A federal complaint against a local property appraiser who allegedly participated in an “abusive tax scheme” by providing “sham” valuations for conservation easements is moving forward under the guidance of a special master. Earlier this year, prosecutors sought to expand discovery in the case against Baldwin County’s Claud Clark and his co-defendants to “further expound about the full breadth and scope of Defendants’ conduct from 2009 to present in organizing, promoting and selling the conservation easement syndicate scheme.”
As described in a complaint initially filed in December 2018, conservation easement syndicates are “state law entities … generally 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.
Investigators with the Internal Revenue Service alleged Clark and others appraised 58 properties for various syndicates, resulting in at least $1.85 billion in “grossly overstated” federal tax deductions. In May, they sought to amend the complaint to include 138 syndicates in 11 different states, including Alabama.
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.
“In the court’s view, a special master’s appointment in this case would significantly expedite resolution of the ongoing discovery disputes and case management issues that have impeded progression of this complex case,” Totenberg wrote. “The case also presents an array of major complex discovery and evidentiary challenges that will also impact the manageability of both summary judgment presentation and trial presentation before the Court. The special master will plan an essential role in helping the parties tackle and streamline the process to assure that evidence and legal issues can be presented properly, fully, fairly and efficiently to the court.”
Over the objections of prosecutors, Totenberg appointed Carlos A. Gonzalez as special master July 31, assuring the court will still 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.”
On Monday, Totenberg dismissed his 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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