Polk land deal shows how the rich profit off conservation, Senate report shows

Investors doubled their money with a tax break. Critics say the deal was an example of a profit scheme disguised as environmentalism.
A patch of land off County Line Road in Polk County, near Bowling Green, is subject to a syndicated conservation easement. Critics say the program has been abused as a tax shelter.
A patch of land off County Line Road in Polk County, near Bowling Green, is subject to a syndicated conservation easement. Critics say the program has been abused as a tax shelter. [ ZACHARY T. SAMPSON | Tampa Bay Times ]
Published Sept. 17, 2020|Updated Sept. 17, 2020

FORT MEADE — Thick, wet brush surrounds County Line Road, a strip of pavement that divides Polk and Hardee counties in Florida’s rural belly. Shag green like a carpet, the earth unfurls flatly, broken only by periodic ranches and passing pickups.

Eight miles east of Bowling Green, four miles from a phosphate mine, lies a chunk of conservation land. No clear marker designates the spot; with wood and barbed wire fencing that divides scrub from road, it’s indistinguishable from much of the rest of the area. Cows lumber over a soaked field across the street. Bugs hum incessantly.

Investors granted easements on this property years ago, an act of charity that would, under normal circumstances, be celebrated as a feat of conservation, protecting Florida’s thinning wilds from industry and development. Instead, according to a recent report from the U.S. Senate Committee on Finance, the land is a symbol of the rich profiting off of environmentalism. The point of the donation, according to the report, was not so much to save land as it was to save money, securing a tax deduction so large that the investors kept more in their pockets than they spent in the first place.

A small group of shady actors are using the well-intentioned conservation program to game the tax system, the Committee wrote, potentially bilking the government out of billions of dollars in revenue.

“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 (Internal Revenue Service) budget,” said Sen. Ron Wyden, an Oregon Democrat and ranking member of the Senate Finance Committee. He said the report lays out “persistent abuse in the program.”

It goes like this: Wealthy investors buy a stake in a piece of relatively cheap, undeveloped land. Within weeks, they move to grant a conservation easement, preserving it from development and securing a hefty tax deduction.

The deduction is calculated based on two valuations from an appraiser, one high, estimating what the property would be worth if it were built out into houses or used for some other purpose, and the other low, what the property would be worth if conserved. The difference — what the investors are theoretically sacrificing by giving up development rights — becomes the basis for an income tax deduction, like a write-off for a charitable gift.

Because they are high-level earners, the investors knock off millions of dollars in income that would typically be taxed at about a 40 percent rate, according to the Senate report. The result? They keep millions of dollars that they would have otherwise had to pay to the government on their yearly earnings.

“Imagine walking up to a vending machine with a sign on it that read, ‘The Dollar Machine,’” the Senate report explains. “Instead of selling sodas or candy for a small amount, this supposed Dollar Machine offered to give you two dollar bills back for every dollar bill you inserted.”

The practice has drawn the eye of the Internal Revenue Service. Three years ago, ProPublica reported at length on what are known as syndicated conservation easements, including the Polk property called County Line Ranch.

The land sat without interest from buyers before investors got involved, brought in by an Atlanta-based promoter, Ornstein-Schuler, according to the Senate report. Promoters, the committee wrote, make millions in fees on easement transactions. The 3,500-acre ranch was divided into tracts, several of which were subject to similar easements. In late 2015, for instance, investors put down a collective $3.6 million for one 122.5-acre patch.

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An appraiser estimated a high-end value of $17.8 million, saying it contained rock for mineral mining, according to the Senate report. If the land were conserved, the same appraiser said, it would be worth only $440,000. The difference resulted in a reduction of taxable income for the investors of a little more than $17.3 million. Assuming the investors were subject to an income tax rate of 39.6 percent, as the Senate investigation did, they would have saved about $6.8 million in taxes, almost double what they spent on the land.

Ornstein-Schuler, which previously announced it has stopped working on syndicated conservation easements, did not reply to a call or two emails seeking comment. The appraiser, Clayton Weibel, declined to comment. So did the Atlantic Coast Conservancy, the trust that manages the land and is listed in property records as its owner. The head of the group, Robert Keller, told ProPublica he believed the property would help native birds. The investors are not publicly known.

The Senate Finance Committee’s investigation highlighted a similar transaction, involving a different promoter, in Hamilton County.

“It’s cloaked in the nice-sounding conservation and values and habitat,” said University of Utah law professor Nancy Assaf McLaughlin, who has studied the easements. She said it’s unclear how environmentally significant some of the conserved land is. Some investors, she said, might rely on bad advice and not know all the details of the process.

The syndicated conservation easement abuse “started in the Southeast,” said Lori Faeth, government relations director for the Land Trust Alliance, but promoters “have definitely spread their wings over the years.” The Alliance, an umbrella organization over many conservation groups, fought to make the tax break permanent. Now, it’s trying to fend off a “black eye” brought by the system’s abusers and seeking reforms that would allow for conservation easements while eliminating people’s ability to make a big profit.

“The folks who are engaged in these transactions are extremely wealthy,” Faeth said. Ultimately, she said, harm comes to other taxpayers who end up subsidizing inflated conservation breaks for the rich.

The Internal Revenue Service has upped enforcement, targeting people behind the problematic transactions and giving syndicated conservation easements a designation that brings more scrutiny, often a deterrent to bad actors. The agency is trying to bring civil penalties against those who benefit from inflated deductions.

“Abusive syndicated conservation easement transactions undermine the public’s trust in private land conservation and defraud the government of revenue,” said Internal Revenue Service Commissioner Chuck Rettig last year. “Putting an end to these abusive schemes is a high priority.”

The breaks had previously carried little risk aside from a chance audit.

A bill before both chambers of Congress would impose restrictions on the transactions to prevent people from making a quick windfall, Faeth said. It would block them from taking credits worth much more than their investment soon after buying land. It has not been brought up for a vote.

Easements, Faeth said, are a crucial tool for preserving nature when done right. At their best, she said, they allow large landowners, farmers and environmentalists to guarantee the long-term protection of their properties while earning a moderate benefit.

In Florida, they’re an increasingly important method of conservation, cheaper than buying land outright but enough to keep development away, said Lindsay Stevens, land program manager for The Nature Conservancy in Florida. She gave the example of cattle ranchers selling development rights to a land trust, a way to get value from their property while continuing an agricultural business.

“It allows us to be assured that for generations to come that property will not turn into rooftops,” Stevens said.