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July 9, 2020

Attorneys Accused Of Fraud In Hawking Easement Tax Scheme

Tax Scheme

Georgia-based attorneys, accountants and appraisers conspired to defraud hundreds, if not thousands, of individual investors by marketing syndicated conservation easement schemes they knew wouldn't pass muster with the IRS, according to a lawsuit filed in federal court.

The Richard B. Russell Federal Building in Atlanta. A proposed class action filed Friday in a Georgia federal court claims attorneys, accountants and appraisers promoted syndicated conservation easement schemes that they knew would expose investors to IRS scrutiny. (AP)

Firms including Morris Manning & Martin LLP engaged in a conspiracy to defraud investors by pitching syndicated conservation easement schemes they knew would expose them to scrutiny by the Internal Revenue Service, according to a proposed class action, led by investor William Turk and others, that was filed Friday in a Georgia federal court.

There are approximately 1,500 members in the proposed class who are entitled to damages in excess of $100 million, David R. Deary, partner at Loewinsohn Flegle Deary Simon LLP, who is representing the proposed class, told Law360.

"Rather than guide plaintiffs through a legitimate conservation easement transaction, the defendants utilized a prepackaged collection of misrepresentations, omissions, deficient form documents, faulty conservation easement deeds and bogus appraisals to promote, sell and implement the [syndicated conservation easement] strategy," the lawsuit states.

Internal Revenue Code Section 170 provides tax deductions for conservation-oriented land donations. Conservation easements are legal agreements between landowners and government agencies or land trusts to use properties in a way that would achieve preservation goals. Qualified conservation contributions, including those involving easements, are eligible for tax deductions if certain criteria are met.

Syndicated conservation easement transactions have been identified by the government as potentially abusive transactions in which the provision is exploited by procuring an appraisal that vastly overestimates the value of the property, thus inflating the available deduction.

The lawyers, accountants and appraisers named by Turk and others knew that the easements they marketed wouldn't meet the IRS' standard for approval, even as the agency had stated publicly it was aggressively pursuing easement transactions it considered to be abusive, the suit said.

"Plaintiffs do not simply allege negligence — they allege a preplanned fraudulent scheme in which all defendants knew the SCE Strategy, as structured and implemented, would fail if challenged by the IRS despite defendants' representations to the contrary," the suit said.

According to the complaint, Turk and the others invested in the conservation easement schemes through partnerships, which were later audited by the IRS and denied charitable deductions on the donation of the easements.

One key element in the fraud, Turk and the others allege, was that the defendants and the other participants, termed the "co-conspirators," hand-picked appraisers who would knowingly and inappropriately inflate the value of the conservation easements.

The class action was filed on behalf of all those for whom the IRS had assessed penalties, interest or back taxes based on their participation in the syndicated conservation easement schemes developed and promoted by Morris Manning & Martin and the others named, according to the suit. 

In addition to the fraud claims, the suit alleges violations of federal and state racketeering laws, negligence, misrepresentation and other allegations.

Contact information for the defendants' legal representatives could not immediately be found. The defendants Law360 was able to contact did not immediately provide comments.

Turk and others are represented by David R. Deary, W. Ralph Canada Jr. and Jeven R. Sloan of Loewinsohn Flegle Deary Simon LLP and by Edward J. Rappaport of the Saylor Law Firm LLP.

The case is William N. Turk et al. v. Morris Manning & Martin LLP et al., case number 1:20-mi-99999, in the U.S. District Court for the Northern District of Georgia, Atlanta Division.

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