Case 1:18-cv-05774-AT Document 119 Filed 12/10/19 Page 1 of 22

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
UNITED STATES,
Plaintiff,
v.
NANCY ZAK, et al.,
Defendants.

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CIVIL ACTION NO.
1:18-cv-05774-AT

ORDER
This matter is before the Court on Defendant Zak’s Motion to Dismiss [Doc.
31], and Defendant Clark’s Motion to Dismiss [Doc. 41]. For the reasons stated
below, Defendant Zak’s Motion [Doc. 31] is GRANTED in part and DENIED in
part. Defendant Clark’s Motion to Dismiss [Doc. 41] is DENIED.
I.

PROCEDURAL HISTORY
The United States brings this action against defendants, accusing them of

participating in a “highly structured – and abusive – tax scheme involving the
syndication of conservation easement donations.” (Doc. 1 at 1–2.) Defendant Zak
moves to dismiss Count I, II, IV, and V against her. (Doc. 31.) Defendant Clark
moves to dismiss Counts I, III, IV, and V against him, incorporating the arguments
made by Zak in reference to Counts I, IV, and V. (Doc. 41; Doc. 41-1 at 3.) The
Government responded to both motions (Resp. to Zak, Doc. 47; Resp. to Clark,
Doc. 50), and each defendant replied (Zak Reply, Doc. 54; Clark Reply, Doc. 59.)

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On June 10, 2019, the Court held oral argument on the motions to dismiss,
as well as the Government’s Motion to Strike Answer to Complaint (Doc. 24),
Defendant Zak’s Motion to Stay Discovery (Doc. 53), and Defendant Clark’s
Motion to Stay Discovery (Doc. 57). (See Transcript of Motion Hearing
Proceedings, Doc. 85.) The Court took arguments relating to the motions to
dismiss and the motion to strike under advisement, and denied the motions to stay
discovery,1 but allowed only limited document discovery to proceed. (Doc. 86.)
II.

FACTUAL ALLEGATIONS AND CLAIMS
This case involves conservation easements, which are legal agreements

“between a landowner and another party, generally a land trust or government
agency, that permanently restricts the development and/or use of land with the
purpose of achieving certain conservation or preservation goals.” (Doc. 1 at 15.)
The Government defines a “qualified conservation contribution” as “a contribution
(A) of a qualified real property interest, (B) to a qualified organization, (C) made
exclusively for conservation purposes.” (Doc. 1 at 16.) To participate in this
program, a landowner designates a parcel of land to become a conservation
easement, preventing that parcel from ever being developed in the future. In
exchange, the landowner gets a substantial tax benefit based on the valuation of

The Court allowed the Government and defendant EcoVest to exchange documentary discovery,
and also authorized the Government and defendant Clark to participate in limited documentary
discovery to avoid duplicative efforts in the future. The Court also ordered that, other than
documentary discovery, “no other discovery shall be permitted until further order of the Court.”
(Doc. 86 at 8.) The Court held that the “eight-month discovery period will commence upon the
Court’s resolving Zak and Clark’s motions to dismiss.” (Id.) Accordingly, the eight-month period
of discovery commences now, upon entry of the instant order.
1

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the parcel of land. This incentivizes landowners to help achieve Congressional
goals relating to conservation and preservation of natural lands. However, in some
instances, a landowner cannot utilize the entire possible tax benefit of converting
their land to a conservation easement because their income is not high enough to
allow for the full tax benefit.
The Government alleges that defendants ran a “conservation easement
syndication scheme” that exploited this portion of tax law. According to the
Government, the defendants formed limited liability companies (“LLC”) under
state law. (Doc. 1 at 16.) These entities were “pass-through” entities for federal tax
purposes, meaning that the company was not liable for income tax. (Id.) Instead,
the income or losses of the LLC “passed through” the entity to the partners of the
LLC itself. (Doc. 1 at 16–17.) The purpose of the LLC was exclusively to hold
ownership of the parcel of land at issue. The LLC did not conduct any other
business, according to the Government. (See Doc. 1 at 47–48; see also June 26,
2019 Transcript, Doc. 85 at 11–13.)
The Government laid out eleven discrete steps that represent the “general
pattern” the defendants took in enacting their conservation easement offerings.
(Doc. 1 at 18–22.) In brief, according to the Government, the defendants first
formed an LLC to take ownership of a piece of land, then hired an appraiser to
provide an appraisal of the land, which would be used later in tax filings. (Id. at
18–19.) The defendants then marketed ownership interests in the LLC – whose
value is derived only from the possible future tax benefit of converting the land to

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a conservation easement – to wealthy persons who may seek to maximize their tax
benefits. (Id. at 19–20.) The marketing of the LLC clearly explains how the
conservation easement might benefit a person in a particular tax bracket by
reducing his or her tax burden substantially. (Id.) Once all stakes are sold, the LLC
designates the land as a conservation easement, finalizes the appraisal of the land’s
value, and prepares its own tax return. (Id. at 20–21.) The LLC is formed as a passthrough entity, so the sizable tax benefit it incurs for designation of the land is then
passed through it to the investors themselves. (Id. at 16.) The investors list the
conservation easement tax burden on their personal income tax returns, reducing
their own tax liability. (Id. at 21–22.)
The Government characterizes defendants’ conservation easements as a
“syndication scheme” that violates section 6700 of the tax code. (Doc. 1 at 64.) The
Government alleges that defendants collectively participated in 96 different
conservation easement transactions resulting in over $2 billion of federal tax
deductions. (Doc. 1 at 2–3.) The Government alleges that defendant Zak
“organized, promoted, and sold the conservation easement syndicates through
several entities over the years,” and that she is responsible for approximately $381
million of the $2 billion in tax deductions. (Doc. 1 at 7, 3.) The Government further
alleges that Zak,
assisted in the organization and promotion of
conservation easement syndicates by providing a number
of services including: providing guidance in planning
ownership structure, negotiating agreements with land
trusts and appraisers, assisting in the highest and best

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use determination, recommending legal counsel for legal
and tax review, and managing the preparation and
distribution of required IRS tax forms.
(Doc. 1 at 7–8.) The Government alleges that Clark provided appraisals of the land
that overvalued the land substantially, knowing that the false appraisal was to be
used to file for artificially-inflated tax returns. (Doc. 1 at 54–58.)
III.

STANDARD OF REVIEW
This Court may dismiss a pleading for “failure to state a claim upon which

relief can be granted.” Fed. R. Civ. P. 12(b)(6). A pleading fails to state a claim
if it does not contain allegations that support recovery under any recognizable legal
theory. 5 Charles Alan Wright & Arthur R. Miller, Federal Practice & Procedure §
1216 (3d ed. 2002); see also Ashcroft v. Iqbal, 556 U.S. 662, 677–78 (2009). In
considering a Rule 12(b)(6) motion, the Court construes the pleading in the nonmovant’s favor and accepts the allegations of facts therein as true. See Duke v.
Cleland, 5 F.3d 1399, 1402 (11th Cir. 1993). The pleader need not have provided
“detailed factual allegations” to survive dismissal, but the “obligation to provide
the ‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels and
conclusions, and a formulaic recitation of the elements of a cause of action will not
do.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). In essence, the
pleading “must contain sufficient factual matter, accepted as true, to ‘state a claim
to relief that is plausible on its face.’” Iqbal, 556 U.S. 662 at 678 (quoting Twombly,
550 U.S. at 570).
Where a plaintiff alleges a claim of fraud, the claim must be considered

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under the requirements of Rule 9(b). Fed. R. Civ. P 9(b). Rule 9(b) dictates that a
plaintiff pleading a fraud claim must allege “(1) the precise statements, documents,
or misrepresentations made; (2) the time and place of and person responsible for
the statement; (3) the content and manner in which the statements misled the
Plaintiffs; and (4) what the Defendants gained by the alleged fraud.” Ambrosia
Coal & Constr. Co. v. Pages Morales, 482 F.3d 1309, 1316–17 (11th Cir. 2007).
Moreover, “in a case involving multiple defendants the complaint should inform
each defendant of the nature of his alleged participation in the fraud.” Id. (internal
citations omitted).
It is important to keep in mind the purposes of Rule 9(b). It serves to
“provide defendant with fair notice of claim, to safeguard defendant’s reputation,
and to protect defendant against the institution of strike suits,” United States ex
rel. Rigsby v. State Farm Fire & Cas. Co., 794 F.3d 457, 467 (5th Cir. 2015)
(citation and quotations omitted), and serves a “screening function, standing as
gatekeeper to discovery, a toll to weed out meritless fraud claims sooner than
later.” Id. (citation and quotations omitted); see also United States ex rel. Atkins
v. McInteer, 470 F.3d 1350, 1359–60 (11th Cir. 2006) (describing purposes of Rule
9(b)). Rule 9(b) must be applied in a “nuanced” fashion on a “case-by-case” basis.
United States ex rel. Mastej v. Health Mgmt. Assoc., Inc., 591 F. App’x 693, 704
(11th Cir. 2014).

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IV.

DISCUSSION
In many respects, this is not a normal case. Defendants generally do not

dispute participating in the activities that the Government alleges in the complaint.
Rather, defendants and the Government have diametrically-opposed positions as
to whether those activities are in fact lawful. Defendants believe their activities
were lawful and allowed by the tax code. The Government believes the activities
unlawfully exploited a portion of the tax code, and that by causing false statements
to be filed in the income tax returns of their “investors,” defendants have defrauded
the investors and the Government itself. With that context in mind, the Court looks
now to the issue at hand: whether the Government’s complaint adequately pleads
sufficient factual material to state a claim for relief against defendants Zak and
Clark.
Defendant Zak seeks to dismiss all counts except Count III. She argues that
Counts I and IV should be dismissed, “because they fail to satisfy the pleading
requirements of Rule 9(b)[.]” (Doc. 31-1 at 2.) Zak further seeks to dismiss Count
II, because the relevant section of the Internal Revenue Code applies only to
persons who “prepare” appraisals, and therefore does not apply to her. (Doc. 31-1
at 1–2.) Lastly, Zak argues that Count V must be dismissed because it is untimely,
fails to satisfy the requirements of Rule 9(b), and constitutes an excessive fine in
violation of the Eighth Amendment. (Doc. 31-1 at 2.)
Defendant Clark moves to dismiss all counts except Count II. (Doc. 41-1 at
2.) As to Counts I, IV, and V, defendant Clark simply joins those portions of

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defendant Zak’s motion to dismiss, “because they apply with equal force to
[defendant Clark].” (Doc. 41-1 at 3.) Clark challenges Count III, saying that it only
applies to a “tax return preparer” and, because he did not prepare any tax returns,
it therefore does not apply to him. (Doc. 41 at 3–10.)
The Court next addresses each Count of the complaint.
Count I – 26 U.S.C. § 6700
Count I of the Complaint alleges that defendants violated 26 U.S.C. § 6700.
(Doc. 1 at 63.) Section 6700 imposes a penalty on any person involved in promoting
abusive tax shelters, including by organizing such a shelter, participating in a sale
relating to such a shelter, or “mak[ing] or caus[ing] another person to make or
furnish . . . a gross valuation overstatement as to any material matter,” among other
acts. 26 U.S.C. § 6700.
The Government claims that defendants violated 26 U.S.C. § 6700(a)(2)(A)
when they “made and furnished false and/or fraudulent statements regarding the
securing of a tax benefit by reason of participating in the conservation easement
syndication scheme and the amount of that tax benefit in the form of a
conservation easement deduction.” (Doc. 1 at 64–65.) The Government also
contends that the defendants “knew and had reason to know that these statements
were false or fraudulent within the meaning of 26 U.S.C. § 6700(a)(2)(A).” (Doc. 1
at 65.)
Zak challenges Count I, arguing that because Count I alleges fraud it
therefore must meet the heightened pleading standard of Rule 9(b). (Doc. 31-1 at

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12–18.) According to Zak, the complaint fails to distinguish between the
transactions that she allegedly engaged in and the several dozen that she did not,
and that the complaint did not identify when 40 of the transactions took place.
(Doc. 31-1 at 12–13.) She further argues that the complaint alleges false statements
were made, but does not identify by who, or to whom, or when, or to which
transaction the statements related. (Doc. 31-1 at 13.) Zak argues that the complaint
fails to apprise her of the “precise misconduct” with which she is being charged,
preventing her from having “sufficient information to formulate a defense” to the
counts. (Doc. 31-1 at 15 (quoting U.S. ex rel. Clausen v. Lab. Corp. of Am., 290 F.3d
1301, 1310 (11th Cir. 2002).) Zak argues that the Government fails to allege the
“who, what, when, where, and how” of the allegedly fraudulent conduct. (Doc. 311 at 11 (quoting Mizzaro v. Home Depot, Inc., 544 F.3d 1230, 1237 (11th Cir.
2008).)
Zak is correct that the complaint alleges over 90 instances of alleged fraud,
but only provides detailed factual averments as they pertain to three transactions.
(See Doc. 1 at 24–38). She is also correct that the complaint does not identify with
strict particularity the exact dates or parties to each and every transaction.
However, the Government adequately lays out factual allegations which tend to
demonstrate the main recurring aspects and elements of the scheme, sufficiently
apprising defendants of the behavior in which they allegedly participated that is
challenged by the Government.

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The Government provides three prototypical exemplars to describe the
major aspects of the scheme, with some variations to reflect the adaptation of the
scheme over time and place. For example, beginning on page 24 of the Complaint,
the Government outlines the steps undertaken in formation and execution of
“Partnership Z.” (Doc. 1 at 24–27.) In this portion of the Complaint, the
Government alleges that three unnamed “Sponsors” organized Partnership Z on
October 17, 2008 as a Georgia LLC with a principal place of business in Garden
City, Georgia. (Doc. 1 at 24.) The Government alleges that Partnership Z owned
approximately 140 acres of land in Georgia. (Id.) On December 29, 2009, the three
Sponsors allegedly organized a private sale of 99 units of ownership in Partnership
Z, selling each unit at a price of $8,620, plus an “operating reserve capital
contribution” of $1,010 per unit. (Id. at 24–25.) On December 31, 2009,
Partnership Z allegedly converted 135 acres of its land to a conservation easement.
(Id.) The Government alleges that Zak and the Sponsors hired an appraiser to value
the land, and the appraiser provided a report on January 11, 2010 as to the land’s
value on December 1, 2009. (Id. at 26.) The Government next alleges that the
appraiser knowingly overvalued the land by 200 percent or more of the correct
value amount. (Id.) The appraisal allegedly valued the land at $4,592,000. (Id.)
This amount allegedly created a tax deduction for each partner of $4.76 per $1.00
invested in the partnership (including the operating reserve capital contribution).
(Id.) According to the Government, this means that if a partner purchased 10 units
for a total of $96,300, that partner would receive a tax deduction on their personal

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income taxes of over $459,000. (Id. at 26–27.) The Government provides a table
showing the “Ownership Interest” percentage and “Noncash Contribution” (the
amount each partner received in tax refund) of sixteen individuals, alleged to be
the 16 partners of Partnership Z. (Id. at 26–27.) The ownership percentages range
from 1.0% to 22.0%, and the noncash contributions range from $45,920 to
$1,010,240 among the sixteen alleged partners. (Id. at 27.) The Government
alleges that Defendant Zak assisted in all aspects of the formation and sale of
Partnership Z, and personally purchased units of ownership in the Partnership as
well. (Id. at 25.) Defendant Zak allegedly also received a portion of the tax
deduction received by Partnership Z when it converted its real property to a
conservation easement. (Id.)
Even under the heightened standard of Rule 9(b), the Government’s
pleading adequately apprises defendants with sufficient specificity of the type of
conduct which makes up the alleged illegality. The Government’s complaint
satisfies the heightened pleading standard of Rule 9(b) as it applies to these
allegations of fraud which are widespread, complex, and occurring over a long
period of time. Accordingly, defendants’ motions to dismiss (Doc. 31, Doc. 41) as
the pertain to Count I are DENIED.
Count II – 26 U.S.C. § 6695A(a)
In Count II, the Government alleges that Zak violated 26 U.S.C. § 6695A(a).
(Doc. 1 at 66.) Section 6695A(a) imposes a penalty on any person who “prepares
an appraisal of the value of property” that they knew or reasonably should have

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known was to be used in connection with a return or a claim for refund, and the
claimed value of the property results in a substantial valuation misstatement or a
gross valuation misstatement. (See Doc. 1 at 66; and 26 U.S.C. §6695A(a).) A
substantial valuation misstatement is defined as “150 percent or more of the
amount determined to be the correct amount of such valuation or adjusted
basis[.]” 26 U.S.C. § 6662(e)(1)(A). A gross valuation misstatement is defined as
200 percent or more of the amount determined to be the correct amount of such
valuation or adjusted basis. 26 U.S.C. § 6663(h)(2)(A)(i).
The Government specifically alleges that Zak “assisted in appraising the
conservation

easements[,

and]

in

making

the

highest

and

best

use

determinations[.]” (Doc. 1 at 67.) Zak challenges this count, saying that the
Government “never avers facts stating that Ms. Zak has ever prepared an
appraisal.” (Doc. 31-1 at 6.) Zak contends that section 6695A only applies to a
person who prepares an appraisal, and does not extend to a person who merely
assists in an appraisal – as the Government alleges Zak did.
In support, Zak points to adjacent sections of the statute which expressly
incorporate the “assists” language. (Doc. 31-1 at 7.) For example, she cites section
6700, which pertains to a person who “organizes . . . or assists in the organization
of” certain abusive tax shelter entities or arrangements. 26 U.S.C. § 6700(a)(1)(A).
Zak contends that the absence of the “assists” language in section 6695A, in light
of its usage in other portions of the statute, “is a strong indication that plaintiff’s
addendum [of the word assists] is not what Congress meant.” (Doc. 31-1 at 7.)

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The Government responds by highlighting paragraphs 194 and 195 in their
complaint. (Resp., Doc. 47 at 31–33; Doc. 1 at 67.) Paragraph 194 of the complaint
says “Defendants Zak and Clark knew or reasonably should have known that the
appraisals they prepared would be used in connection with a federal tax return or
a claim for refund.” (Doc. 1 at 67 (emphasis added).) Paragraph 195 begins “[t]he
appraisals that Defendants Zak and Clark prepared . . . ” (Id.) The Government
argues that these paragraphs clearly allege that Zak not only assisted in preparing
the appraisals, but that she prepared them herself, satisfying the requirement of
section 6695A. (Doc. 47 at 31–33.) The Government says that paragraph 193 –
which uses the “assisted” language – should not be read in “isolation, but in the
context of the Complaint.” (Doc. 47 at 32.)
Indeed, the Court reads the complaint as a whole, and does not consider each
paragraph in isolation of every other paragraph. Aldana v. Del Monte Fresh
Produce, N.A., Inc., 416 F.3d 1242, 1253 n.11 (11th Cir. 2005) (“We read the
complaint as a whole.”). When reading the whole complaint, the Court observes
extensive factual representations as to Clark’s appraisal-related activities. For
instance, the Government avers that Clark “is a real property appraiser and is a
certified appraiser in multiple states[.]” (Doc. 1 at 9.) The Government alleges that
Clark also “owns and operates” a firm that “specializes in historical preservation
and conservation easement appraisals[.]” (Id.) Clark also allegedly speaks at
conservation easement seminars and gives presentations about appraisal
techniques. (Id.)

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As to Defendant Zak, the Government does not make any similar allegations
as to her appraisal activities, nor does it establish an adequate factual basis for
alleging that Zak is an appraiser under the statute. Instead, the Government says
that Zak “is a conservation manager, consultant, and project manager who assists
in the planning and execution of conservation easement donations and
conservation easement syndicates.” (Doc. 1 at 7.) The Government says that Zak
provides “a number of services” in her role as conservation manager, “including:
providing guidance in planning of ownership structure, negotiating agreements
with land trusts and appraisers, assisting in the highest and best use
determination, recommending legal counsel for legal and tax review, and
managing the preparation and distribution of required IRS tax forms.” (Doc. 1 at
7–8.) The next reference to Zak that relates to appraisals is Paragraph 61, which,
in describing the steps of the alleged scheme, states “[g]enerally, the initial services
provided by the conservation manager [i.e., Zak] include hiring an appraiser and
assisting with the determination of the highest and best use of the property to be
used in the appraisal.” (Doc. 1 at 18–19.) Immediately following this, the
Government alleges that “[t]he appraiser[ ] prepares an ‘initial valuation’ of the
proposed conservation easement.” (Doc. 1 at 19.) Further down, the Government
says, “An appraiser, generally the same person who provided the initial valuation,
finalizes the value of the conservation easement by preparing a ‘final appraisal’ that
purports to be a qualified appraisal . . . . On occasion, the LLC hires a second
appraiser (the review appraiser) to provide a ‘review’ of the appraiser’s initial or

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final valuation and support the value provided by the original appraiser.” (Doc. 1
at 21.) The appraiser also, according to the Government, “prepares a supplemental
statement to accompany the Form 8283 and submits a copy of the final appraisal
to the LLC[.]” (Doc. 1 at 21.)
The next mention of any appraisal activity is in Paragraph 75, where the
Government avers that “[s]ponsors A, B, and C, with the assistance of Zak, hired
an appraiser to value the conservation easement.” (Doc. 1 at 26.) In several other
paragraphs throughout the complaint, the Government alleges that Clark was
often hired as an appraiser, and that he or another unnamed appraiser made
knowingly false appraisals that overvalued the land. (Doc. 1.) It is not until
Paragraph 157 that the Government mentions defendant Zak in connection with
appraisals. (Doc. 1 at 58.) At this paragraph, the Government avers that Zak
“guided appraisal methodology and execution and assisted in highest [and] best
use market determination[.]” (Doc. 1 at 58 (punctuation omitted).) She also,
according to the complaint, “assisted in the preparation of IRS tax forms, including
the Form 8283 and reviewed the valuation statements made in the Forms 8283
and appraisals that were then furnished to individual customers.” (Doc. 1 at 58.)
The next mention of Zak in connection with appraisals comes in the paragraphs
associated with Count II. (Doc. 1 at 67.)
The complaint lays out several detailed paragraphs of allegations that
defendant Clark is an appraiser, and that he knowingly provided appraisals that
overvalued the land parcels. The complaint goes in to specifics about the method

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and manner through which Clark provided these overvaluations. (See, e.g., Doc. 1
at 56 (“Defendant Clark improperly used the income approach and/or the
subdivision analysis in his appraisals[.]”).) But, even when taken as a whole, the
portions of the complaint alleging Zak’s involvement in “assisting” the appraisals
are conclusory. The Government repeatedly alleges that Zak “assisted” in the
appraisals or “reviewed” the statements provided by Clark or other appraisers, but
it does not provide any specific factual allegations as to how that qualifies her for
liability as an appraiser under the statute.
In sum, the complaint fails to state adequate specific factual allegations to
support its conclusory claim that Zak is an “appraiser” per 26 U.S.C. § 6695A. For
that reason, defendant Zak’s motion to dismiss Count II as to her only is
GRANTED and Count II as it relates to defendant Zak only is DISMISSED
without prejudice.
Count III – 26 U.S.C. § 6694
In Count III, the Government alleges that Clark violated 26 U.S.C. § 6694.
“Section 6694 imposes penalties on tax return preparers for understatements of
tax liability due to unreasonable positions, as well as understatement of tax liability
due to willful or reckless conduct.” (Doc. 1 at 68.) The Government goes on to say
that a “tax return preparer” is “any person who prepares for compensation, any
return of tax or any claim for refund of tax including the preparation of a
substantial portion of a return or claim for refund.” (Doc. 1 at 69 (citing 26 U.S.C.
§ 7701(a)(36)) (emphasis in original).)

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Clark’s argument relating to Count III is very similar to Zak’s argument
relating to Count II. Clark contends that a “tax return preparer,” as the term is used
in section 6694, refers to “any person who prepares for compensation a tax return
or a substantial portion of a tax return.” (Doc. 41-1 at 3 (citing 26 U.S.C. §
7701(a)(36).) Clark argues that he only provides valuation services, and does not
prepare tax returns or substantial portions of tax returns. (Id.) He is aware that his
appraisal will be used as part of a tax return, but says that the Government’s
understanding of the term “tax return preparer” would render every appraiser a
tax return preparer, and obscure the statutory schemes which govern tax return
preparers and appraisers separately. (Doc. 41-1 at 4.) Clark also points to
numerous other statutes, regulations, and IRS commentary that he believes show
the IRS’s intent to treat tax return preparers and appraisers differently. (Doc. 41-1
at 3–10.) Clark argues that the appropriate approach was the one taken by the
Government in Count II as to his service as an appraiser, which he does not
challenge. (Doc. 41-1 at 10).
In its response, the Government says that “[t]he preparation of a substantial
portion of a return or claim for refund shall be treated as if it were the preparation
of such return or claim for refund.” (Doc. 50 at 19 (citing 26 U.S.C. § 7701(a)(36).)
It is the Government’s position that the appraisals provided by Clark represent a
“substantial portion” of the returns claimed in this case, and that he knew his
appraisals were necessary to support the tax claims. (Doc. 50 at 19–21.) The
Government returns to what it views as the objective of section 6694, which is “to

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penalize the person who is responsible as a substantive matter for the way in which
a return is prepared.” (Doc. 50 at 23 (citing Goulding v. United States, 957 F.2d
1420, 1426–27 (7th Cir. 1992).)
The facts alleged in the complaint lay out a scheme in which parcels of land
are knowingly appraised at values far greater than their actual value. The asserted
facts in the complaint also clearly allege that the appraisal of the land parcels is
perhaps the single most important aspect of the scheme – without the inflated
appraisals, the tax returns would not be as substantial, rendering the inducement
to investors limp. The Government has adequately pleaded sufficient factual
matter to state a claim that Clark’s appraisals represented a “substantial portion”
of the tax returns, and therefore he may be liable under section 6694.
Defendant Clark’s motion to dismiss as it pertains to Count III is therefore
DENIED. (Doc. 41.)
Count IV – 26 U.S.C. § 7402
In Count IV, the Government seeks entry of an injunctive order to prevent
defendants from continuing to engage in the conduct alleged throughout the other
portions of the complaint. (Doc. 1 at 71–72.) In other words, Count IV outlines a
remedy that the Government seeks to obtain if it ultimately prevails in this case,
but does not actually bring an independent substantive claim under any section of
the statute. (Doc. 1 at 72 (referencing 26. U.S.C. §§ 6700, 6701, 6695A, and 6694).)
Each of these sections – except for section 6701 – is pleaded elsewhere in the
complaint as a separate count. (Doc. 1 at ¶ 176 (26 U.S.C. § 6700); ¶ 191 (26 U.S.C.

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§ 6695A); ¶ 202 (26 U.S.C. § 6694).) Count IV is a remedy, not a cause of action,
and it would be premature to dismiss the remedy at the pleading stage.
Accordingly, the Court DENIES the motions to dismiss as they relate to Count IV,
with the understanding the defendants may yet challenge the remedy sought in
Count IV again at a future date. (Doc. 31; Doc. 41).
Count V – 26 U.S.C. § 7402
In Count V, the Government again lists a remedy – disgorgement – as an
individual count, but does not plead any underlying substantive violation of the
statute that is not already pleaded elsewhere in the complaint. (Doc. 1 at 72.) In
reference to this issue, defendants argue that disgorgement is a penalty, and
therefore is subject to the five-year statute of limitations in 28 U.S.C. § 2462.
Defendants argue that because the only transaction dates mentioned in the
complaint fall outside of five years2 this remedy is simply unavailable to the
Government, and should be dismissed. Defendants cite the Supreme Court’s
unanimous decision in Kokesh v. SEC, providing that the five-year statute of
limitations should apply to claims for disgorgement, because disgorgement is a
sanction and not an equitable remedy. (Doc. 31-1 at 26 (citing Kokesh v. SEC, 137
S. Ct. 1635, 1639 (2017).)
Although some of the specific transactions identified in the Complaint may
be barred by the statute of limitations, the Court finds it is premature to consider

2 In its complaint, the Government only specifically discusses transactions that took place in 2009,

2011, and 2012. (Doc. 1 at ¶ 223–27; Zak Motion to Dismiss, Doc. 31-1 at 27–28.)

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preventing this remedy as to other conduct falling within the alleged scheme at the
pleading stage, for the same reasons as discussed relating to Count IV,.
Accordingly, defendants’ motions to dismiss [doc. 31; doc. 41] are DENIED as
they pertain to Count V.
V. CONCLUSION
Defendant Zak’s Motion to Dismiss [Doc. 31] is GRANTED as to Count II
of the complaint, and DENIED as to Counts I, IV, and V. Accordingly, Count II of
the Complaint is DISMISSED without prejudice as to defendant Zak.
Defendant Clark’s Motion to Dismiss [Doc. 41] is DENIED as to all counts.
The Court is concerned about the appropriate geographic scope of discovery
for the case. The Government seeks leave to conduct 50 depositions, intending to
conduct discovery in virtually every state. But the complaint itself only discusses
transactions and LLCCs operating in a small number of states. Specifically, the
Government alleges that “[d]efendants’ collective 96 conservation easement
syndications involve real property, primarily vacant and unimproved parcels, in
the states of Alabama, Georgia, Indiana, Kentucky, North Carolina, South
Carolina, Tennessee, and Texas.” (Doc. 1 at 38.) In the next sentence, the
Government alleges that the “customers” of the syndicates hale from “at least 45
different states and the District of Columbia.” (Id.) At this stage, it seems that the
Government has pleaded sufficient factual allegations to allow discovery relating
to transactions in those named states (Alabama, Georgia, Indiana, Kentucky,
North Carolina, South Carolina, Tennessee, and Texas). There is no specific

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allegation in the complaint, however, that would justify allowing discovery in all
45 states in which the “customers” themselves live, especially if there is no
allegation that the defendants transacted any conservation easement syndicates in
those states. In any event, the Court is not prepared to authorize this broad scope
of discovery based on the Complaint before it.
Pursuant to this Court’s June 28, 2019 Order (Doc. 86), an eight-month
discovery period commences upon entry of the instant order. Counsel may proceed
with discovery, but shall be confined to fifteen (15) depositions per side, until
further order of the Court.
A telephone conference is scheduled for Friday, January 10, 2020 at 10:30
a.m. to discuss case planning and any remaining discovery. Counsel are
DIRECTED to file a joint amended scheduling order outlining what document
discovery needs remain, and a plan for proceeding through the rest of discovery,
no later than January 6, 2020. Counsel should be prepared to discuss on the
January 10, 2020 telephone conference: (1) their plan and timeline for disclosure
of expert witnesses and any accompanying expert reports, (2) a more specific
justification for allowing any expansion in the number of depositions than has
already be granted, (3) what specific documentary discovery has been
accomplished and what remains outstanding.

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IT IS SO ORDERED this 10th day of December, 2019.

______________________________
Amy Totenberg
United States District Judge

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