Transitioning from Tax Scam Promoter to GSA Adviser: The ProPublica Investigation

Even as he has vowed to eliminate “every dollar of waste, fraud, and abuse across the federal budget and operations,” the new acting administrator of the General Services Administration, Stephen Ehikian, has appointed a senior adviser whose firm used to specialize in tax transactions that a bipartisan Senate committee excoriated and that the IRS branded as “abusive” and among “the worst of the worst tax scams.” The adviser has been battling the tax agency in court over $4 billion in disallowed deductions for thousands of his clients.

The GSA, the federal agency responsible for managing the government’s land and property, will now be taking advice from Frank Schuler IV, the 57-year-old co-founder and longtime president of Ornstein-Schuler, an Atlanta-based real estate investment company. Schuler’s firm was for years among the most prolific promoters of tax-shelter deals known as “syndicated conservation easements.”

Schuler and his colleagues exploited a tax deduction that was created to reward landowners who give up development rights for their acreage, usually by donating those rights to a nonprofit land trust. When used as intended, conservation easements can preserve pristine land, sometimes as a park that the public can use, and reward the land donor with a charitable tax deduction.

But middlemen like Schuler’s firm turned the tax provision into a highly profitable business, packaging easements into what were essentially outsized tax deductions for purchase. After snatching up a cheap piece of vacant land, Schuler and others typically hired a private appraiser willing to declare that the property had huge untapped development value — that it was suited to become anything from a gravel mine to a luxury resort — and was worth many times its purchase price. They then sold stakes in the easement donation to rich individuals, who claimed wildly inflated tax deductions based on the appraisal, cutting their taxes by twice as much as they’d invested. ProPublica first began investigating the syndicated easement business, which has cost the government tens of billions in tax revenue, back in 2017.

The IRS, the Justice Department and Congress struggled for years, through public warnings, hundreds of audits, tax court cases and criminal prosecutions, to shut down the scheme. Those efforts were countered by $11 million in lobbying expenditures from the promoters and the creation of a Washington-based trade group, called Partnership for Conservation, which Schuler founded. Syndication advocates pressed Congress to defund the IRS crackdown.

In 2020, the Senate Finance Committee released a bipartisan investigative report on the transactions. (Schuler was one of six people subpoenaed by the committee to provide information.) The report, which detailed Ornstein-Schuler’s practices, described syndicated easements as a “dollar machine” for wealthy taxpayers, saving them two dollars in taxes for every dollar they put in, “with promoters pocketing millions of dollars in fees for organizing the deals.” The practice was finally curbed through legislation passed in late 2022, but it remains on the IRS’ “Dirty Dozen” list of “bogus tax avoidance strategies.”

In the past, Schuler has described his tax transactions as legitimate and well intentioned. In a 2017 interview with ProPublica, he said his entry into the business of syndicating easements was the result of a personal epiphany sparked when his toddler son compared the paving of a residential development to pollution. As Schuler described it, “The importance of conserving land for him and future generations really pushed me to this point. … That’s why today I’m so passionate about conservation.”

Ornstein-Schuler dropped out of the syndicated-easement business in 2019, citing “recent developments and the uncertainty related to the conservation and gifting of property.” The firm turned to other real estate and tax realms, including launching a new division to buy and sell Georgia state film tax credits. Schuler also reportedly earned a credit as an executive producer on a film in which Mira Sorvino played an AI home security system. (Ornstein, who’s still CEO of Ornstein-Schuler, also co-founded a private equity firm, whose holdings include a chain of dental offices and a chain of car washes.)

But the legal warfare over Ornstein-Schuler’s tax-avoidance business continues today. According to a recent IRS filing, the firm has filed more than 100 tax court cases involving its transactions, contesting more than $4 billion in disallowed charitable deductions from some 2,000 investors. Many of the cases are still pending. Ornstein-Schuler has made long-running efforts to reach a global settlement with the IRS; another filing includes an August 2022 letter from one of its law firms asserting that such an agreement would clear the way for collection of $1.5 billion in taxes and would personally cost Schuler and his partner approximately $150 million in additional taxes, interest and penalties.

A tax court decision handed down last year resolved the first of Schuler’s cases to actually go to trial, involving multiple conservation easements from 2014 on 4,607 acres in rural Alabama. The promoters claimed that the potential for sand and gravel mining justified a total of $187 million in charitable deductions. Investor promotional materials, evidence showed, projected $200,000 in tax savings for every $100,000 invested. The decision, which resolved 13 linked cases involving the property, backed the IRS, disallowing about $180 million of the $187 million in write-offs and imposing 40% “gross valuation misstatement” penalties on most of the disallowed amounts. The judge found that partnerships promoted by Schuler had claimed deductions as high as $50,000 an acre on land that had been purchased less than a year earlier for $2,200 an acre.

In his opinion, Albert Lauber, a senior judge in U.S. Tax Court, pointedly noted how Ornstein-Schuler’s standard pitch of promising investors $2 in tax savings for every $1 they invested assumed he’d obtain a sky-high property appraisal, generating a profitable investor write-off. “When asked at trial how he could have posited in advance a deduction-to-investment ratio of $4.389 to $1, before any appraisals had been performed, Mr. Schuler said that appraisals were basically irrelevant to the tax write-off they were offering,” the judge wrote. He called the land values Schuler’s firm had claimed “wholly implausible.”

“We were making plenty of money,” Schuler testified during the case. “The investors were doing well. And we felt that it was great that land was being conserved.”

Ornstein-Schuler is also among the defendants in a federal class-action suit in Georgia filed by three investors. The suit claims Ornstein-Schuler collaborated with lawyers, accountants, appraisers and others to collect millions in fees through a “fraudulent scheme” that deployed “a mountain of misrepresentations and omissions