Supervisor Aided Bids for Tax Break
Sunday, June 18, 2006
Supervisor Gerald W. Hyland helped a developer in his southern Fairfax County district seek millions of dollars in federal tax write-offs to which the developer was not entitled, according to records and interviews.
Hyland's unusual involvement, which culminated last month in a U.S. Tax Court ruling that threw out the deductions, offers a window into the often close working relationships between elected officials and developers in fast-growing Northern Virginia.
It is also an example, federal officials say, of what has become a common abuse of conservation easements, donations of land to local governments for protection against development. Donors often are eligible for considerable tax breaks, while governments -- when the program works as designed -- can increase their inventory of coveted open space.
The case originated in 1999 when James D. Turner, an Old Town Alexandria lawyer and real estate investor, sought a $3.1 million income tax deduction on 29 acres he had bought and planned to develop near George Washington's estate at Mount Vernon. Turner promised to limit the number of houses he would build on the scenic, wooded property along Mount Vernon Memorial Highway. He then sought the write-off, promising to donate a conservation easement in a historic area to Fairfax County.
To bolster his case for the tax break, Turner turned to Hyland, a five-term Democrat who represents the fast-growing Mount Vernon area.
Hyland, 69, is a popular supervisor known for constituent service in his district of 110,000 people. He hosts an annual lobster fundraiser and is active on several regional boards. In 19 years on the county board, he has not faced a serious challenger. In an interview, he did not dispute the facts of the case or its chronology.
Hyland and Turner were already well-acquainted in the late 1990s. Hyland's chief aide at the time, Rose Lambert, was a close friend of Turner's, Hyland testified in tax court. And in 1998, Hyland negotiated with Turner to develop a hotel on property Turner owned along Route 1 as part of the supervisor's efforts to revitalize that blighted area.
On Feb. 10, 1999, six months after Turner bought the property he would develop as Grist Mill Woods, Hyland signed a letter addressed to Turner on county stationery that asked the developer to limit construction on the site to no more than 30 homes, even though he had the legal right to build 62 homes.
The letter said Turner could expect a tax deduction from the development density he agreed to give up. The Mount Vernon Ladies Association, which runs Mount Vernon and was concerned about the impact of construction, signed a similar letter the same week, court filings show.
But Hyland, a lawyer, said in testimony to attorneys for the Internal Revenue Service that Turner wrote the letter and gave it to him to sign. Hyland said he did not check to see whether the letter was truthful.
It was not. A federal judge ruled last month that Turner was not entitled to the tax break because he did not have the legal right to build 62 homes. Such a project would have required rezoning by the county authorizing higher density in a historic area -- an unlikely prospect given the significance of Mount Vernon. Moreover, half the acreage was on an unbuildable flood plain.
Chief Judge Joel Gerber wrote that Turner not only knowingly inflated the development potential of the property but that the 30 homes he eventually built there failed to protect the open space and ruined the view from nearby Woodlawn Plantation. At the time Hyland signed the letter, Turner had already submitted plans to the county to develop and sell 30 homes.