This tax move could get wealthy investors in hot water with IRS


Certified financial planner Larry Breen, founder of Breen Financial Management in Lake Mary, Florida, said there are several requirements that should be in place for it to be worthwhile.

First, while most deals stipulate that participants be accredited investors, who by regulators’ definition earn at least $200,000 per year, or $300,000 if they are married, the ideal participant will earn more than $500,000, according to Breen. They also must have clean tax records, he said, because these kinds of deals can draw IRS scrutiny. The offerings are often structured through LLCs, further masking the true owners.

Investors also need savvy tax advisors. Both the investor and their advisors need to understand and be comfortable with the tax, legal and property appraisers involved in the deal, Breen said.

People who put their money in these deals also need to know that the syndicated conservation easement will be most likely be audited by the IRS, and they also could be audited individually.

The best deals, according to Breen, will include a memorandum that discloses all of the risks involved in the “private placement,” a type of non-public sale of securities available to a limited number of investors.

“The thing should read like a Stephen King horror novel,” he said.

From there, the investor has to decide which motivates them more: the risks or rewards tied to the investment.

The appraisal of the land is also a crucial part of the deal. Investors want to make sure they have a top-caliber appraiser who applies best practices, according to Breen.

“That’s the first thing that the IRS is going to challenge,” he said.

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