$3 billion tax fraud case involving North Myrtle Beach land is getting settled. What next?
A Myrtle Beach developer and his associates are closing in on a deal to end a yearslong legal battle over their alleged involvement in a $3 billion federal tax fraud scheme.
The U.S. Department of Justice sued EcoVest Capital Inc. and some of its directors in late 2018, alleging improper 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 property’s value before and after the restrictions are imposed.
EcoVest used easements for years to essentially sell tax deductions to wealthy investors by relying on overinflated valuations, the DOJ alleged. A lot of the land they conserved is located in Horry County and, specifically, in North Myrtle Beach, The Sun News previously reported.
The company long defended its practice as environmental stewardship, but has now agreed to stop all future involvement in the sale or promotion of conservation easements as part of a settlement agreement with the department. That permanent injunction recently became less necessary after Congress passed legislation late last year severely hindering the business model of companies like EcoVest.
The settlement, which still needs to be approved by a judge, allows the company and its agents to continue to deny any wrongdoing or liability related to the government’s allegations.
Sean Akins, counsel for EcoVest, wrote in a statement that the company is pleased the DOJ accepted their offer to resolve the case.
“The Department of Justice’s case was premised on false allegations and a failure to understand EcoVest’s business,” he wrote. “While EcoVest was confident it would have prevailed at trial, its primary goal is to avoid further costly litigation and focus its resources on behalf of the best interests of its existing investors.”
Akins added that the agreement shouldn’t impact EcoVest’s ongoing business activities in any meaningful way, as they shifted away from sponsoring real estate investments with conservation easement options after 2021 toward other investment opportunities, including affordable housing.
Representatives from the DOJ did not respond to a request for comment on the settlement.
North Myrtle Beach annex
EcoVest led the way in placing 23 Horry County properties totaling more than 1,650 acres into conservation easements during 2014-2018, according to data previously compiled by The Sun News. Those easements led to more than $1.2 billion in tax deductions for investors, records show.
Most of those properties were located west of the Intracoastal Waterway on land purchased in 2005 by an entity partly owned by Ralph Teal Jr., of Myrtle Beach, who was named in the DOJ complaint as an EcoVest board member.
North Myrtle Beach annexed that property in 2011 based on the understanding that it would be developed into a mix of residential and commercial properties. City officials rezoned the properties, increasing its value, as part of the annexation, but then most of the land was put into easements.
“I’m all for preserving property, but I don’t want to be misled,” Mayor Marilyn Hatley previously told The Sun News, suggesting the developer deceived the city just to raise the value of the subsequent tax deductions.
The easements ended up getting valued more than 35 times higher than the price Teal and his partners paid for it, with one of the properties valued as high as $2 million per acre, according to Sun News analysis.
“Imagine the financial value of Barefoot Landing on the (Intracoastal) Waterway compared to that of a hunting or timber plantation in rural South Carolina,” an EcoVest spokesperson previously said in defense of its actions.
Change to conservation law
But those actions were specifically chided in a 2020 U.S. Senate report as “abusive tax shelters,” with investigators recommending policy changes to prevent companies like EcoVest from continuing to take advantage of apparent loopholes in the tax incentive program.
Changes to the federal conservation easement program were finally implemented at the end of 2022 as a provision intended to prevent these alleged abuses was included in the annual government spending bill under the expectation that it will increase revenue for the U.S. Treasury.
The new language within the law severely limits a taxpayers’ deduction relative to their investment, eliminating the potential profits a company like EcoVest could make without hampering the original intent of the program, according to a recent ProPublica story detailing the change.
Stephen Small, a Massachusetts tax attorney who helped write the original conservation easement regulations when he worked at the IRS, lauded the legislative fix, which he long felt was necessary.
“I’m so happy Congress finally came to understand this is a scam,” he said.
While Small believes the amended law should prevent abuses of the easement program moving forward, at least in the short term, he expressed less certainty that the government will be able to recoup much of its losses from previous years.
EcoVest and other defendants in the DOJ case will pay an undisclosed settlement as part of the agreement and also must disclose the names of those who invested in some of the easements.
Tax court records show most of the EcoVest entities that placed Horry County properties into easements are in ongoing disputes over the validity of the previous tax deductions.
Correction: This story has been updated to clarify that EcoVest will pay an undisclosed settlement and is only required to disclose investors for some of its easement deals. (March 17, 4:30 p.m.)
This story was originally published March 16, 2023 at 7:00 AM.
