes” to similar ones marketed across the U.S.
IRS Commissioner Charles Rettig told a Senate panel last month that 28,000 taxpayers are under examination, and the agency has challenged $21 billion in tax deductions claimed for syndicated conservation easement investments from 2016 through 2018.
One investor who requested anonymity said he put money in at least 10 deals with a promoter who sold them as a way to generate tax deductions rather than as development projects.
The industry selling syndicated conservation easements is “facing a ticking time bomb and potentially billions of dollars in exposure through arbitrations and lawsuits,” said Kalju Nekvasil, an attorney in St.
Instead, they’re mostly promoted by brokers who run their own practices and are registered with little-known securities firms. They work with people outside the securities industry — such as accountants, lawyers and tax preparers — to woo doctors, entrepreneurs and other rich individuals to buy into partnerships that seek to exploit tax benefits from land conservation.
The Mississippi deal offered to Beer was the brainchild of “a brilliant CPA and tax expert” named Wesley Hudson and his Atlanta-based Otemanu Group, according to the email pitch from the family office RD Heritage Group.
In an interview, he said they’re marketed only to accredited investors “looking for alternative ways to cut taxes” and who all sign documents saying they understand the investments are highly speculative.
Congress created the incentive in 1980 for owners who pledge to never develop their properties, which has led to preservation of more than 30 million acres.
Just last month, the IRS cited syndicated conservation easements as a prime target of a new office that will clamp down on promoters of abusive tax schemes.
A preliminary review of 2019 transactions suggests they “continued at a similar rate,” said Nikole Flax, who was promoted by Rettig last month to commissioner of the agency’s Large Business & International Division.
The lapses included failures to investigate red flags — such as the “significant risk” that the IRS would disallow tax deductions and question land appraisals underpinning them, Finra said.
Since early 2020, Kalos has agreed to pay $345,000 to settle two disputes involving Mirolli’s customers, Finra records show.
Peabody, Mirolli and Kalos didn’t respond to requests for comment.
According to a Senate Committee on Finance report last year, promoters set aside as much as 12% of cash from investors to compensate those who help sell the deals, and they often retain far more for themselves.
An appraisal set the value of the easement, allowing investors to claim $80.6 million of deductions from their taxable income, which reduced their tax bills by $30.2 million and generated a deal fee for EcoVest of $2 million, according to the Senate report.
Those deals amounted to a “thinly veiled sale of grossly overvalued federal tax deductions under the guise of investing in a partnership,” according to the government.
EcoVest declined to comment for this story.
Triloma recruited 37 other broker-dealers to create a national network that included more than 200 “front-line sellers” of EcoVest conservation easement syndicates, according to the Justice Department.
Typical worst case is that the valuation gets lowered and you would see less in tax savings.” The Justice Department has subpoenaed documents from Triloma, Kalos and several other firms involved in the sale of easements.
Triloma, which hasn’t been accused of wrongdoing, didn’t respond to requests for comment.
Two accountants who pleaded guilty to fraud charges are helping prosecutors investigate a promoter who structured syndicates that generated $1.2 billion in tax deductions, people familiar with the matter told Bloomberg in March.
According to an investor lawsuit filed March 30 in Atlanta, the IRS disallowed 100% of the deductions a partnership had claimed for a syndicated deal tied to 147 acres in Shelby County, Alabama, in 2016.
The Mississippi deal documents sent to Beer indicated that by preserving the plot, investors who collectively put up $4.3 million stand to save almost twice as much in taxes within 15 to 18 months.