Sailfish Cove Group, LLC Investor Losses on Conservation Easements

Broker-dealers and sales agents may have been improperly recommended investments in syndicated conservation easement transactions. 

Sonn Law Group is representing Sailfish Cove Group, LLC investors who have suffered losses in conservation easements. If you or a family member has suffered losses investing, we want to discuss your case. Please contact us today for a free review of your case.

Broker-dealers and sales agents may have improperly recommended investments in conservation easements in Sailfish Cove Group, LLC to investors. The IRS and Department of Treasury refer to these investments as “syndicating conservation easement transactions” that purport to give investors the opportunity to obtain charitable deductions in amounts that significantly exceed the amount invested.

The process is described as the following: The investor purchases an interest directly or indirectly in a pass-through entity that holds real property (like Sailfish Cove Group. The entity that holds the real property contributes a conservation easement encumbering the property to a tax-exempt entity and allocates, directly or through one or more tiers of the pass-through entities, a charitable contribution deduction to the investor. Then the investor reports on his or her federal income tax return a charitable contribution deduction with respect to the conservation easement. 

Since 2019, the IRS has been increasing enforcement actions for syndicated conservation easement transactions and stated that the area is a priority for the agency. The agency stated that the transactions undermine the public’s trust in tax incentives for private land conservation and tax compliance itself. A December 2019 court opinion out of Washington, DC disallowed a conservation easement deduction and deemed penalties applicable.

The IRS warned that if the charitable contribution deduction equals or exceeds two and one-half times the amount of the investor’s investment, the IRS plans to challenge the purported tax benefits based on the overvaluation of the conservation easement. 

In a news release on August 31, 2020, the IRS announced that the first settlement under its initiative to resolve certain docketed cases involving syndicated conservation easement transactions was complete. Coal Property Holdings, LLC and its partners agreed to a disallowance of the entire $155 million charitable contribution deduction claimed for an easement placed on a 3,700-acre tract of land in Tennessee. On October 28, 2019, the Tax Court issued its Opinion (153 T.C. 126) granting the government’s motion for partial summary judgment holding that the “judicial extinguishment” provisions of the easement deed did not satisfy the requirements of section 1.170A-14(g)(6), Income Tax Regs.

Under the terms of the settlement, the investor partners were permitted to deduct their cost of investing in the conservation easement transactions and paid a 10 percent penalty, whereas the promoter partner was denied any deduction and paid a 40% penalty. The taxpayers also fully paid all tax, penalties, and interest in conjunction with the settlement. The settlement will be reflected in a stipulated decision document entered by the Tax Court and in a separately entered closing agreement. A public statement acknowledging the settlement was part of the agreement between the IRS and the taxpayer.

IRS Chief Counsel Mike Desmond stated, “[w]e are seeing movement on these settlements. Given the potential for significant penalties, we anticipate more taxpayers will take similar actions and ultimately accept these offers, and we encourage them to do so. 

Contact Sonn Law to Discuss Recovery Options

If you invested in Sailfish Cove Group, LLC and took a charitable contribution deduction worth at least two and a half times your investment, Sonn Law Group may be able to help. Please call us now at 866-827-3202 or complete our contact form.