The IRS has challenged $21 billion in deductions from syndicated conservation easements, as it audits wealthy taxpayers and pursues promoters. Some of those under scrutiny include Jack Fisher, who has raised hundreds of millions of dollars pitching investors on real estate development projects that were never built. You may not know Mr. Fisher, but you do know Preserve Communities of which he is affiliated–they are the owners of Bay Creek.
Fisher has recruited investors with tasty deals–offering charitable tax deductions in return for donating easements for conservation. Sound familiar?
Bay Creek homeowners are not pleased. One homeowner told the Mirror, “It infuriates me. They donate the land for a tax break but then make it private for club members only. I wonder what the value of the land was that they donated?
Also, the land that they claimed would be where the Beach Club would be built is owned by the HOA and not Preserve Communities. So unless they buy or steal that land from the HOA the Beach Club will never happen. We all thought Foster was shady this group is way worse. Half of the back 9 that they claim is a conservation area is planned for development”.
The Mirror contacted Bay Creek and asked whether any tax credits had been received and if any of the conservation area had been sold to investors. Lauren Nodzak, public relations manager for Preserve told the Mirror, “Preserve Communities and Bay Creek did not receive tax deductions for the land designated as a permanent Nature Preserve. The conservation area at Bay Creek was designated a permanent Nature Preserve and the 350-acres is protected from future development and serves as a place for activity and exploration among forests and shorelines for residents and guests of Bay Creek. Since establishing the Nature Preserve, Bay Creek has complimented the area by adding trails, guided nature programming, and other activities to learn and enjoy the area. No land sales within The Nature Preserve have occurred.”
Elsewhere, Fisher is at the center of a criminal probe related to these syndicated conservation easements which have led to tax conspiracy charges against three accountants who worked with him.
What is a syndicated conservation easement?
Conservation easements help to preserve property by restricting development, commercial, industrial, and other intrusive uses on the protected property in a permanent capacity. Donors may be eligible for a federal income tax charitable deduction equal to the value of their donation of the land that they purchased if they follow the requirements in section 170 of the Internal Revenue Code. Appraisers value the easement donation by calculating the difference between the fair market value of the property before and after the easement takes effect. Syndicated conservation easements are a type of private placement that promises a tax deduction worth 2.5 to 5 times a person’s investment. Brokers and investment brokers target high net worth individuals, such as doctors, entrepreneurs, and other rich individuals to buy into partnerships that seek to exploit tax benefits from land conservation.
Essentially, this type of easement provides a means for investors in partnerships to either build a specific development project, hold on to the land and build later, or donate an easement to a land trust or government. In return, the investor promises not to develop the land.
By donating the land, investors receive charitable tax deductions. The deductions are calculated using the appraised value of the land. This can be a windfall, and wind up being worth four or five times their investment.
Conservation Easements have been around on the Eastern Shore for a long time. In most cases, landowners and farmers donate the land for tax breaks, which can really help small farms. Northampton County usually takes a good, long look each time before renewing the easements.
The IRS is not interested in farmers but is focusing on investors such as Fisher that puts together deals the create large tax deductions. The IRS believes the appraisals inflate the worth of a property, and that those valuations are then used to maximize tax deductions.
Associates of Mr. Fisher, Stein, and Corey Agee have already pleaded guilty to conspiring to promote fraudulent tax breaks, and prosecutors say the deals were “illegal tax shelters that allowed taxpayers to buy tax deductions”. Fisher is referred to as Promoter A in court documents.
“Promoter A’s tax shelters resulted in a massive evasion of taxes,” the charges state. This is not child’s play. Investors received $1.2 billion in fraudulent tax deductions.
Syndicated Conservation Easements as Tax Schemes Some conservation easement syndicators and promoters over-inflated the price of the donated land to maximize the tax deductions, which made the investments more attractive to investors. In fact, some conservation easements were promoted as offering 2.5- to 5-times or more on every dollar invested through tax avoidance; these investments were sold to high-income earners and high net worth individuals.
These conservation easement investments were tax schemes that intended to defraud the IRS with fraudulent appraisals, leaving investors to face audits and pay substantial legal fees, interest, millions of dollars in back taxes, and substantial penalties. In 2016, the IRS, “designated certain syndicated conservation easements as listed transactions.
Specifically, the Notice listed transactions where investors in pass-through entities receive promotional material offering the possibility of a charitable contribution deduction worth at least two and half times their investment. In many transactions, the deduction taken is significantly higher than 250 percent of the investment.” This rule required conservation easement transactions to be notated as “listed transactions,” which means that their participants must disclose to the IRS on their tax returns their participation in the transaction.
In 1980, Congress created the incentive for tax breaks for conservation easements donated to land trusts or government, for owners who pledge to never develop their properties. This has led to the preservation of more than 30 million acres. The IRS named syndicated conservation easements as one of the dirty dozen lists of tax scams to avoid in 2019.
According to the IRS, “The IRS is fully committed to putting an end to abusive syndicated conservation easement transactions, and holding accountable the individuals and entities who promoted, assisted with or participated in these schemes.
So far, the IRS has challenged $21 billion in tax deductions claimed for syndicated easements from 2016 to 2018.
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I don’t think Preserve could have purchased Bay Creek and had some grand plans for the property without the benefit of substantial tax breaks from converting the Nicholas back nine into a conservation easement. As a golfer, what they did was a cardinal sin; however, no other entity has stepped up to take on the project. Kudos to them for taking advantage of what Congress allows in legitimate tax benefits. All in all, the purchase appears to be a net positive for the Bay Creek community, although it’s hard to fully assess their progress in this Covid environment.
We do not know whether the Bay Creek purchase involved the apparent illegitimate tax practices that have been alleged against Fisher, his accountants and investors in other matters. A google search of Jack Fisher and tax shelters provides links to many financial news articles further addressing the issue.
When this subject was brought up at yesterday’s POA meeting Bobby Masters, from Preserve Communities, pretty much snapped. Preserve Communities showed their true colors! It was implied that if Preserve Communities doesn’t get their way non-club members will lose access to the Southern beach. Bobby Says Waahhh! Very unprofessional!
As a non-club member I am curious…did the golf club members who lost 25% of their course get a discount on their monthly dues? When Preserve Communities sells off the portion of land taken from the golf members will the proceeds be put back into the club?
Inquiring minds want to know.
If the 110+ vacant lot owners in Marina Village East want to use the South Beach (Community Beach as described in the marketing materials when purchasing their lots in the year 2005) they cannot be turned away as their North Tract real estate property taxes were increased by the Foster controlled HOA board when the property was conveyed to the POA by recorded deed in the Clerk’s office for Northampton County. Same for the deeded roads into and out of any Bay Creek subdivision or any entrance or gate house all paid for by the POA Members. Maybe Preserve Communities should read their own POA Declarations and By-Laws as well as Virginia Codes requiring planned communities once conveying open areas to the POA are required to pay all real estate taxes at the time of conveyance and the County by Virginia code is to assign a value of the open areas to the land owners who have access to the open areas.