Syndicated Conservation-Easement Transactions
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1 116TH CONGRESS " ! S. PRT. 2nd Session COMMITTEE PRINT 116–44 SYNDICATED CONSERVATION-EASEMENT TRANSACTIONS BIPARTISAN INVESTIGATIVE REPORT AS SUBMITTED BY CHAIRMAN GRASSLEY AND RANKING MEMBER WYDEN COMMITTEE ON FINANCE UNITED STATES SENATE CHARLES E. GRASSLEY, Chairman RON WYDEN, Ranking Member AUGUST 2020 Printed for the use of the Committee on Finance VerDate Sep 11 2014 12:55 Aug 25, 2020 Jkt 000000 PO 00000 Frm 00001 Fmt 6012 Sfmt 6012 H:\2020 116TH CONGRESS 2ND SESSION\2020 COMMITTEE PRINTS\COMMITTEE P\CV congress.#13 COMMITTEE ON FINANCE CHARLES E. GRASSLEY, Iowa, Chairman MIKE CRAPO, Idaho RON WYDEN, Oregon PAT ROBERTS, Kansas DEBBIE STABENOW, Michigan MICHAEL B. ENZI, Wyoming MARIA CANTWELL, Washington JOHN CORNYN, Texas ROBERT MENENDEZ, New Jersey JOHN THUNE, South Dakota THOMAS R. CARPER, Delaware RICHARD BURR, North Carolina BENJAMIN L. CARDIN, Maryland ROB PORTMAN, Ohio SHERROD BROWN, Ohio PATRICK J. TOOMEY, Pennsylvania MICHAEL F. BENNET, Colorado TIM SCOTT, South Carolina ROBERT P. CASEY, JR., Pennsylvania BILL CASSIDY, Louisiana MARK R. WARNER, Virginia JAMES LANKFORD, Oklahoma SHELDON WHITEHOUSE, Rhode Island STEVE DAINES, Montana MAGGIE HASSAN, New Hampshire TODD YOUNG, Indiana CATHERINE CORTEZ MASTO, Nevada BEN SASSE, Nebraska KOLAN DAVIS, Staff Director and Chief Counsel JOSHUA SHEINKMAN, Democratic Staff Director ii Table of Contents 1. Introduction ............................................................................................................................. 1 2. Summary .................................................................................................................................. 5 3. Relevant Law for Syndicated Conservation-Easement Transactions ...................................... 8 a. Charitable Deductions, Qualified Conservation Contributions, and Conservation Easements .................................................................................................................................... 8 b. Partnerships and Other “Pass-Through” Entities ............................................................... 11 i. Partnerships in General .................................................................................................. 11 ii. LLCs .............................................................................................................................. 12 c. Sham Partnerships .............................................................................................................. 13 4. How Do Syndicated Conservation-Easement Transactions Work? ...................................... 15 5. History of Syndicated Conservation-Easement Transactions ............................................... 20 6. Promotion of Tax Benefits .................................................................................................... 24 7. Communication of Tax Benefits ............................................................................................ 31 a. EcoVest Capital Emails ..................................................................................................... 31 b. EvrSource Capital Emails .................................................................................................. 38 c. Ornstein-Schuler Emails .................................................................................................... 43 d. Other Promoters’ Emails.................................................................................................... 52 8. Inflated Appraisals ................................................................................................................. 53 9. Transaction Details ................................................................................................................ 57 a. EcoVest and North Myrtle Beach ...................................................................................... 57 i. Azalea Bay Resort, LLC ................................................................................................ 58 ii. Magnolia Bay Resort, LLC ............................................................................................ 63 iii. EcoVest’s Other “Resort” Investments in North Myrtle Beach .................................... 66 b. EvrSource Capital and Hamilton County, Florida ............................................................. 70 i. Bienville 75, LLC and Bienville 75 Acquisitions, LLC ................................................ 70 ii. Roaring Creek Plantation, LLC and Roaring Florida Acquisitions, LLC ..................... 74 c. Webb Creek and Clay County, Georgia ............................................................................ 77 d. Ornstein-Schuler and Polk County, Florida ....................................................................... 83 i. FG River Resources LLC............................................................................................... 85 ii. Green Cove Group LLC................................................................................................. 87 iii. Ornstein-Schuler’s Other County Line Ranch Transactions ......................................... 89 iii e. Dr. Kyle Carney, Thomas Jason Free, and Humphreys and Perry County, Tennessee ..... 91 i. Little Pumpkin Creek Investments................................................................................. 92 ii. Little Pumpkin Creek North Investments ...................................................................... 95 iii. Ginn Creek Investments ................................................................................................. 97 iv. Tennessee Ranch Estates ............................................................................................... 99 v. Crockett Investors, LLC............................................................................................... 102 10. Conclusion ....................................................................................................................... 105 11. Appendix .......................................................................................................................... 107 a. Transaction Details .......................................................................................................... 107 i. EcoVest Capital ........................................................................................................... 107 ii. EvrSource Capital ........................................................................................................ 133 iii. Webb Creek ................................................................................................................. 137 iv. Ornstein-Schuler .......................................................................................................... 138 v. Dr. Kyle Carney ........................................................................................................... 165 vi. Thomas Jason Free ....................................................................................................... 170 b. Exhibit List....................................................................................................................... 176 iv “I would steer clear of this. It is a ‘syndicated conservation easement’ tax shelter deal. These have been labeled tax avoidance transactions by the IRS, and are ‘listed transactions.’ An audit is guaranteed. And the odds are heavily in favor of the IRS prevailing. How do you justify paying less than $3 million for a property that an appraiser says is worth $81 million, with a conservation easement worth $78 million?”1 -Email from independent attorney to potential investor in syndicated conservation-easement transaction 1. Introduction This report discusses the findings of the United States Senate Committee on Finance’s investigation into syndicated conservation-easement transactions. The investigation began on March 27, 2019, when Chairman Charles Grassley and Ranking Member Ron Wyden jointly sent letters to 14 individuals suspected of promoting these transactions. The letters requested information and documents about the transactions. Six of those individuals failed to voluntarily comply, so the Finance Committee issued subpoenas to them to compel production of that information. Those six individuals were Robert McCullough of EcoVest Capital; Matt Ornstein and Frank Schuler of Ornstein-Schuler Investments; and Matthew Campbell, Eugene “Chip” Pearson, Jr., and Mark Pickett of EvrSource Capital. The documents provided in this investigation confirm that syndicated conservation-easement transactions appear to be highly abusive tax shelters. In general, the conservation-easement tax incentive established under Internal Revenue Code (the “Code”) section 170(h) has enjoyed broad bipartisan support.2 However, over the last decade, the syndication of conservation-easement transactions among unrelated participants, or “investors,” has developed a controversial reputation within the tax community. Some argue syndicated conservation-easement transactions are an effective method for conserving land, while others argue they are abusive shelters. During the 115th Congress, the controversy had made its way to Capitol Hill, with lobbyists representing interests on both sides of the matter advocating for policies that would either increase or decrease the Federal government’s scrutiny of the transactions. On December 23, 2016, in the closing days of the Obama Administration, the Department of the Treasury and the IRS issued a