North Myrtle Beach land deals chided in U.S. Senate report as ‘abusive tax shelters’
A series of North Myrtle Beach land conservation deals already at the center of a major federal lawsuit were recently featured in a scathing U.S. Senate report advocating for changes to the tax laws surrounding these types of transactions.
EcoVest Capital Inc. and its board member Ralph Teal, of Myrtle Beach, are facing allegations from the U.S. Department of Justice of more than $3 billion in fraudulent tax deductions with more than $1 billion tied to properties in Horry County, according to an analysis of documents filed in the suit.
The suit and Senate Finance Committee report center on the use of conservation easements — 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.
But some of these deals organized by EcoVest or other similar companies, referred to as “syndicated conservation-easement transactions,” are being used by high-income taxpayers to shelter funds from the Internal Revenue Service with minimal economic risk, federal officials argue.
“The transactions discussed in this report involve land valuations that appear so inflated above their original purchase prices that they cannot reasonably be characterized as anything other than abusive tax shelters,” the 183-page report concludes.
Senate investigation
The Senate committee initiated an investigation into these types of transactions in March 2019, noting in the report that conservation easement tax incentives generally have bipartisan support, but “transactions among unrelated participants, or ‘investors,’ has developed a controversial reputation within the tax community.”
The IRS, which has been closely scrutinizing these deals since 2016, estimates that between 2010 and 2017, the syndicated transactions have generated $26.8 billion, which would lower the investors’ federal tax bills by about $10.6 billion based on the top income tax rate, the report states.
While promoters including EcoVest tout these deals as environmental stewardship, government officials argue they hinge on inflated appraisals — typically saving taxpayers $2 in taxes for every dollar invested — and rely on “sham” entities created solely for transferring large tax deductions, which is against the law.
The report details several of these transactions, including Georgia-based EcoVest placing 17 North Myrtle Beach properties into conservation easements during 2015-16.
Those easements totaled about 1,300 acres appraised for more than $950 million, while investors paid $62.4 million to save more than $344 million in taxes, according to the report. The reported also noted that EcoVest earned more than $23 million to organize the transactions.
North Myrtle Beach conservation
Previous Sun News reporting, which is cited in the Senate report, found that land west of the Intracoastal Waterway was annexed by North Myrtle Beach in 2011 as part of the city’s expansion plans. The city worked with the property owners, which included Teal, to rezone the land, increasing its potential value.
“Of all the promoters reviewed in this investigation, EcoVest appears to have been the most diligent when it comes to giving the appearance that it might actually develop the land it bought,” the report states.
But federal officials argue this was all just for show, highlighting emails among the company and potential investors that showed a primary interest in conservation easements, and the accompanying tax benefits.
“I’m personally investing in this as a tax shelter,” one taxpayer wrote to his attorney about an EcoVest project.
The investors were always given three options: develop the property, place it into an easement or hold the property for future investment. More than 99% of votes were cast in favor of the easement option on EcoVest’s North Myrtle Beach properties, the report shows.
The report’s authors also make the case that the valuations of these properties hinge on an unfeasible increase in housing stock for the area’s market. The projected developments, if built, would have added about 40,000 additional rooms to North Myrtle Beach, while the city only had 16,573 residents as of July 2018, according to U.S. Census Bureau data.
An EcoVest spokesperson previously issued a statement to The Sun News pointing out the economic value of highly sought-after waterfront property in the Myrtle Beach area.”
“Imagine the financial value of Barefoot Landing on the (Intracoastal) Waterway,” the statement read.
Multiple attempts to reach Teal during the Sun News’ coverage of the lawsuit have been redirected toward EcoVest’s spokesperson, who noted that “any suggestion that (he) acted in an inappropriate or improper manner with respect to any dealings in North Myrtle Beach is entirely without merit.”
The primary appraiser for EcoVest’s North Myrtle Beach easements was Claud Clark, who is also a defendant in the federal lawsuit filed in December 2018. He has since forfeited his appraisal license in his home state of Alabama while facing several complaints about his valuations allegedly violating state law.
Potential policy changes
Though the report doesn’t make any specific policy recommendations, its authors do conclude that these types of transactions should be addressed by Congress.
“If syndicated conservation-easement transactions continue to exist in the form they have over the past decade, they risk not only depriving the government of billions of dollars of revenue but also degrading the general understanding that our Nation’s tax laws apply equally to us all,” the report states.
U.S. Sen. Tim Scott, R-South Carolina, serves on the Finance Committee, though a spokesman from his office noted this investigation is run solely by the staffs of Chairman Charles Grassley, of Iowa, and Ranking Member Ron Wyden, of Oregon.
“Senator Scott certainly believes that anyone abusing the tax code for their own personal gain should face consequences, as well as the fact that many people properly and legally use conservation easements in order to help preserve our environment,” Sean Smith, a spokesman with his office, wrote in a statement. “Should the Finance Committee staff determine a concrete, legislative path forward, the Senator will certainly consider their proposals.”
Previous legislation addressing the issue have centered on capping the value of the easements for entities that don’t have a lengthy history of owning the property.
An EcoVest spokesperson wrote in a statement that the company worked closely with the committee during its investigation, emphasizing that the report did not find that their projects violated any laws, and that they’re ready to work with Congress to enhance current environmental legislation.
