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Participants in IRS-Targeted Land Deals Sue Alleged Promoters

March 27, 2020, 10:13 PM

Several people filed a class action against a group that they say promoted a fraudulent land deal that purportedly had tax benefits but ended up costing the participants money while making millions for the promoters.

The lawsuit, filed in the U.S. District Court for the Northern District of Georgia, pins the individuals against promoters of certain syndicates—a group of partnerships under federal law, but limited liability companies under state law—that held or purchased land.

According to the complaint, the promoters convinced the participants to purchase interests in the syndicates with a plan of claiming tax deductions for donating a conservation easement on the land—where the landowner gives away rights to develop the land.

Taxpayers may claim a charitable deduction tied to the donated easement’s value if they meet the requirements of tax code Section 170(h). But if the IRS disallows the deduction or finds that the value of the donated rights was inflated, the taxpayer may both lose the deduction and face significant penalties.

The IRS has been trying for years to curb syndicated conservation easements.

The taxpayers said in their complaint that the defendants engaged in a racketeering enterprise by convincing hundreds, “if not thousands,” of clients to pursue the strategy while knowing it was “fatally flawed.”

“This racketeering enterprise injured Plaintiffs and the Class by causing them to pay substantial fees and transaction costs, be exposed to interest and penalties from the IRS, and incur additional accounting and legal fees and expenses to deal with the IRS fallout,” the complaint said.

The Racketeer Influenced and Corrupt Organizations Act was designed for this type of case, according to David Deary, a partner at Loewinsohn Flegle Deary Simon LLP, which represents the plaintiffs.

“This is the exact kind of conduct that the civil RICO statute was designed to remedy, where you have a bunch of professional advisers that put together a scheme in secret manipulating a bunch of technical rules that laymen don’t understand to deprive people of their money,” Deary said.

Bloomberg Tax asked several of the named defendants for comment, but didn’t receive responses immediately. Contact information for some of the defendants wasn’t immediately available. Two of the named defendants—the Atlantic Coast Conservancy Inc. and Robert D. Keller—said through an attorney that they didn’t have a comment at the time.

The case is Lechter v. Aprio, LLP, N.D. Ga., No. 1:20-cv-01325, complaint filed 3/26/20.

To contact the reporter on this story: Aysha Bagchi in Washington at abagchi@bloombergtax.com

To contact the editors responsible for this story: Patrick Ambrosio at pambrosio@bloombergtax.com; Yuri Nagano at ynagano@bloombergtax.com

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