Accountants Plead Guilty To $1.2B CRE Tax Shelter Fraud In First Conviction Of Its Kind

Two Sandy Springs accountants have admitted to defrauding the Internal Revenue Service out of more than a billion dollars related to various real estate deals, using one of the agency's most-abused tax loopholes

Stein Agee and Corey Agee, both listed as members of the Atlanta public accounting firm AgeeFisherBarrett LLC, admitted to one count each of conspiracy to commit fraud by placing real estate investments for high net worth individuals for the sole purpose of achieving a tax write-off through a conservation easement program.

In total, the duo claimed more than $1.2B in fraudulent tax deductions from 2013 to 2019, Principal Deputy Assistant Attorney General Richard Zuckerman said in a press release announcing the guilty pleas.

The duo confessed to receiving more than $1.7M in commissions from the arrangements. The Agees could serve up to five years in prison.

“Their convictions signal just the beginning of the department’s prosecutive efforts,” Zuckerman said in a statement. “Taxpayers engaging in such schemes, and the lawyers, accountants, appraisers and other professionals that enable them, should understand that they will be held fully to account for their fraudulent conduct.”

While conservation easements are a legal tax shelter designed to incentivize landowners to prevent open space from being developed, commercially or otherwise, the IRS says they have been abused as an improper tax shelter.

“Two defendants pleaded guilty today in the first-ever criminal case by IRS-CI involving conservation easements,” IRS Commissioner Charles Rettig said in a statement. “It should be considered the next step in the IRS’ battle against abusive SCEs. The defendants and their co-conspirators used conservation easement donations to personally enrich themselves and allow wealthy tax clients to evade their tax obligations. The charges and guilty pleas demonstrate that participation in abusive SCEs will not be tolerated.”

The agency's main focus has been on syndicators, the middlemen who buy up and package land and potentially inflate their values with appraisers, and then create conservancy easements that they sell to investors with promises of larger charitable write-offs than the initial investments.

“It's when people are holding out a sign saying, 'Tax shelter. Open today. Come on in.' You know the IRS takes an interest in them,” Las Vegas-based Adkisson PLLC partner Jay Adkisson said.

Adkisson, whose work as an attorney has focused on tax shelters, said these schemes are not uncommon. The key, he said, are the appraisers, who overinflate the value of the land in order to beef up the prices being set aside for conservation.

The IRS said high-income taxpayers purchased shares in partnerships fronted by the Agees that were on the surface to be development opportunities but in reality were simply vehicles for the tax benefits.

“[The Agees] marketed the [syndicated conservation easement] tax shelters by promising investors that, for every $1 invested in the partnership, the investor would receive more than $4 in 'charitable' tax deductions with no economic risk,” the Department of Justice said in the release.

The Agees backdated payments and documents for clients to fit them into tax law, the IRS found. AgeeFisherBarrett Managing Member Tracy Barrett didn't return calls seeking comment as of press time.

There are currently more than 191,000 conservation easements in the U.S. preserving more than 32 million acres of land, according to the National Conservation Easement Database. Their popularity has risen in recent years. Between 2012 and 2014, total deductions for easements rose from $971M to $3.2B, according to the Brookings Institute.

These easements have been the subject of civil lawsuits in the past from investors who have been told by the IRS that their expected deductions were not allowed.

In April, Andrew Lechter, a broker at Savills, joined part of a class-action lawsuit against Atlanta-based accounting firm Aprio, alleging the firm spearheaded an effort, with the help of a group of law firms, real estate agents, appraisers and conservancy holding companies, to overvalue land holdings and juice the tax benefits to the investors.

But the Agees' case is the first time the IRS has won a criminal conviction regarding the abuse of the illegal tax loopholes.

Adkisson said the IRS has tried to combat abusers of conservatory easements through civil means but has resorted to the criminal prosecution stage, a move Rettig signaled in November 2019 when he announced an increase in investigations and enforcements against the repeated abuse of SCEs.

“I think they have been taking it pretty seriously,” Adkisson said. “What happens, though, is you get some people known as promoters, and they just won't quit. It's like a puppy who annoys you. Sooner or later, you're going to have to pop it with a newspaper.”