Overview
In May 2026, the IRS unveiled IR-2026-65, a new time-limited settlement opportunity for eligible taxpayers involved in conservation or historic preservation easement disputes. (irs.gov) This initiative is designed to give partnerships under audit or in Tax Court a chance to settle on more favorable terms than historically available. (irs.gov)
What’s New Compared to Prior Programs
| Feature | Under the New Initiative | In Prior Settlement Initiatives |
|---|---|---|
| Charitable Contribution Deduction | Not allowed; instead an “other deduction” roughly equal to out-of-pocket costs. (irs.gov) | Same limitation; charities deduction typically disallowed. |
| Penalty Rate | 10% gross valuation misstatement penalty during initial 90-day window; 20% penalty in following 45 days. (irs.gov) | In Tax Court, roughly 40% plus interest. |
| Payment Timing | No upfront payment required upon election; liability collected after settlement. (irs.gov) | Often required early payment or escrow. |
| Window of Opportunity | 90 days following IRS letter, then 45 days; after 135 days, standard litigation risk applies. (irs.gov) | No uniform windows and less flexibility. |
Who Is Eligible?
- Partnerships with conservation or historic preservation easement cases with the IRS or in Tax Court. (irs.gov)
- Cases not tried or decided yet, not on appeal, not test cases unless all bound cases settled. (irs.gov)
- Cases with upcoming trials (within 30 days of announcement) are excluded. (irs.gov)
Practical Steps for Eligible Partnerships
- Watch for the IRS letter: Eligibility is triggered by receipt of an individualized settlement letter from the IRS, issued on a rolling basis. (irs.gov)
- Evaluate March-back cost vs exposure: Even with a 10-20% penalty and no charitable deduction, savings may vastly exceed litigation risk. |
- Consult valuation experts: Accurate calculation of out-of-pocket costs is essential; fictitious or inflated valuations are heavily penalized in similar cases. |
- Time your decision: Acting in the 90-day window yields the lowest penalty; waiting increases risk. |
- Coordinate with investors: Many partnerships push out liability to partners; these rules shift depending on whether the case is governed by TEFRA or the Bipartisan Budget Act rules. (irs.gov)
Example Scenario
A partnership claimed a $10 million deduction through a syndicated conservation easement but is currently litigating. Under Tax Court precedent, only about 6% of that amount is allowed with ~40% penalty. (irs.gov) Under the new opportunity, the partnership could instead avoid court, forgo the charity deduction, but take a $600,000 “other deduction,” pay 10-20% penalty and interest, and close the matter without unexpected losses. |
Risk Management and Compliance Tips
- Proper documentation of purchase, appraisal, and expenditure is non-negotiable.
- Be cautious of promises that value beyond reality—judges consistently disallow overstated valuations.
- Consider whether the partnership or individual partner should consult specialized counsel or CPAs with experience in these cases.
Key Takeaway
This settlement initiative provides a real opportunity to settle easement disputes on better terms than litigation—especially for partnerships with strong documentation and those willing to act within the window. For many, it may be the lower-risk, lower-cost route forward.