Green Tax Break Syndicated Easements Face IRS Scrutiny

Jack Fisher has raised hundreds of millions of dollars pitching investors on real estate development projects that were never built. Fisher, an accountant-turned-developer, promoted projects such as the Preserve at Venice Harbor, near Hilton Head, S.C., where marketing illustrations showed houses on canals that evoked the famous Italian city. Instead of developing the land, he recruited investors to elaborate deals that provided them charitable tax deductions in return for donating easements for conservation.

The Internal Revenue Service, however, suspects the deals may amount to tax fraud. Fisher is at the center of a criminal probe related to these syndicated conservation easements, according to people familiar with the details, who requested anonymity to discuss a confidential matter. The investigation has already led to tax conspiracy charges against three accountants who worked with him.

A syndicated conservation easement gives dozens of investors in partnerships three choices: to build a specific development project; to hold on to the land and build later; or to donate an easement to a land trust or government, promising to forgo development. The third option entitles investors to charitable tax deductions, based on the appraised value of the land, that can be worth four or five times their investment.

Easements have been used—legitimately, and mostly by family partnerships and individuals like farmers—for decades as part of a federal push to preserve more than 30 million acres of land. Those aren’t the focus of an IRS crackdown. Instead, it’s going after promoters like Fisher who sell deals through brokers, accountants, lawyers, and tax preparers, and who market the projects that generate large tax deductions. The IRS has made these an enforcement priority, suing some promoters to shut them down and criminally investigating others.

California conservation lawyer Misti Schmidt says a typical syndicated easement used by wealthy investors is an “ugly tax-shelter scheme” that relies on grossly overvalued appraisals. “There’s so much money to be made, they just keep doing it,” says Schmidt, a partner at Conservation Partners.

Those appraisals are at the center of the legal fight around syndicated easements. Before an easement donation is made, an appraiser assigns it a value based on its highest and best use. That number is then used to calculate the tax deductions. The IRS often argues that those appraisals vastly inflate the development potential of a property, and that promoters use those valuations to market lucrative tax deductions.

Two of Fisher’s associates, the brothers Stein and Corey Agee, pleaded guilty in December to conspiring to promote fraudulent tax breaks and are cooperating with prosecutors. Although Fisher wasn’t charged or named in the Agee cases, he’s referred to as Promoter A in court documents, the people familiar with the details say. Documents reviewed by Bloomberg confirm Fisher’s role in the deals. Lawyers for Fisher didn’t respond to emails and phone calls seeking comment.

In the Stein Agee case, prosecutors say the deals were “illegal tax shelters that allowed taxpayers to buy tax deductions,” according to the charges. Appraisals were “falsely inflated,” while the conservation option was “always a foregone conclusion.” Many investors signed up after the tax year in which easements were donated, prosecutors say, even though the IRS allows deductions only in the same year a donation is made. Promoter A and others had investors backdate checks and agreements, according to the charges.

“Promoter A’s tax shelters resulted in a massive evasion of taxes,” the charges state. In all, more than 1,500 investors received $1.2 billion in fraudulent tax deductions, prosecutors said. At one point, Promoter A told Stein Agee that he met with several co-conspirators to make sure they were on the “same page” about late investments, according to the charges. Promoter A proposed that Agee could falsely suggest that backdated checks weren’t deposited because they were “lost” on someone’s desk. Lawyers for the Agees declined to comment.

Nationwide, the IRS has challenged $21 billion in tax deductions claimed for syndicated easements from 2016 to 2018, saying it’s auditing 28,000 taxpayers. Former President Donald Trump has donated several easements, including two under scrutiny by New York state authorities.

“The IRS fully supports the benefit of legitimate conservation easements around this country,” IRS Commissioner Charles Rettig told Congress in March. “It has done tremendous things for farmers and others. Our problem is with the abusive syndicated easements.”

The IRS crackdown comes amid a battle in Congress that pits conservation groups and national appraisal organizations against promoters of syndicated easements. Conservation groups want legislation that would bar investors from claiming deductions worth more than two and a half times their initial investment. Promoters have been blocking that fix for years.

“The IRS’s current take-no-prisoners litigation strategy is also going after minor technical flaws that arise in all easements, not just syndications,” says Schmidt, the conservation lawyer. “Legitimate easements are now getting disallowed.”

Fisher, who’s in his late 60s, grew up on a small-town farm in Marshall, N.C., and still speaks in a soft Southern drawl. The son of a truck driver and homemaker, he graduated with a degree in accounting from nearby Mars Hill College in 1974 before joining the IRS. Fisher then became a certified public accountant, worked for Price Waterhouse, and joined a firm that moved him to Atlanta to work with the National Football League’s Falcons.

Later, he took a job at an accounting firm with the Agee brothers’ father, Edward Agee. “I got a lot of good experience,” Fisher testified at a trial after a real estate broker sued him, claiming the developer owed him a commission. Fisher said he met people who “could refer you to business: bankers and things like that.”

He got into development by auditing construction companies, and later began assembling his own investment deals, founding Preserve Communities about two decades ago.

Fisher was adept at raising money, says Anthony Antonino, a real estate consultant who helped with the sale of 800 acres in North Carolina for $14.75 million to entities controlled by Fisher and a wealthy investor. “Jack knows where the money’s at, and he knows how to get it,” Antonino says.

Some of Fisher’s wealthy investors were involved in equestrian events, say people familiar with the matter. His family owned a 40-acre show stable in Alpharetta, Ga., according to a 2013 story in the Atlanta Journal-Constitution. His then-wife, Libba, and two of their children won several titles competing in elite hunter and jumper events, according to records maintained by the U.S. Equestrian Federation.

He was a hands-on developer, says Mark Brooks, a civil engineer who helped Fisher build projects. “He was out there walking the roads and figuring out site lots,” Brooks says. “He was real proud when he did the developments. He felt he was doing things to help out Madison County, which was a pretty poor county.”

He also branched out to the Western U.S., buying a 1,088-acre ranch near Reno, Nev. In late 2018 a Georgia corporation Fisher formed donated an easement covering 812 acres to the North American Land Trust. Investors got $51.2 million in deductions, according to court filings. They put up $10 million, his partner told planners in Nevada’s Washoe County.

Months later, Fisher pursued permission to develop 38 homes on land not covered by the easement. He showed up at a rural advisory board meeting in July 2019 wearing a cowboy hat and flanked by ranch hands, according to a resident. When pressed, Fisher backed down.

“We have no plans to do anything with that property other than to make it part of the ranch,” Fisher said at the recorded meeting. In the face of stated opposition by planners, he withdrew his application.

The Agee brothers, whose father died in 2009, helped promote some of Fisher’s deals. At the proposed Preserve at Venice Harbor development, $179.8 million in tax deductions were claimed by the 390 investors who chose a conservation easement instead of building homes, court documents show. That was more than four times what they put in.

By 2018, less than two years after the IRS began targeting syndicated easements as tax shelters, Fisher was under investigation, the people with knowledge of the matter say. “You have to be very, very careful that these look like real estate investments as compared to, you know, basically a tax shelter,” Promoter A told an agent posing as an investor, according to the charges against Stein Agee.

Fisher continued to work with the Agees through last year, the people say. In November, Promoter A left a handwritten note for Stein Agee saying he’d been “cleaning up the books,” the charges state. About the same time, a video was uploaded to the Preserve Communities Vimeo account.

Fisher talks about his career while viewers see images of forests, mountains, and rivers, and of Fisher himself sitting on a deck, and then feeding a horse. “I hope the people who live in our communities gain a greater connection to nature, to slow down in life, to realize what’s really important,” he says. “We only have so many years here on the planet, and feeling good about what you’ve done with your life.”

— With assistance by Kaustuv Basu, Neil Weinberg, and Elise Young

By: David Voreacos

Source: Green Tax Break Syndicated Easements Face IRS Scrutiny – Bloomberg

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How to Build a Water-Smart City

As water shortages and drought become increasingly common, cities will need to invest in infrastructure and find ways to recycle their supply.

Cities across time have stretched to secure water. The Romans built aqueducts, the Mayans constructed underground storage chambers, and Hohokam farmers dug more than 500 miles of canals in what is now the U.S. Southwest.

Today’s cities use portfolios of technologies to conserve supply — everything from 60-story dams and chemicals to centrifugal pumps and special toilets. And yet, the cities of tomorrow will have to do more.

A recent United Nations report on drought says climate change is increasing the frequency, severity and duration of droughts, which contribute to food insecurity, poverty and inequality. The report also asserts that “drought has been the single longest-term physical trigger of political change in 5,000 years of recorded human history.” It calls for urgent action and a transformation in governance to manage modern drought risk more effectively.

Examples can be found globally. In 2018, Cape Town, South Africa, narrowly averted a “Day Zero,” when the taps would have run dry. Indian aquifers are falling fast. The Colorado River, a water source for 40 million people, faces dire shortages as the American West slides deeper into “megadrought.” By 2050, the world’s population is projected to near 10 billion, increasing water demand by 55%. And by then, two-thirds of people will live in cities.

US-CLIMATE-DROUGHT
Houseboats sit in low water on Lake Oroville on July 25, 2021, as California’s drought emergency worsens.
Photographer: Robyn Beck/AFP via Getty Images

“As cities continue to grow, they will have more water demand from many sectors: residential, industrial, ecological,” says Enrique Vivoni, a hydrologist at Arizona State University. “City planners have to think ahead, and not only 5, 10 years, but perhaps 50 or 100 years.”

Every place is different when it comes to preparing for these challenges, but some tactics are universally applicable enough that they can be united into a blueprint for the water-smart cities of tomorrow.

Recycle Water

Experts point to one way everyone on the planet can conserve water: Use it more than once. We recycle plastics and metals, but why not water? Dragan Savic, chief executive officer of KWR Water Research Institute in the Netherlands, believes recycling at home is a “huge” opportunity. Newsha Ajami, director of Urban Water Policy at Stanford University’s Water in the West initiative, says onsite reuse is perhaps the best way to improve efficiency.

“If we think about the cities that we have right now, it’s pretty much a one-use system,” Ajami says. “So, water comes in, we use it once, it goes out. You flush down the toilet the same water that you drink, which is not very efficient, if you think about it.”

Homes should use water many times, according to Ajami. A multi-use approach is possible because several uses — landscaping, gardening and toilet water — don’t require drinking-quality water. Many of these needs can be met with greywater, meaning waste-free recycled water. As much as 75% of domestic water can be reused as greywater.

Installation of diverter valve for greywater system at new home construction site, California
A diverter valve for a greywater system is installed at a new home construction site in Los Angeles. A branched greywater system diverts discarded water from sinks and washing machines away from sewage lines, and recycles it back via a gravity-fed drain system for irrigation and back into the aquifer.
Photographer: Citizen of the Planet/Education Images/Universal Images Group via Getty Images

Consider the toilet. Toilets account for up to 30% of indoor domestic water use. However, toilet water could be second use, routed from sinks, showers and dishwashers, cutting demand. Some cities are acting on this knowledge. Sydney, Australia, has designed Green Square, a town center designed for sustainability and water reuse, including as toilet water. Microsoft’s office in Herzliya, Israel, is routing greywater to toilets as well.

Greywater can also help meet water needs for landscaping, which comprises almost one-third of residential American water use. Additionally, the U.S. Environmental Protection Agency notes that informed plant selection can save 20% to 50% of landscaping water. Proper irrigation can save even more.

Measure Usage

More precise data on water usage could also aid conservation. With better water metering, people might better understand their home usage, both indoors and outdoors.

“Water is less measured than other systems, like transportation,” KWR’s Savic says. “If you don’t measure it, you cannot manage it.”

Ajami says she believes a “Nest-like device” that measures water usage by category could aid in such efforts. It might, for one, “let you know that you’re using too much water in the shower.” She also advocates for reforming water utilities themselves, since those companies profit from increased usage. Rate structures must be decoupled in a way that lets utilities recover their costs regardless of the water volume they sell.

“If you want to promote conservation, these utilities are not set for these consumption patterns,” Ajami says. “They’re selling you a commodity.”

Get Creative

As water becomes scarcer, some have even returned to the ancient art of rainwater harvesting, which can relieve pressure on surface water and groundwater sources if scaled broadly.

Cities across the globe are encouraging the practice, and, even in the driest of places, people have found a way to collect and store rain. In Tucson, Arizona, resident Brad Lancaster meets 95% of his water needs via rain. Many American cities offer financial incentives to people who install rainwater harvesting systems, making local water systems more resilient. In India, mandatory rainwater harvesting laws have arisen in some states and cities, like Tamil Nadu and New Delhi.

“Every drop of water we harvest from an alternative source is a drop of water we’re not taking out of the environment in a different way,” Ajami says.

Air conditioner condensate is another water source with potential, though it’s not likely to be a major contributor, especially in cities lacking humidity. Water is a byproduct of air conditioning. Places like the San Diego Airport and the Austin Public Library are collecting this water condensate and using it for power-washing, gardening and even brewing beer.

In the fastest-growing metropolitan area in the U.S., greater Phoenix, towns are ramping up reclaimed wastewater use, efforts that have led to some reduction in groundwater dependency. Similarly, Orange County in California has set records for reclaimed wastewater production. And in the desert city of Windhoek, capital of Namibia, reclaimed wastewater has been a vital water source for 50 years.

Desalination is another possibility. Turning salt water to fresh water has proven an important water source even in wet cities like London. The largest desalination plant in North America, in San Diego, produces tens of millions of gallons of freshwater per day. The process, however, is energy intensive and often uses fossil fuels (for now), meaning cities must balance costs and carbon emissions with their water needs.

Additionally, there are offsite water sources with narrower applicability, like the fog-catching machines of Lima, Peru. Even the International Space Station treats astronaut sweat, urine and breath moisture for water reuse.

Tackle the Underlying Cause

Cities can employ a range of solutions to tackle water scarcity, but climate change remains the root cause of many looming water issues. It drives supply-side water problems — lowering rivers, increasing evapotranspiration and disrupting precipitation patterns. If greenhouse gas emissions can be curbed, supply-side problems might be mitigated, according to water experts. (Demand, however, will continue to rise with population.)

Even so, some warming is already a certainty, and cities will need to become far more water efficient and invest in related education. Outdated pipes and water infrastructure must be updated. Savic emphasizes the need to equip water systems with cybersecurity. There are also a host of potential policy changes, including requiring buildings to reuse water, encouraging greywater systems, and pursuing innovative financing, like the Green Stormwater Infrastructure Fee that Tucson charges residents. That money funds rainwater capture systems and the development of green spaces.

“We are buildings future cities today,” says Ajami. “Every new development that goes up is going to be around for another 20, 40 or 100 years.”

When to build the necessary water-smart future cities? In a perfect world, 20, 40 or 100 years ago. But in our world, now.

By: Chris Malloy

Source: How to Build a Water-Smart City – Bloomberg

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