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Land Deal Sponsors in Government Crosshairs Got Virus Relief Aid

July 23, 2020, 6:32 PM

Two sponsors of land-donation deals that the Justice Department and Internal Revenue Service have pursued as potentially abusive tax shelters received pandemic relief aid under the government’s Paycheck Protection Program, lending records show.

EcoVest Capital, Inc. and Webb Creek Management Group LLC each received loans between $350,000 and $1 million, according to the Small Business Administration’s loan database. The PPP program facilitates government-backed loans that can be forgiven if used to cover payroll and other covered business expenses.

EcoVest has been sued by the Justice Department for promoting a class of deal known as syndicated conservation easements, in which promoters solicit multiple investors to buy interests in property that is then donated for a tax deduction. The IRS flagged these types of transactions, particularly ones where promoters say investors may be entitled to writeoffs of 2.5 times their investment amount or more, as potentially abusive in 2016.

The Senate Finance Committee subpoenaed Robert McCullough, senior vice president and chief financial officer of EcoVest, as part of an investigation into these deals. Bryan Kelley, chief executive officer of Webb Creek Management Group, was asked to furnish information on the transactions as part of that bipartisan inquiry.

The loans were made at a time the IRS has been ratcheting up the pressure on these deals, winning a string of victories in cases before the U.S. Tax Court. The agency is offering a settlement for pending syndicated easement cases, with IRS Chief Counsel Michael Desmond urging investors to “take an objective look at their cases, and cut their losses.”

The Justice complaint against Ecovest and other defendants said that their transactions generated about $2 billion in tax deductions. A proposed amendment to the complaint filed by the DOJ this May raised that number to more than $3 billion.

Billions of Dollars at Play

The Paycheck Protection Program was created in the pandemic relief law known as the CARES Act (Public Law 116-136). The PPP has facilitated more than 4.9 million approved loans totaling $518 billion, according to SBA’s most recent program report.

Small Business Administration rules prohibited many business owners with criminal records or who are under indictment from getting PPP loans. Applicants must also swear they haven’t had a civil judgment against them in the past three years for financial offenses including fraud. But the policy doesn’t bar businesses that are facing civil actions from federal agencies or being investigated by Congress.

An EcoVest spokesperson said in an email that the company complied with all legal and ethical obligations when applying and hasn’t faced any legal proceedings that prevent it from receiving PPP money.

“EcoVest is the target of an unwarranted DoJ civil case, and expects to be fully vindicated when that case goes to trial,” the spokesperson said. “EcoVest used the PPP funds as they were supposed to be used, to help keep people employed.”

A Webb Creek spokesman said in an email that the company “provided all of the information requested by the SBA in the application.”

The federal government has said that it is reviewing all PPP loans after there were some reports of inconsistencies.

The offices of Senate Finance Chairman Chuck Grassley (R-Iowa) and ranking member Ron Wyden (D-Ore.), who are leading the panel’s easements probe, didn’t respond to requests for comment on the loans.

—With assistance from Christina Brady and Aysha Bagchi.

To contact the reporter on this story: Kaustuv Basu in Washington at kbasu@bloombergtax.com

To contact the editors responsible for this story: Patrick Ambrosio at pambrosio@bloombergtax.com; Bernie Kohn at bkohn@bloomberglaw.com

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