Case Studies
Conservation Easements Settlements: Strategy & Risks for U.S. Partnerships
Partnerships embroiled in U.S. IRS conservation easement disputes now have a rare settlement window—learn the options, trade-offs, and how to evaluate whether to accept now or litigate.
By NomadicTax Research Team • 5-8 min read • May 28, 2026
## What is the recent settlement opportunity?
On **May 13, 2026**, the IRS rolled out a **time-limited settlement offer** for eligible taxpayers involved in **conservation easement or historic preservation easement cases**. ([irs.gov](https://www.irs.gov/newsroom/irs-announces-terms-of-a-time-limited-settlement-opportunity-for-eligible-taxpayers-involved-in-conservation-easement-disputes?utm_source=openai))
Key terms:
- No charitable contribution deduction; instead, partnerships may take an “other deduction” roughly equal to their actual out-of-pocket cost. ([irs.gov](https://www.irs.gov/newsroom/irs-announces-terms-of-a-time-limited-settlement-opportunity-for-eligible-taxpayers-involved-in-conservation-easement-disputes?utm_source=openai))
- A **gross valuation misstatement penalty** applies at **10%** during the 90-day window after receiving the IRS letter; if a settlement is made during the following 45-day period, the penalty increases to **20%**. ([irs.gov](https://www.irs.gov/newsroom/irs-announces-terms-of-a-time-limited-settlement-opportunity-for-eligible-taxpayers-involved-in-conservation-easement-disputes?utm_source=openai))
- Interest will accrue in line with law; no upfront payment required in many cases, making cash flow easier. ([irs.gov](https://www.irs.gov/newsroom/irs-announces-terms-of-a-time-limited-settlement-opportunity-for-eligible-taxpayers-involved-in-conservation-easement-disputes?utm_source=openai))
- After 135 days from the IRS letter, default rules: Courts tend to allow only **5-7%** of the claimed deduction, with a ~40% penalty. Litigating beyond the window often carries significantly worse outcomes. ([irs.gov](https://www.irs.gov/newsroom/irs-announces-terms-of-a-time-limited-settlement-opportunity-for-eligible-taxpayers-involved-in-conservation-easement-disputes?utm_source=openai))
## Who is eligible—and who is not
Eligible:
- Partnerships in cases **not yet tried or under appeal**, or those whose previous settlement offers expired. Up to **~450** such cases may now avoid upfront payments, **~500 cases** may re-enter the offer, and **~175 cases** that hadn’t had a prior settlement may also qualify. ([irs.gov](https://www.irs.gov/newsroom/irs-announces-terms-of-a-time-limited-settlement-opportunity-for-eligible-taxpayers-involved-in-conservation-easement-disputes?utm_source=openai))
Not eligible:
- Cases already tried and awaiting opinion, cases on appeal, or those designated as test cases unless all bound cases settle. Also excluded: cases where trial starts within 30 days from the notice date. ([irs.gov](https://www.irs.gov/newsroom/irs-announces-terms-of-a-time-limited-settlement-opportunity-for-eligible-taxpayers-involved-in-conservation-easement-disputes?utm_source=openai))
## Strategic analysis: Accept now or litigate?
| Factor | Accepting settlement | Continuing litigation |
|---|---|---|
| **Penalty rate** | 10 % (first 90 days) or 20 % (next 45 days) | ~40 % plus risk of low allowed deduction (~5-7 %) |
| **Deduction allowed** | “Other deduction” ~ out-of-pocket costs | Only small fraction of claimed deduction allowed in many court decisions |
| **Cash flow & upfront cost** | Low upfront payment; payment deferred for many cases | Higher risk, legal costs, possibly large payments if case lost |
| **Certainty vs risk** | Certainty of settlement terms | Risk of adverse court decision or worse penalty/interest terms |
## Actionable steps for partnerships and investors
1. Once you receive a **settlement invitation letter**, mark dates carefully: 90-day window, then 45-day follow-up. Missing those means losing favorable terms.
2. Estimate out-of-pocket cost vs claimed donation: calculate what you would actually deduct under the “other deduction” vs what might be awarded if litigated.
3. Consult advisors: lawyers or valuation specialists familiar with conservation easement litigation.
4. Assess your case’s merits: whether your valuation, appraisal method, burden of documentation are strong enough to risk litigation.
5. If opting in, follow IRS instructions in the invitation letter for how to accept: stipulation, closing agreement, etc.
## Hypothetical example
*Partnership “Green Acres LLC”* claimed a large donation value for land with preservation easement. Without settlement, court cases historically allow only 6 % of claimed. Green Acres estimates out-of-pocket cost at $500,000, claimed value was $5,000,000.
- If they accept now within 90 days: they’ll get ~\$500,000 “other deduction” (100% of out-of-pocket), pay 10 % penalty = \$50,000 + interest.
- If litigate and lose: perhaps allowed deduction \$300,000 (6 %), but penalty ~40 % of \$4.7M underpayment = nearly \$1.9M, plus interest—and legal fees.
## What this policy means more broadly
- Signals IRS’s continued commitment to crack down on **abusive syndicated easement deals**.
- The initiative shows that while charitable deductions are too often abused, the government is offering a more palatable path for taxpayers with exposure.
- Advisers must ensure rigorous documentation and conservative valuation practices now—it’s harder to defend inflated claims.
## Final takeaways
If you’re in an affected easement case, the settlement window may be your best chance to limit risk and loss. Acting early, running precise numbers, and consulting specialists could make a substantial difference in penalties, permissible deductions, and financial exposure.
Stay tuned: IRS publishes more info at its Conservation Easement page, and always double-check your eligibility before committing.