Corrected, Oct. 11: An earlier version of this post reported that Juror 26 remained on the jury. This was an error. The judge initially ruled that all jurors were to remain, but subsequently dismissed Juror 26.
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The most important recent development in the government’s long battle against abusive syndicated conservation easements. what I call the industry based on nonsense, has to be the outcome of the trial of Jack Fisher, James Sinnott and Clay Weibel. The jury convicted Fisher and Sinnott on multiple counts, while acquitting Weibel. Fisher and Sinnott may be facing very long sentences. The most interesting part of the story is what went on with the jury, but we’ll look at the big picture first.
About Syndicated Conservation Easements
Three years ago the Senate Finance Committee issued a report on syndicated conservation easement transactions. It was a bipartisan effort. In the news release on the report Republican Senator Chuck Grassley remarked:
“The American tax system relies on fairness and good faith compliance. This isn’t a partisan issue. Serious, fair enforcement of our tax laws is the best way to preserve that system and uphold our understanding that the law applies equally to all of us”.
Democratic Senator Ron Wyden has a somewhat sharper observation:
“This is part of a larger pattern of wealthy tax cheats ripping off the American people because they know they can get away with it after years of cuts to the IRS budget. As with broader enforcement issues, cracking down on abusive syndicated conservation easements requires ensuring IRS has the resources and legal tools to do its job”
The report found the inspiration for the industry in a 2009 Tax Court decision. Kiva Dunes was a golf course along the Gulf Coast that was a great boon to migratory birds. The owners of the golf course wanted to keep it as such rather than build condos. They did not have much use for the deduction that donation of a conservation easement would yield, so they brought in partners who could use the deduction and specially allocated it. The thing about Kiva Dunes that is quite different from many of the deals it inspired is the owners had held the property for quite a while and the valuation was pretty reasonable.
Around 2013 I had been covering conservation easement cases for a couple of years, because they made interesting stories. I got a call. It seemed like the call was a consulting opportunity to work with some developers. These fellows were going to buy land and then sell it to investors to grant conservation easements. I thought it was a really bad idea. How could you conceivably make money doing that?
The market for undeveloped land is imperfect, but there are many knowledgeable people. If you are going to buy parcels of land you are going to generally be paying around the fair market value. A conservation easement by definition is not worth as much as the property that it burdens. A tax deduction is worth, at most, the marginal rate times the value of the gift. In order for it all to work, the property has to somehow be worth a substantial multiple of what you paid for it not very long ago.
The Senate Finance Committee report explains the answer to the anomaly. The “engine of every syndicated conservation-easement transaction” is an inflated appraisal. P4C, the syndicated conservation industry trade association, has gone on the record with the proposition that the development rights to a property can be worth more than the property itself. I have not seen this proposition squarely addressed in a court opinion.
At any rate, the investigation that led up to the report leaned heavily on emails that illustrated that what was going on was the sale of manufactured deductions at a rate of $4 or more of deduction for every dollar spent by the investor.
The Trial
I am not going to try to trace all the events that led up to this trial. I picked up the story at the beginning of 2021. Accountants Stein and Corey Agee each pleaded guilty to one count of conspiring the defraud the United States. Attorneys I consulted let me know that it looked like they had made a deal. The details were in a bill of information filed on December 16, 2020. Although the bill of information indicated the appraisals were all bad, there was conduct that would have been criminal even if the values were sound. Most notably there was backdating as people were allocated deductions from the year before they were admitted as partners.
The original indictment in the case was filed on June 9, 2021. The trial commenced on July 12, 2023. The jury verdict is dated September 22, 2023. So service on this jury took a couple of month’s out of someone’s life. What a way to spend August in Atlanta.
The jury found Clay Weibel not guilty on all charges.
Fisher and Sinnott were found guilty of conspiracy to defraud the United States and wire fraud conspiracy by designing and using materials for the syndicated easement transactions to disguise their true nature or causing the preparation and filing of false income income tax returns or using false or backdated documents of biased, false, misleading, pre-determined of inflated appraisals or agreeing to submit false or backdated documents to IRS during civil examinations. There was also engaging in transactions that lacked economic substance.
They were also both found guilty of 16 counts of aiding and assisting the filing of false tax returns. Those were the returns of the partnerships. Then there were 4 counts of subscribing to false tax returns for Fisher and 6 counts for Sinnott of subscribing to false tax returns, their own returns. Finally Fisher was found guilty of fourteen counts of money laundering. It never occurred to me that someone might lauder money by buying an RV and a trailer, but that is what made up counts 122 and 123.
As a practical matter you don’t arrive at their sentences by adding up all those different counts. That would be quite a number. Rather there are sentencing guidelines. The indictment had the tax loss at $250,000,000 which translates to Offense Level 32. With criminal history at Level I, the lowest level, that calls for a sentence of 121 to 151 months. There are a variety of possible adjustments that can push that up or down. The sentencing guidelines are not as complicated as the Tax Code, but they are complicated enough that I won’t try to predict a number.
Jury Shenanigans
The most remarkable part of this story is what went on with the jury. My only source for this is what is in the court filings, but that alone tells quite a story. It starts with the United States on September 16, two days after deliberations began, filing a complaint against Juror 26, who was in their view “ignoring the evidence, refusing to deliberate and obstructing the jury’s deliberation.” The US attorneys were unable to find a precedent for the behaviors, which included leaving the jury room during deliberations, refusing to reenter the room and going to another floor in the courthouse while the jury was deliberating.
On the second day there was a report that the jury was hopelessly deadlocked with two or three jurors who would not change their minds. During the discussions it appears that Juror 44 said “——- you” and “——- off” to Juror 26, (The court records spell the word out. I am relying on you to infer it.) That brought a lecture from the judge on in which it was indicated that here would be no telling another person “——- you” or anything like that in the jury room, that being punishable by contempt.
In a footnote the US attorneys indicated that while Juror 44’s remark was “poorly worded” he was capturing the frustration of the other jurors with Juror 26’s disgruntled attitude and refusal to remain in the room. According to the foreperson Jurors 26 and 44 got along amicably after that. Juror 26 kept walking out of the jury room though. Juror 8 and the foreperson indicated that they suspected 26 had been talked to by someone outside the juror pool. The foreperson also indicated that Juror 26 had told the other jurors that she “could not put some old men in jail for the rest of their lives.” Juror 8 reported that 26 told the other jurors that she had worked for a millionaire who did investments in funds and he was on the up and up. The United States was looking to have Juror 26 booted.
The next day there is a motion from the defense to boot Juror 8 and Juror 57 for improperly communicating with the court about all the agita that 26 is creating. When the judge interviewed Juror 26 things got even more exciting. Juror 26 claimed that prior to deliberations she had heard comments that three Black jurors were going to find the defendants guilty because they were “rich. white, and entitled” as the court filing indicated. Nobody else confirmed this. So did Juror 26 truly believe that she heard this which required her to play the role of “a white person standing up for white people”? The United States wanted Juror 44 to be interviewed about this with a view to booting 44 if it were true or 26 if it were false.
The judge initially ruled that all the jurors should stay, but later removed Juror 26. There were defense motions for a mistrial. The likely appeal by the defendants should prove interesting.
Shades Of Other Criminal Tax Cases
The abusive conservation easement syndications are a shadow of the tax shelters engineered by top law firms with help from the top national accounting firms at the turn of the millennium. Janet Novack broke that story on Forbes in 1998. There is still civil litigation going on about those deals. Earlier this year I wrote about Bobby Kotick of Activision Blizzard
ATVI
Ultimately there was very little criminal action on those shelters, which involved arcane manipulations of partnership allocation rules. Most notable was Paul M. Daugerdas whose current release date is July 11, 2026. Daugerdas’ first conviction was overturned because of juror misconduct. The second conviction stuck and resulted in a 15- year sentence.
This also reminds me a bit of another tax trial that I covered with a great deal of intensity, that of Kent Hovind in 2015 for action he took with respect to property seized in connection with his 2006 conviction. My team led by Jonathan Schwartz identified the holdout juror, Don Camacho, who effectively set Hovind free. Some of Camacho’s observations remind me just a bit of Juror 26. Of course he didn’t abandon the deliberations. For what it is worth, if you have a couple of hours of lifespan to spare you can hear an interview with a holdout juror in a tax case (Kent Hovind’s 2015 trial) and his nemesis here and here.
This warm water slough on the Foust Wetlands Reserve Program easement in lake County, Montana, … [+]
Where Will It End?
The Land Trust Alliance is optimistic that the Charitable Conservation Easement Program Integrity Act, which was signed into law on December 29. 2022, will shut down the abusive industry. It denies investors a deduction if they are trying to claim more than 2.5 times their investment absent a three-year holding period. My inner villain can design abusive transactions with those constraints, but they require patience. If you are ultra high net worth and want to create a mountain top resort for yourself and pay for the property with tax savings, the Integrity Act won’t stop you if you are patient.
The Tax Court is jammed up with civil cases from the syndicated easements and to some extent the government is being outlawyered. I recently heard from someone who used to sell conservation easements to clue me in on what the new things are. They seemed to be variations on many of the old things.
Frequently when I post stories like this I will get a tweet like this one from Kerry Bowers.
I’m beginning to sympathize with the view that we should totally get rid of the income tax. The FAIR tax, a national sales tax, seems to be the leading candidate for that sort of radical solution. Then my inner villain thinks about all the ways that we could game the FAIR tax.