Myrtle Beach man named in federal complaint alleging $2 billion in tax fraud

Note: This story has been updated with comment from an attorney representing Ralph Teal Jr.

The federal government is attempting to crack down on a controversial tax practice, and it’s targeting a Myrtle Beach man in a complaint alleging more than $2 billion in fraudulent deductions.

Ralph Teal Jr., of Myrtle Beach, and EcoVest Capital Inc., a company with Teal on its board, are among six defendants named in a complaint filed Dec. 18 by the Department of Justice in the Northern District of Georgia seeking an order to stop them “from organizing, promoting, or selling an allegedly abusive conservation easement syndication tax scheme,” according to a DOJ press release.

S.C. State Director for The Nature Conservancy Mark Robertson explained that conservation easements are permanent agreements by a landowner to preserve land in its natural habitat, such as farmland or forest. In exchange for landowners giving up future development rights, they can receive tax deductions typically equal to the difference between the value of the property before and after the restrictions are imposed.

The ‘scheme’

The DOJ alleges in its 80-page complaint that Teal and his associates have illegally taken advantage of conservation easements through an elaborate, “highly structured” 11-step process that generally involves creating a limited liability company to take control of a property, having an appraiser come in and grossly overvalue the property, recruiting customers to buy in as partners, finalizing the conservation easement and then distributing the subsequent tax deductions to its customers.

The court document lists several examples where the DOJ alleges the appraiser overvalued the easement by 200 percent or more, and customers were awarded tax deductions worth more than four times the amount they invested.

“As a result of the false statements made by or caused by Defendants, the customers claim improper and grossly overvalued federal tax deductions on their tax returns,” the complaint states, referring to each transaction as a conservation easement syndicate.

The DOJ alleges that, since 2009, the defendants collectively organized, promoted or sold — or assisted in the organization, promotion and sale of — 96 conservation easement syndicates totaling more than $2 billion in federal tax deductions. Teal individually was involved in 45 syndicates worth about $1.59 billion, according to the complaint.

Benjamin Razi, an attorney representing Teal and EcoVest, provided the following statement by email:

“This is an over-reaching government lawsuit that should never have been filed. It is based on gross misrepresentations about Mr. Teal’s conduct and that of his EcoVest colleagues. Mr. Teal is proud of his record in real estate development, and his work on the projects involved in this case. While the government has unfortunately chosen to try to litigate the case by press release, Mr. Teal looks forward to presenting the real facts in Court — and to clearing his good name.”

A profile for Teal on EcoVest’s website states he was raised in Chapel Hill, North Carolina before relocating in 1984 to Myrtle Beach and working in real estate.

The DOJ is requesting that the court order defendants to immediately stop participating in these syndications, provide the U.S. government receipts showing how much money they’ve made from these transactions and inform their customers of the court’s order.

Those customers remain liable for any unpaid federal tax obligations they owe, as well as potential interest and penalties from participating in the syndication “scheme,” according to the complaint.

‘The money is just too good’

Stephen J. Small, a Massachusetts-based tax attorney, who works for property owners and land trusts entering conservation easements, said he has sympathy for the customers who will likely be audited as a result of their involvement with the syndicates, but “they brought it on themselves.”

“Either they knew what they were doing, and therefore can’t complain, or they didn’t know what they were doing, weren’t paying attention, maybe were sold a bill of goods, didn’t do their due diligence, and therefore can’t complain,” Small said.

Legislators and the federal Internal Revenue Service have long recognized conservation easement syndicates as an issue, and the IRS issued a notice in December 2016 warning promoters and investors to avoid these transactions.

The DOJ’s complaint alleges Teal and his associates continued to participate in at least 27 conservation easement syndicates between November 2016 and January 2018.

An article published in December 2017 by Fortune titled “The Billion-Dollar Loophole” detailed that the IRS warning had minimal effect, as those reaping the benefits fought back with aggressive public relations and lobbying efforts. The article names EcoVest as the nation’s “most prolific syndicator” and states the company has spent more than $1 million on lobbyists.

Small, who helped write the conservation easement regulations when he worked at the IRS in 1978-82, said he’s happy the government is finally taking action, but he doubts the lawsuit will scare off other syndicators.

“The money is just too good,” he said, noting he expects the lawsuit could take years to resolve.

Potential adverse effect

Small worries that, if people keep taking advantage of the conservation easement tax deductions, legislators could do away with the provision altogether.

“I have long feared someone in Washington would go after this with a shotgun instead of a scalpel, and it needs a scalpel,” he said.

Robertson, who said his organization holds about 160 easements in South Carolina, echoed Small’s fears.

“Conservation easements are a very important tool in our state,” he said, “... but if people abuse it, it could harm us all.”

Horry County has about 55,000 acres of land protected through public and private easements, according to the North American Land Trust, which states on its website that it has completed 39 conservation projects in the county.

The trust’s president, Stephen Johnson, declined to comment for this story.

A message submitted to the DOJ seeking further information was not returned, and their website stated messages may not be returned until funding is restored. The federal government has been in a partial shutdown since Dec. 22.

Investigative project reporter David Weissman joined The Sun News after three years working at The York Dispatch in Pennsylvania, where he earned awards for his investigative reports on topics including health, business, politics and education.