‘They thought they wouldn’t get caught’: How a land conservation fraud let the wealthy avoid $450 million in taxes

‘They thought they wouldn’t get caught’: How a land conservation fraud let the wealthy avoid $450 million in taxes

FINANCIAL CRIME

It was the kind of tax loophole you could drive a $450 million truck through.

In the end, it turned out to be a scam that cost the Internal Revenue Service hundreds of millions of dollars and resulted in its ringleaders being sentenced to decades in prison.

The fraud, organized by an accountant and a lawyer in Georgia, centered around a legal — but controversial — tax-shelter structure known as a conservation easement syndicate.

Federal prosecutors in Atlanta say the fraud began in 2008 when the accountant, Jack Fisher, began marketing a product to wealthy clients offering the possibility of substantial tax write-offs in return for an investment in a complex land-swap agreement.

In 2013, Fisher brought in a partner, lawyer James Sinnott. Prosecutors say he helped supercharge the scam by creating pathways for the pair to falsify documents, enabling them to claim hugely-outsized tax deductions while hiding evidence from the IRS by asserting attorney-client privilege.

“They thought they wouldn’t get caught because they were invincible,” prosecutors wrote in court filings.

Messages left with attorneys for Fisher and Sinnott weren’t immediately returned.

The scam was built around the tax-shelter concept of a conservation easement. That involves a landowner reaching an agreement with the government to set aside an undeveloped parcel of land with the understanding that it will be left in its natural state forever and never be built upon. The landowner can then claim it as a charitable deduction in return for an often substantial tax deduction.

Fisher, 71, and Sinnott, 52, used a variation on this known as a conservation easement syndicate, in which they got their wealthy client to invest collectively in a parcel of land. The men would make it appear that the syndicate intended to develop the land but would then reach out to government agencies saying they had changed their mind and wanted to set it aside for conservation. Each of the investors would then be able to claim part of the tax write-off.

Fisher and Sinnott had promised their investors the deals would be structured so the investors would be able to claim deductions worth 4.5 times what they had invested.

“In essence, the defendants’ scheme was like a vending machine—for every dollar a participant put in, he could expect to receive $4.50 back in tax deductions,” prosecutors said.

Attorneys for Fisher and Sinnott had argued in court filings that bringing a criminal prosecution against organizers of such a tax shelter was highly unusual, as disputes about how they are structured had been previously settled by the IRS itself through audits.

Such syndicates are legal, but remain controversial. The IRS says they are frequently abused and there has been a, so far, unsuccessful bipartisan push in Congress to close the loophole. Prosecutors say Fisher was a pioneer of using such tax structures, which have gained in popularity.

But prosecutors say Fisher and Sinnott took the structure even further, making it a full-fledged fraud. For starters, prosecutors say the syndicates the men created were never intended to develop the land they purchased.

To make it so each investor could receive enough of a tax break to make it worth their while, the men enlisted a network of appraisers who they paid to value the land at prices far higher than they had actually spent on them, sometimes just days after the initial purchase.

“The defendants’ claimed values were not just ridiculous, they were offensive,” prosecutors said.

Fisher and Sinnott would also frequently backdate share purchase agreements, so the investors could take the tax deduction in any year they might want.

“To be clear, this is not a case where a misguided individual took an aggressive but ultimately mistaken tax position. This is a case of flagrant dishonesty, of shameless disregard for the law,” prosecutors wrote.

According to court filings, the scheme resulted in illegal tax deductions worth $1.3 billion, costing the IRS $450 million in tax revenue.

The men, who took millions of dollars in fees for their work, also took advantage of the tax structures to wipe out much of what they would have owed the IRS themselves. Prosecutors say Fisher used the proceeds to acquire luxury cars, a private jet and real estate all over the U.S. and in the Caribbean.

Fisher and Sinnott were convicted by a jury in September of conspiracy to defraud the United States, conspiracy to commit wire fraud, aiding and assisting the filing of false tax returns and subscribing to false tax returns.

On Tuesday, Fisher was sentenced to 25 years in prison, while Sinnott received a sentence of 23 years.

Five other accountants in the U.S. have pleaded guilty to helping funnel clients towards Fisher and Sinnott’s scheme, earning hundreds of thousands of dollars in commissions.