EcoVest, a sponsor of real estate investment programs focused on conservation easements, intends to fight the charges of fraud and other misconduct levied against it by the Department of Justice, which filed a lawsuit in a Georgia federal court in late December 2018 claiming that the firm is running “an allegedly abusive conservation easement syndication tax scheme.”
The DOJ lawsuit alleges that Ecovest organized, promoted, and sold at least 96 conservation easement syndicates that reported more than $2 billion of tax deductions stemming from “overvalued and improper contributions, and have passed those deductions through to the thousands of customers of the defendants’ scheme, resulting in hundreds of millions of dollars of tax harm.”
Ecovest filed a response to the government’s lawsuit on Wednesday “emphatically denying” the allegations, claiming that its programs are in full compliance with the legal requirements for conservation easements.
On a Thursday press call, Robert McCullough, Ecovest’s senior vice president and chief financial officer – who is also named as a defendant in the lawsuit, said that he learned about the lawsuit from a reporter seeking comment on the charges and received no advance notice from the DOJ about the lawsuit.
“We were completely caught off-guard,” said McCollough. “Anyone who understands our process and is familiar with our company’s open book policy knows that these claims make no sense.”
“We absolutely thrive on having multiple sets of eyes review everything we produce, and we have an open book policy to make sure this is what happens,” he added. “We very much look forward for our chance to educate the DOJ, the IRS, and the courts on our process to help them to see that everything we do is proper. What we do is fully consistent with the law…We are going to win this case and we look forward to trying this case as soon as possible in the courts.”
The Internal Revenue Code allows a taxpayer to take a charitable donation deduction equivalent to the fair market value of a conservation easement, but only if certain requirements with respect to the donation of an interest in property for conservation purposes are satisfied. This deduction is referred to as the “qualified conservation contribution.”
“Federal law has long sought to encourage the preservation of natural resources and undeveloped land by providing tax deductions for conservation easements…,” Ecovest said in its response. “EcoVest—through the very projects [the government] seeks to enjoin—has helped to preserve in perpetuity nearly 20,000 acres of undeveloped property, including forests, meadows, wetlands, streams, and coastal plains.”
The DOJ, however, called these syndicates “shams,” claiming that they do not meet the requirements for a qualified conservation contribution under the Internal Revenue Code.
“The Department of Justice is working with our partners in the Internal Revenue Service to shut down fraudulent conservation easement shelters, which in this case were based on willfully false valuations,” said Richard E. Zuckerman, the tax division’s principal deputy assistant attorney general. “Individuals investing in these schemes with benefits that seem too good to be true should ensure they are paying their proper federal income tax liability.”
Also named as defendants in the government’s lawsuit are Nancy Zak, Claud Clark III, Alan N. Solon, and Ralph R. Teal Jr.
Zak is a conservation manager, consultant, and project manager who assists in the planning and execution of conservation easement donations and conservation easement syndicates. Clark is a real property appraiser; Solon serves as a director on Ecovest’s board, as well as the company’s president and chief executive officer; and Teal is part owner of Ecovest and serves on its board.
Benjamin Razi, a partner at Covington & Burling, is representing EcoVest, along with former Deputy Secretary of the Treasury Stuart Eizenstat.
The government is seeking disgorgement of the alleged ill-gotten gains and injunctive relief, and is also requesting that the defendants provide the names and contact information for anyone who purchased interest in a conservation easement syndicate since 2009.