Syndicated Conservation Easement

The pitch

Invest 50,000 dollars, get a 200,000 to 250,000 dollar charitable deduction, because an appraiser opines the land's highest and best use is a mine, resort, or subdivision that will never be built.

Where it breaks

Valuation. Appraisals in the criminal cases were often more than ten times higher than the price the syndicate had just paid for the same land. Also: no donative intent, no economic substance, backdated subscription agreements and checks, defective deed terms on extinguishment proceeds and amendment clauses, and failure of the qualified appraisal requirements.

What it costs you if it is wrong

Red flags specific to this structure

• The deduction is quoted as a multiple of the investment
• The appraisal exceeds what the syndicate just paid for the land
• The promoter selected the appraiser
• Highest and best use is a mine or resort nobody has begun to build
• Subscription documents are dated before you signed them

Questions to ask the person selling this

Take these into the next meeting. Someone selling the legitimate version answers them without difficulty.

1. 1What did the syndicate pay for this land, and when?
2. 2Who selected the appraiser, and what is the appraised value?
3. 3What is the ratio of my deduction to my investment, and who computed it?
4. 4Does this clear the Sec. 170(h)(7) 2.5x test, or which exception applies?
5. 5How much of my money reaches the land rather than fees and commissions?
6. 6Are you receiving a commission for putting me into this?

Which of the Seven Markers this trips

• A promised deduction or savings multiple

• The promoter selects the appraiser or the actuary

• Fees consume most of the capital

• The economics do not work without the tax benefit

Score your own situation against all seven

The legitimate version

A landowner who has held property for years donates a perpetual easement over land with genuine conservation value to a qualified organization.

What distinguishes it

• No syndication and no investor unit sales
• No promised deduction ratio
• The donor, not a promoter, selected the appraiser
• Qualified appraisal, Form 8283 Section B, baseline documentation, mortgage subordination
• The deduction bears a rational relationship to actual basis and value
• Clears the Sec. 170(h)(7) 2.5x test or fits a statutory exception

What the courts have done

How this has actually gone for the people who bought one.

Typical fees

In the Fisher/Sinnott model, investor money went overwhelmingly to promoters and commissions rather than land.