$1.2 billion in conserved property? Donations in Horry County face federal scrutiny
A Myrtle Beach man and his company have helped conserve Horry County properties allegedly valued at more than $1.2 billion, but instead of receiving praise, they’re facing a massive federal tax fraud lawsuit.
The U.S. Department of Justice suit centers on the use of conservation easements, which 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.
A Sun News analysis of figures alleged in the lawsuit found some of these easements in Horry County were valued as high as $2 million per acre.
While the company touts these easements as environmental stewardship, the DOJ argues these deals hinge on overinflated valuations, and others involved in land conservation worry these types of companies are jeopardizing the future of conservation easements with their alleged profit-making ventures.
Federal lawsuit
The DOJ initially filed its suit against Ralph Teal, EcoVest Capital Inc. and others in December 2018, alleging more than $2 billion in fraudulent tax deductions, and it filed an amended complaint earlier this month adding details and increasing its allegations of tax fraud to more than $3 billion.
“Defendants’ ‘conservation easement syndication scheme’ — as described herein — encourages Defendants’ customers to ‘invest’ in a conservation easement syndicate under the assumption that the syndicate will donate a conservation easement, claim a tax deduction for that conservation easement, and allocate a portion of that tax deduction to each customer who ‘invests’ based on their ‘investment’ in the syndicate,” the suit states.
“In reality, Defendants’ conservation easement syndication scheme amounts to nothing more than a thinly veiled sale of grossly overvalued federal tax deductions under the guise of investing in a partnership.”
In court documents and a news release, EcoVest has insisted it conducted its business lawfully and ethically, and that the government is wrongfully contending that conduct it long encouraged is now fraudulent.
The case is ongoing, with the DOJ seeking an extended discovery period, and the defendants wanting to move forward more quickly toward trial, according to case filings.
The Sun News analyzed the amended filing, which hasn’t yet been accepted by the court, along with public U.S. Securities and Exchange Commission filings and Horry County deeds records to identify 23 properties totaling 1,653 acres in the county that EcoVest helped place into easements between 2014-2018.
Based on the numbers alleged in the DOJ’s amended suit, nearly 3,000 people invested in these properties for more than $285.5 million and received tax deductions totaling more than $1.25 billion, amounting to about $4.38 in deductions per dollar invested.
Conservation controversy
In order to be eligible for tax benefits, conservation easements must be accepted by land trusts, which enter into agreements with property owners to monitor the easements, and many won’t work with companies like EcoVest, often referred to as syndicate easement promoters.
Ashley Demosthenes, president and CEO of Lowcountry Land Trust in Charleston, said her organization closely scrutinizes land appraisals, and when they see valuations claiming more than a 50 percent reduction in the property’s value, “it raises some eyebrows.”
She noted that $1 billion in deductions would be the average total claimed by 2,000-2,500 “legitimate” easement deals, according to Internal Revenue Service data.
According to a Brookings Institute study published on the IRS website, “About 10 percent of the acreage under easement claims about 69 percent of all tax benefits, largely because the valuation of the easements (per transaction or on a per-acre basis) is unusually high.”
An EcoVest spokesperson issued a statement pointing out that “the economic value of highly sought-after waterfront property of the type EcoVest sponsors in Myrtle Beach is very different from rural property with little development value.”
“Imagine the financial value of Barefoot Landing on the (Intracoastal) Waterway compared to that of a hunting or timber plantation in rural South Carolina,” the statement continues.
The spokesperson added that similar investments have been repeatedly upheld in courts, and the conservation value of these projects “speak for themselves,” including the creation of two public parks in Myrtle Beach and protecting natural habitats for birds, bees, bats and others.
“EcoVest’s projects also provide exceptional benefits to the wider South Carolina community by reducing flooding, stormwater pollution, and commuter traffic, all while creating public spaces and scenic sites for residents to enjoy,” the statement concludes.
All of EcoVest’s easements in Horry County were accepted by North American Land Trust, according to deed records.
Steven Carter, president of the Pennsylvania-based land trust, wrote in a statement: “Conserving small and select portions of open space in highly developed areas like North Myrtle Beach is just as important and urgent as protecting large landscapes. By saving land that would otherwise be lost to more impervious surfaces and high-rise resorts, North American Land Trust is protecting vital habitat like Carolina bays, xeric sandhill dunes and declining longleaf pine forests, as well as natural areas and scenic views for the Myrtle Beach residents and visitors to enjoy well into the future.”
These deals have been under scrutiny in South Carolina for years, as former S.C. Department of Revenue director Burnie Maybank testified before Congress in 2005 that a few bad actors were abusing the use of conservation easements with excessive appraisals.
Maybank, now a private attorney, told The Sun News that the South Carolina Department of Natural Resources could’ve purchased and preserved a lot more land for some of the tax deductions he was seeing, though the impact on South Carolina’s General Fund is probably minimal since many investors live out of state.
Demosthenes said the concern among the conservation easement community is that these syndicate deals could lead Congress to eliminate tax benefits for everyone.
“Despite all this that’s going on, there is proportionally so much positive going on,” she said. “Conservation easements are being leveraged inappropriately, and it’s a shame.”
The Lowcountry Land Trust is accredited by the Land Trust Alliance, a Washington, D.C.-based conservation organization that has advocated for a bill that would limit the total deductions allowed for partnerships donating conservation easements.
North Myrtle Beach annexation
A majority of the acreage EcoVest conserved in Horry County is on land west of the Intracoastal Waterway that was annexed by North Myrtle Beach in 2011.
Horry County deed records show Sandridge LLC, a group that included Teal, purchased these properties in 2005 in unincorporated Horry County for about $9,715 per acre. After the annexation, the properties were subdivided and about 1,000 acres were put into easements in 2014-2016 at a value of about $343,700 per acre, or 35 times as much as the purchase price, according to the DOJ’s figures.
When North Myrtle Beach was considering the annexation, city officials spoke about wanting the property to be developed for future expansion of its tax base, and they worked with the developers to rezone those properties as part of the agreement.
The Sun News detailed this agreement, which included the city purchasing property for the North Myrtle Beach Park and Sports Complex, in-depth last year.
Mayor Marilyn Hatley told The Sun News she felt misled by the developers, but city staff declined to comment at the time due to ongoing litigation with the developers about a road that was supposed to be built as part of the original agreement.
That issue was resolved shortly after publication with the city and developer coming to an agreement that included the city purchasing more land to expand the sports complex and a lane expansion.
City spokesman Pat Dowling wrote in a statement that the city is comfortable with the settlement that was reached, but they’ve learned their lesson about trusting developers to not put land into conservation easements.
“Looking back at the annexation that occurred, the City was hopeful that the properties annexed would over time result in a thriving residential/commercial community west of the Intracoastal Waterway,” Dowling wrote. “As the annexation process, part of a development agreement, moved forward there were some rumors in the community that, once annexed and rezoned, the landowners intended to move some of the land into conservation easements. My recollection is that the City received verbal assurances that this would not occur, and in the end the City trusted in that outcome.”
The city now usually requires language in development agreements preventing the land from being put into easements, according to Dowling.
The agreement switched the land west of the waterway’s zonings from agricultural and general residential to more valuable designations, including multi-family residential, resort residential and business commercial.
Thomas Wingard, a Columbia, S.C.-based appraiser, said the process of getting land rezoned prior to putting it in an easement is common because it allows the appraiser to value the land based on the actual zoning as opposed to a projection of what zoning might be approved.
Wingard, who said he didn’t appraise any of the easements in North Myrtle Beach, noted that he’s one of only a handful of appraisers that regularly appraise conservation easements because many in the field don’t want to deal with the IRS scrutiny that goes along with them.
All of the properties in Horry County were appraised by Claud Clark, an Alabama-based appraiser also named in the suit, according to the DOJ. Clark voluntarily surrendered his appraisers license last year in Alabama after the state’s board received a complaint related to his methodology for appraising a conservation easement.
The South Carolina Department of Labor, Licensing and Regulation issued Clark a public reprimand and fined him $500 because of the voluntary surrender, according to online records, but he is still licensed to issue appraisals in South Carolina.
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How were these figures determined?
In the Department of Justice’s amended complaint, it included a table of EcoVest’s 58 syndicates that placed property into conservation easements between 2013-2018. The table included the tax year, state where the property was located, the price of total offering for investors, number of members and total non-cash charitable contribution deduction.
Using those figures, The Sun News was able to match the syndicates to a SEC Form D filing, which lists the total offering for investors and number of members. In some cases, the DOJ appeared to use the syndicate’s initial offering in its table, so The Sun News used the final offering listed in amended Form D filings for its analysis.
With the name of the syndicate from the SEC filings, The Sun News was able to search through Horry County deed records to confirm EcoVest’s involvement and determine the amount of acres included in each conservation easement. Further deed searches were also conducted to find the most recent sale price of each property before EcoVest’s involvement.
This story was originally published May 29, 2020 at 10:30 AM.
