Federal lawmakers recently turned up the heat on a Baldwin County property appraiser who was implicated by the Internal Revenue Service for allegedly participating in an “abusive tax scheme” nationwide, by providing “sham” valuations for conservation easement syndicates.
On Aug. 25, the Senate Finance Committee released a 187-page report on its investigation into the easements, concluding those reviewed “involve land valuations that appear so inflated above their original purchase prices that they cannot reasonably be characterized as anything other than abusive tax shelters.”
Named throughout the report is Magnolia Springs property appraiser Claud Clark, who according to a complaint filed in December 2018 by the IRS, was involved in determining the value of at least 58 properties for various syndicates, resulting in at least $1.85 billion in “grossly overstated” federal tax deductions.
Conservation easement syndicates are typically formed as LLCs, taxed as a partnership, in which customers invest. The LLCs then act with a manager, appraiser and law firm to acquire property that can be deeded as a conservation easement, which “permanently restricts the development and/or use of land with the purpose of achieving certain conservation or preservation goals.”
Once the easement is secured, a tax preparer prepares the LLC’s tax return, including a form in which each investor’s share of the conservation easement deduction is reported, “ultimately reducing the customers’ reported tax liabilities” using what is known as a “qualified conversation deduction” in IRS code.
Spearheading the Senate investigation was Finance Committee Chairman Chuck Grassley, R-Iowa, and ranking member Ron Wyden, D-Ore. Beginning last year, the committee reviewed hundreds of thousands of pages of documents, including some acquired through the issuance of subpoenas from the committee, alongside several state and municipal land databases.
Clark’s name also appears 187 times in the report, as investigators scrutinized dozens of his appraisals in several states, including one on a 579-acre parcel in Saraland owned by Black Bear Enterprises. In 2019, after the Alabama Real Estate Appraisers Board challenged Clark’s appraisal for not conforming to the proper standards, “rather than defend himself before the board, Mr. Clark surrendered his appraisal license in Alabama.”
“In the Black Bear Enterprises appraisal, Mr. Clark valued the property as if it could accommodate a residential development, that is, before granting a conservation easement on the land,” the committee report explained. “This would be known as its ‘before’ value, which he estimated to be $1,602,637, or approximately $2,764 per acre. However, the very same property sold, in three different sections between Oct. 2012 and Aug. 2013, for between $925 per acre and $1,073 per acre. He also valued the land as if it were to have a conservation easement granted on it — its ‘after’ value — which he estimated at $289,895 or $500 per acre. The difference between the two amounts, $1,312,742, was the charitable deduction Mr. Clark estimated would be generated by granting a conservation easement on the property.”
The report noted an independent advisor for the Alabama Real Estate Appraisers Board criticized Clark’s analysis of the value, as well as his “optimistic language about the economic viability of developing homes on the land.” The advisor reported one of Clark’s statements “is not supported by any clear jobs, population or household trends”; the property “is not comparable to ‘developed’ properties”; and “there is no demand increase” for housing in Saraland.
“Similar patterns are common in appraisals reviewed as part of this investigation,” the report reads. “Such appraisals are the engines of syndicated conservation easement transactions, giving power to a deduction that otherwise would not be profitable for a participating taxpayer-investor.”
For example, a 269-acre parcel in Myrtle Beach, S.C., purchased for $3,749,678 by a total of 80 investors in 2015 eventually created “over $43 million worth of tax deductions … based on what appears to be boilerplate language copied from an appraisal of a different piece of property.” An adjacent 150-acre parcel was sold to 138 different investors for a total of $3,250,321, then valued by Clark as worth $51,275,850. After the property was put in a conservation easement, the investors “split $47,827,350 worth of tax deductions,” according to the report.
“Despite the formal documentation developed by the promoters and nominal votes by investors, documents obtained in this investigation clearly show that both the promoters and the taxpayer-investors in these deals understood them simply as tax shelters,” the report concludes.
“These types of abusive tax shelters erode the nation’s tax base and sow pessimism among all Americans about the fairness of our tax laws. If syndicated conservation easement transactions continue to exist in the form they have over the past decade, they risk not only depriving the government of billions of dollars of revenue but also degrading the general understanding that our nation’s tax laws apply equally to us all.”
Earlier this year, IRS investigators sought to expand the scope of discovery in its lawsuit against Clark and his co-defendants. In June, U.S. District Court Judge Amy Totenberg, who is presiding over the case in Georgia’s northern district, held a status conference to discuss “major discovery and case management challenges” in the case.
Over the objections of the IRS, Totenberg appointed a special master to the case July 31, but assured all parties the court will continue to have oversight over “any written orders, findings or recommendations.”
Last year, Clark filed a 130-page answer and counterclaim to the complaint, alleging prosecutors had improperly disclosed his tax return information. He further claimed he “does not intentionally undervalue or overvalue” appraisals, and prior to the complaint, he was subjected to a lengthy IRS audit in which he “cooperated fully … provided documents, answered the IRS’s questions in person and offered on more than one occasion to sit down with the government’s appraiser and discuss the merits of any particular appraisal.”
In August, Totenberg dismissed Clark’s claims as unfounded, but allowed him 21 days to file an amended counterclaim. In discussing the case, the IRS has been “full of policy enforcement bravado,” she wrote, but Clark’s “series of factual inferences and conclusions is too attenuated … to bring the counterclaim squarely within the realm of prohibitions against disclosure.”
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