How a Georgia Pine Farm Became a Big Tax Deduction

In 2020, some members of the McGinnis family sold three-fifths of the property for $310,000. By the end of 2021, Oglethorpe County land had been sold again, this time to a company that had raised $10.7 million from investors as part of a land conservation deal. This transaction could earn its investors millions of dollars more in tax deductions, as well as scrutiny from the Internal Revenue Service.

The deal was typical of burgeoning “syndicated conservation easements” in this part of northeast Georgia, known for its granite deposits used in tombstones and statuary. For some appraisers and traders, the prospect of granite mining can increase a property’s hypothetical value. …and also increase the tax deduction associated with the promise not to mine.

The tax breaks claimed are usually far greater than the money spent to buy the property, which is part of a mini-market in which the country’s high-income investors get tax deductions instead of minerals.

“It’s about tax shelters and selling tax shelters,” said Denise Perry, executive director of the Georgia Agricultural Land Trust, which tracks easement agreements statewide. “It’s all about the money.”

Many conservation easements, which provide tax incentives to preserve development property, are uncontroversial. The Internal Revenue Service is focused on the proliferation of large transactions in which investors are grouped into “syndications” for deductions, and the agency audits every syndicated easement agreement that exceeds thresholds it set in 2016. Resulting disputes between the government and well-funded developers have piled up in court, with billions of dollars in tax revenue at stake.

The easement on the McGinnis property is so recent that the IRS probably won’t check it for years. But it’s an example of the kinds of transactions that are still happening despite the IRS’ enhanced enforcement.

The McGinnis property is barely distinguishable from anything else on Highway 22 north of Oglethorpe County Middle School, a few hundred feet of wooded road frontage across from a small church. There is a locked gate for the preserved property, as well as a separate locked gate for the smaller plot that some members of the McGinnis family still rent out to hunters.

This peaceful and bucolic plot was not selected for preservation due to unique ecological characteristics or urgent environmental need to prevent commercial growth. So far, Oglethorpe County has not seen significant growth from neighboring Athens, and the population has hovered around 15,000 for the past decade.

For tax purposes, it is what lies beneath the former McGinnis property that may matter. Oglethorpe County, atop a heap of granite, has long been home to rock quarries. Elberton, Georgia, the self-proclaimed Granite Capital of the World, transforms the area’s smooth, gray granite into tombstones and cemetery statues.

Developers therefore go to Oglethorpe County to find a property that could become a quarry, then recruit high-income investors who claim large tax deductions for promising not to build a quarry.

Since the IRS stepped up enforcement of these agreements in 2016, there have been about 40 easements in Oglethorpe County, mostly from Southeast partnerships and developers. They have set aside over 5,000 acres for conservation, or nearly 2% of the county’s area.

Extrapolating from values ​​per acre claimed in two county public court cases, there could be more than $500 million in federal tax deductions generated from where the adjusted gross income of all individuals in 2019 was of $314 million and deductions for charitable donations totaled $4.7 million.

Prior to the 2020 sale, the land had been in the McGinnis family for nearly a century, originally a bequest to Mr McGinnis’ first wife, Sammi, from her godfather. In his will, Mr McGinnis described learning how to plant pine trees on the property from a local forestry expert.

“I planted 22,000 pines and couldn’t stand straight for two days,” Mr McGinnis wrote.

John W. McGinnis, the minister’s son, recalled occasional hunting trips around the country when the family still lived in the Atlanta area, before growing pine trees made sight too difficult.

As the trees grew, the family leased the land to logging companies, generating enough money to pay property taxes and cover some college fees. When the elder Mr. McGinnis died, the land was producing an annual income of almost $10,000, which he left to his second wife, Louise, noting he didn’t have much life insurance.

The land itself was divided into one-fifth shares among family members. Young Mr McGinnis and a niece wanted to keep some of the land and kept a 40% share, while others cashed in.

Rob Keith, a grandson of eldest Mr. McGinnis, is a music teacher who lives in Brooklyn, NY, and has little desire to own land in rural Georgia, especially once the money from forest leases dried up and annual property tax bills remained.

“It meant we all had to come up with thousands of dollars a year for this piece of land that meant nothing to us and that we didn’t really want,” he said.

The property had been on the market for months and only got a few bites, selling in January 2020 to a local building executive for $310,000, or about $1,200 an acre. That price was fair, particularly because the timber was not replanted after the previous lease ended, said Eddie Drinkard, the realtor responsible for the transaction.

“It was a jungle, like a typical wooded area that’s allowed to come back on its own,” he said.

The construction manager then turned the property into a hunting retreat, Mr Drinkard said. It made it easier to cross a creek in the field and clear open areas that allowed for deer and turkey hunting and dove shooting, Mr Drinkard said.

“He just completely transformed the property from ugly dog ​​cutting territory into a real showcase hunting ground,” Mr. Drinkard said.

Then, on December 16, 2021, the land was sold to Dogwood Bluff LLC, a partnership formed by Green Rock LLC, an Alabama company that was active in conservation easements but recently said it would exit the business. . The deed and associated documents do not specify a sale price, but Mr. Drinkard estimated it to be around $2,650 per acre.

Typically, developers such as Green Rock hire geologists and mineral appraisers to survey sites they are considering purchasing, estimate the amount of soil to be removed, and market the underlying granite.

Green Rock then raised $10.7 million for Dogwood Bluff Partners LLC, of ​​which more than $1.6 million went to broker commissions or Green Rock entities, according to a filing with the Securities and Exchange Commission. . The minimum investment was $50,000 and the offering was sold between Dec. 28 and the SEC filing on Dec. 30.

IRS officials declined to comment on a specific taxpayer or property. They warned investors against participating in syndicated easement deals and placed them on the agency’s “Dirty Dozen” list of abusive tax avoidance transactions.

“Taxpayers should be extremely skeptical of distorted claims that property may be ‘worth’ more than it’s ‘worth’,” said IRS acting chief of staff Tom Cullinan.

On Dec. 29, Dogwood Bluff LLC donated a conservation easement to the Natural Resources Conservancy, a Tulsa, Oklahoma land trust that formed in March 2021 and agreed to about 20 easements last year.

Unlike many land trusts, which refuse donations that are part of syndicated easements, NRC accepts them.

“I don’t think it’s the land trust’s job to deal with landowner taxes,” said Robert Gregory, the group’s founder.

Although the McGinnis heirs sold their land for about $1,200 per acre and Green Rock bought it for about $2,650 per acre, the deductions claimed for the abandonment of the development could be much higher due to granite. Many syndicated easement agreements include deductions of four times what investors spend; in this case, it could be over $150,000 per acre.

Mr Keith, the New York music teacher, said he knew nothing of any dealings involving his grandfather’s former land until the Wall Street Journal began contacting members of his family.

“It’s a total surprise,” he said.

This story was published from a news agency feed with no text edits

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