A prominent Baldwin County real estate appraiser named last year in a federal civil complaint for allegedly participating in a “fraudulent” conservation easement syndicate scheme has filed a motion to dismiss the case, claiming the allegations “are not justified.”
Claud Clark, who has a 35-year appraisal career based in Magnolia Springs, asked a federal judge in Atlanta to dismiss four of the five counts against him, while he also requested a hearing to argue why he is not a “tax return preparer” within the meaning of U.S. Code, according to the motion.
Lagniappe reported last month how Clark became ensnared in the complaint, perhaps the Internal Revenue Service’s most aggressive maneuver yet against conservation easement syndicates. According to the complaint, such schemes “undermine[s] public confidence in the fair administration of the federal tax system, and encourage[s] noncompliance with the internal revenue laws.”
In a news release publicizing the complaint, IRS Commissioner Charles P. Rettig warned the agency “will take every enforcement option available” against syndicate participants, “including civil and criminal penalties.”
As previously reported, conservation easement syndicates generally are “state law entities … taxed as a partnership, a pass-through entity, for federal tax purposes.” The complaint explains how the syndicates are generally formed as LLCs, “taxed as partnerships 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 completes 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 conservation deduction” under the IRS code.
The complaint alleges that in his role, Clark “continually and repeatedly … utilized inappropriate methodology and used various techniques to improperly inflate the value” of the easements in some cases by “hundreds of thousands, if not millions, of dollars.”
The result was, according to the IRS, more than $1.85 billion in “grossly overstated” federal tax deductions, leading the Treasury Department to suffer “losses through tax refunds wrongfully issued and taxes uncollected” in an amount “yet to be fully determined.”
Clark made a name for himself by winning a case in U.S. Tax Court over a conservation easement for the Kiva Dunes golf course on Fort Morgan peninsula. The ruling allowed the owner of Kiva Dunes to place the property in a land trust and claim a $30 million tax write-off.
Clark’s motion to dismiss filed March 26 claims “he does not intentionally undervalue or overvalue” appraisals, arguing the U.S. Tax Court’s ruling in his favor in the Kiva Dunes case proves as much. He further discloses that 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.”
But the IRS rejected that offer and instead, according to the motion, “the government filed this action and issued a press release” about the case.
Since then, the motion claims, Clark’s business “has slowed nearly to a stop” and “effectively accomplished what the government could not have obtained by application to this Court: that is, a preliminary injunction.
“And the suit itself,” the motion continues, “with the government’s explicit request for ‘robust’ discovery, threatens to wholly consume in a costly fight what are meant to be Clark’s last few years before retirement and the resources set aside for it.”
Clark was the last of six co-defendants to respond to the complaint. Earlier, Atlanta-based real estate investment firm EcoVest and three of its principals also named in the complaint denied the allegations.
“Federal law has long sought to encourage the preservation of natural resources and undeveloped land by providing tax deductions for conservation easements,” they argued. “Far from seeking to subvert the law, the evidence will show that the EcoVest parties went to great lengths to ensure that all of their projects fully complied with the law.”
A fifth defendant, conservation easement consultant Nancy Zak, filed her own motion to dismiss March 22. Along with a range of arguments against the allegations in the complaint, Zak also defended conservation easements.
“The complaint largely casts the statutory tax benefits from conservation easements in pejorative terms,” Zak’s motion states. “This is consistent with the broader war waged by the IRS against conservation easements, in which it has challenged the entirety of such charitable deductions based on minor violations of highly technical provisions, and has asserted narrow interpretations of the statute and regulations. … In effect, the basis for plaintiff’s claims appears to be that defendants did things that the IRS does not like, not that they did anything inconsistent with the established legal standards.”
Zak’s motion also cites the Kiva Dunes case, noting, “no published decision has called into question Clark’s appraisals.” Zak further points to a 2010 article in the quarterly journal Real Estate Taxation referring to Clark as an emerging star among his peers after the Kiva Dunes case, “a kind of Michael Jackson of the appraisal world.”
The journal article, which largely extolls investment in conservation easement syndicates, concludes, “valuation issues are key to virtually any charitable contribution” and, “for the taxpayer armed with a good appraisal and, if need be, a credible expert, charitable conservation easements are an enormously good deal.”
“The real gravitas of a good appraisal will turn on the skills and credibility of the individuals involved,” tax attorney Robert W. Wood wrote. “Not only must the appraiser be qualified and believable, but he or she must manifest a familiarity with local terms, conditions and properties. … From all that appears, Clark knew this well.”
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