A three-person arbitration panel under the aegis of FINRA Dispute Resolution Services this week awarded clients of an Atlanta broker-dealer, The Strategic Financial Alliance Inc., $509,000 in damages in a dispute related to the sale of syndicated conservation land easements, tax shelters that the IRS has been watching for years due to potential abuse.
The clients and claimants in the complaint, the Mills family, alleged that Strategic Financial Alliance’s “recommendations were unsuitable.” The family's claims were related to certain investment recommendations, “including whole life insurance policies, illiquid real estate investment trusts, and syndicated conservation easements,” according to the FINRA arbitration award, which was released Tuesday.
The Mills family filed the lawsuit in 2023. Julie Sullivan, president of Strategic Financial Alliance, did not return a phone call Wednesday morning to comment.
A scan of the FINRA database of arbitration decisions showed no final decisions using the term “land easement,” making this week’s arbitration award potentially the first of its kind. Attorneys said that other firms had been settling claims involving easements, which the IRS has been scrutinizing for almost a decade.
InvestmentNews reported in 2017 that the IRS was scrutinizing the tax shelter land deals, called syndication conservation easements.
Some syndicated conservation easement deals have offered investors charitable contribution deductions on taxes of eye-popping amounts, from four to four-and-a-half times the amount they invest.
That means an investor can turn a $100,000 investment into $400,000 or more of tax deductions. The IRS has raised questions about the appraisals and valuations of properties.
“There’s been a lot of government scrutiny of these easement deals but firms kept selling them,” said Chase Carlson, the attorney for the Mills family, in an interview Wednesday. “The IRS has settled with some of the conservation easement companies who syndicated the deals but the clients who bought the product have been hit with tax penalties and interest.”
The tax shelters, which are sold in the form of high-risk private placements, are usually sold by smaller independent broker-dealers.
“Syndicated conservation easements aren’t typically sold by big banks like Goldman Sachs Group Inc. or UBS Group,” Bloomberg reported in 2021. “Instead, they’re mostly promoted by brokers who run their own practices and are registered with little-known securities firms.”
“They work with people outside the securities industry -- such as accountants, lawyers and tax preparers -- to woo doctors, entrepreneurs and other rich individuals to buy into partnerships that seek to exploit tax benefits from land conservation,” according to the report.
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