Tax Shelter Promoters Sentenced in Conservation Easement Tax Scheme

A sign outside the Internal Revenue Service building is seen in Washington on May 4, 2021. (Patrick Semansky/AP Photo)

In a win for the Internal Revenue Service (IRS), two tax shelter promoters were sentenced Tuesday for crimes connected to the so-called “syndicated conservation easement” tax scam.

Jack Fisher, a certified public accountant (CPA), was sentenced to 25 years. An attorney who helped expand substantially Mr. Fisher’s scheme, James Sinnott, was sentenced to 23 years.

Two other CPAs from the Atlanta area, Victor Smith and William Tomasello, pleaded guilty to conspiracy to defraud the United States on the same day.

The scheme was started in 2008 by Mr. Fisher and expanded massively in 2013 with the help of Mr. Sinnott. They had sold over $1.3 billion in fraudulent tax deductions and caused over $450 million of tax losses to the IRS, court documents show.

Mr. Fisher and Mr. Sinnott used appraisals of the conservation easements that were often 10 times higher than the price they paid, the Justice Department said.

They also promised their clients deductions of 4.5 times the amount they donated.

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Both were convicted by a federal jury on Sept. 22 last year.

Besides the jail time, Mr. Fisher and Mr. Sinnott need to serve three years of supervised release. They’re ordered to pay back to the United States $458 million and $444 million respectively.

IRS Crackdowns

According to a report by the Congressional Research Service (CRS), taxpayers can claim a charitable deduction by donating real property or interests in real property if the land and buildings have certain restrictions about how they can be used. The donation is counted as “qualified conservation contributions.”

However, tax shelter promoters could take advantage of this policy through syndicated conservation easements.

In syndicated conservation easements, the tax shelter promoters buy vacant land of little value, then hire an appraiser who declares that the vacant land has huge unrecognized development value which is usually many times the purchase price. Those promoters will sell stakes in the vacant land to wealthy individuals or investors. The investors them will claim charitable deductions that are several times higher than their investment and the promoters make massive profits by charging fees to the investors.

Data shows syndicated conservation easements increased fast in recent decades. There were only 2,179 taxpayers who reported 2,407 easements in 2003. However, 9,844 taxpayers claimed deductions for conservation contributions with 14,095 easements in 2018.

The IRS put charitable conservation contributions under scrutiny with the concern that the increase was driven by syndicated conversation easement transactions.

The federal taxation agency listed syndicated conservation easements on its “Dirty Dozen” list for several years.

“A conservation easement is a restriction on the use of real property. Generally, taxpayers may claim a charitable contribution deduction for the fair market value of a conservation easement transferred to a charity if the transfer meets the requirements of Internal Revenue Code 170. In abusive arrangements, which generate high fees for promoters, participants attempt to game the tax system with grossly inflated tax deductions,” the agency wrote in the list.

Tax Season Scams

As the new tax season is scheduled to start on Jan. 29, the IRS warned taxpayers about emerging types of tax scams.

The most recent scams listed on the IRS alerts include fake Form W-2 which urges people to use wage information on a tax return to claim false credits in the hope of getting a big refund.

Another type of scam is the Employee Retention Credit (ERC), also known as the Employee Retention Tax Credit or ERTC, scam.

“The IRS and tax professionals continue to see aggressive broadcast advertising, direct mail solicitations, and online promotions involving the ERC. While the credit is real, aggressive promoters are misrepresenting and exaggerating who can qualify for the credit,” read the alert.

Third-party promoters charge large upfront fees or a fee based on the amount of refund in the ERC schemes, the IRS warned.

In the latest alert, the IRS warned Americans about scam mailing related to unclaimed refunds.

“The new scheme involves a mailing coming in a cardboard envelope from a delivery service. The enclosed letter includes the IRS masthead with contact information and a phone number that do not belong to the IRS and wording that the notice is ‘in relation to your unclaimed refund,’” the agency warned.