Kings River (Photo credit: Aaron Copeland/The Nature Conservancy)
Imagine purchasing a 600-acre mountainous property in Northwest Arkansas near the Kings River for about $1 million, doing a geo-survey on the property to establish limestone assets, and applying for a permit to quarry. You split the property into three Limited Liability Companies (LLCs) that enter into conservation easements with two non-accredited land trusts from out-of-state that specify the property will not be developed into a quarry. Then you offer sales of the syndicated conservation easements valued at $26 million to investors/taxpayers anywhere in the country.
It seems like an amazing great feat of financial engineering for Matt Mills of Dexter, Mo., who applied for permits to develop a quarry on the property that greatly alarmed rural residents concerned about the impacts of quarrying on their springs, water wells, caves and property values. But recently Mills, who is also a principal with the investment firm Sixty West, disclosed that the three LLCs had entered into conservation easements.
Mills said locals should be pleased that it isn’t going to be a quarry. But residents who lost sleep over worry and worked hard to organize against the development that apparently never was about a quarry are not amused.
“Escalation of appraised value and incorporating the expense of the geo-survey to sell shares for conserving land with no relationship with a community is pure opportunistic capitalism,” says quarry opponent Christopher Fischer. “It is doubtful this could have been developed as a quarry anyhow as there was unified political and community opposition.”
Mill’s intent-to-quarry permit application to the Arkansas Department of Environmental Quality for a quarry on the property was deemed unacceptable due to flaws in the information presented.
This is happening in light of bi-partisan support in Congress to close the syndicated conservation easement loophole that has cost the U.S. Treasury billions. And potential investors should be aware that the IRS has promised increased enforcement action on these deals that rely on greatly inflated appraisals.
Syndicated conservation easements are included on the IRS’s 2019 “Dirty Dozen” list of tax scams to avoid.
The IRS is particularly taking note of transactions where investors in pass-through entities receive promotional material offering the possibility of a charitable contribution deduction worth at least two and half times their investment.
“In many transactions, the deduction taken is significantly higher than 250 percent of the investment,” the IRS said. “Abusive syndicated conservation easement transactions undermine the public’s trust in private land conservation and defraud the government of revenue. Putting an end to these abusive schemes is a high priority for the IRS.”
For a detailed look at the issue, click here to read an in-depth article by Adam Looney of the Brookings Institution.
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