Case Studies
Maximizing Conservation Easement Dispute Settlements under the IRS Initiative
New IRS settlement terms offer eligible partnerships a path out of costly litigation on conservation easement disputes—here’s how to know if you qualify and act now.
By NomadicTax Research Team • 5-8 min read • June 25, 2026
## 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](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)) 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](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))
## 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](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)) | 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](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)) | In Tax Court, roughly 40% plus interest. |
| **Payment Timing** | No upfront payment required upon election; liability collected after settlement. ([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)) | 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](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)) | 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](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))
- Cases **not tried or decided** yet, not on appeal, not test cases unless all bound cases settled. ([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))
- Cases with upcoming trials (within 30 days of announcement) are excluded. ([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))
## Practical Steps for Eligible Partnerships
1. **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](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))
2. **Evaluate March-back cost vs exposure**: Even with a 10-20% penalty and no charitable deduction, savings may vastly exceed litigation risk. |
3. **Consult valuation experts**: Accurate calculation of out-of-pocket costs is essential; fictitious or inflated valuations are heavily penalized in similar cases. |
4. **Time your decision**: Acting in the 90-day window yields the lowest penalty; waiting increases risk. |
5. **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](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))
## 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](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)) 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.