D.C. Federal Court Bars Company from Promoting Alleged Tax Scheme Involving Improper Easements on Historic Buildings

WASHINGTON – A District of Columbia federal court has entered a permanent injunction order against Steven McClain and the Trust for Architectural Easements Inc. (formerly known as the National Architectural Trust), the Justice Department announced today. The civil court order bars the defendants from promoting a scheme that, according to the government complaint, encouraged taxpayers in Boston, New York City, Baltimore and Washington D.C. to claim unwarranted charitable tax deductions for donations of façade conservation easements on historic buildings. The defendants consented to the injunction without admitting the allegations against them. The injunction order does not preclude the Internal Revenue Service (IRS) from assessing monetary penalties against the defendants for past actions, and also does not preclude the defendants from challenging any such penalties.

According to the government complaint, the defendants falsely told prospective customers that, in exchange for donating easements on their historic properties preventing façade alteration, the customers could claim charitable deductions equal to 10 to 15 percent of the property value, and that this range reflected official IRS policy. In fact, the complaint alleges, the IRS never had any such policy, and the actual value of façade easements, if any, must be determined on a case-by-case basis. The complaint also alleges that the defendants manipulated the easement appraisal process by steering donors to appraisers who the defendants knew would employ the 10-to-15-percent valuation method, leading to improper appraisals that yielded large tax deductions regardless of the easements’ actual effect on property value.

Through 2008, the complaint alleges, the total value of façade easement tax deductions attributable to the defendants’ scheme exceeded $1.2 billion. The complaint states that the IRS has repeatedly disallowed charitable deductions claimed by the defendants’ customers and estimates that the tax revenue lost through 2006 as a result of the scheme is $250 million.

The injunction order bars the defendants from promoting the existence of a 10-to-15-percent valuation range and from accepting donations of easements that the defendants know or have reason to know lack a conservation purpose as defined by federal tax law. The order also blocks the defendants from participating in the appraisal process for an easement in any regard, other than by referring donors to lists of potential appraisers prepared by neutral third parties. The defendants are enjoined from representing to donors that they can expect an easement to diminish the value of their property in all circumstances or to result automatically in a charitable deduction. The order also requires the defendants to submit to independent monitoring of their practices for the next two years to ensure compliance with the injunction.

In the past decade, the Justice Department’s Tax Division has obtained injunctions against hundreds of unscrupulous tax-return preparers and tax-fraud promoters. Information about these cases is available on the Justice Department website.