Tax Law Center Blog

The IRS is aggressively targeting conservation easements, calling them abusive tax shelters and pursuing audits, penalties, and even criminal charges. Taxpayers who claimed deductions could face full disallowance, massive fraud penalties, and potential prosecution. Promoters, appraisers, and accountants involved in these deals are also under fire, with some already indicted or convicted.

A recent case provides a good example of the dangers:

A New Jersey accountant was sentenced today to 24 months in prison for his role in the promotion and sale of abusive syndicated conservation easement tax shelters. According to court documents and statements made in court, Ralph Anderson was a CPA and return preparer working for accounting firms in New Jersey and New York. From approximately 2013 to 2019, Anderson promoted and sold tax deductions to his high-income clients in the form of units in illegal syndicated conservation easement tax shelters created by convicted co-conspirators Jack Fisher and James Sinnott.

Anderson knew that, contrary to law, the transactions related to these illegal tax shelters lacked economic substance and that his high-income clients purchased units at his recommendation only to obtain a tax deduction on their tax returns. The charitable deductions purchased by clients were derived from the donation of land with a conservation easement or the land itself to a charity, and the deductions were based on fraudulently inflated appraisals for the donated land. Anderson and the promoters promised the clients a so-called ratio of “4.5 to 1” in charitable deductions for every dollar paid into the tax shelter.

In some instances, to make it appear that his clients had joined the partnerships before the date of the conservation easement donation — which was necessary to claim the tax benefits — Anderson and his co-conspirators also instructed and caused clients to falsely backdate documents, including subscription agreements and checks related to the partnerships. Each year from 2013 to 2019, Anderson and his co-conspirators assisted clients with claiming these false deductions on their tax returns.

In total, Anderson assisted in preparing tax returns for clients that claimed over $9.3 million in false charitable deductions based on backdated documents, which caused a tax loss to the United States of nearly $3 million.

Between approximately 2016 and 2019, Anderson earned over $300,000 in commissions for promoting and selling illegal tax shelters to his clients. Anderson also claimed false tax deductions for charitable contributions generated from the syndicated conservation easement tax shelters he received as “free units” on his own returns and fraudulently reduced his own taxes on the income he earned from the scheme. In addition to his prison sentence, U.S. District Court Judge Michael A. Shipp for the District of New Jersey ordered Anderson to serve three years of supervised release and to pay $3,543,005.53 in total restitution to the IRS and Small Business Administration.

The IRS is winning cases in court, shutting down fraudulent valuations, and imposing heavy fines. If you or your clients are involved, immediate legal action is critical.