Background: What Are Conservation Easements & the Problem
A conservation easement allows a property owner to give up certain building or land-use rights—like preventing development—in exchange for a charitable deduction. But recent decades have seen promoter-led syndicated easement deals that use inflated appraisals to generate big deductions. Courts have rejected many, letting only around 6% of the claimed deductions.(irs.gov)
What’s the IRS Settlement Offer?
Announced May 13, 2026, the IRS launched a time-limited settlement opportunity (IR-2026-65) for conservation or historic preservation easement cases.(irs.gov) Key features:
- Partnerships can settle without paying upfront; liability is collected later.
- Charitable deduction not allowed; instead, the IRS allows an “other deduction” roughly equal to out-of-pocket costs.
- Gross valuation misstatement penalty: 10% during the first 90 days after each taxpayer gets a settlement letter; rises to 20% in the subsequent 45-day window. After that, full penalties (~40%) if going to court.(irs.gov)
Who Qualifies & Who Doesn’t
Eligible:
- Syndicated partnerships in easement cases not tried or on appeal yet.
- Cases where prior offers expired or were rejected.
- Some that weren’t eligible before.
Not eligible: - Cases already tried and awaiting opinions.
- Cases on appeal.
- Ones set for immediate trial (within 30 days of notice).
- Cases already settled or tied to other decisions.
- Nexus with test cases still unsettled.(irs.gov)
Risks vs Rewards: Evaluate with Context
| Benefit | Risk |
|---|---|
| Avoid large reductions court may impose (typically disallowing ~94% of claimed deductions). | Still substantial penalties and interest accrue even under settlement. |
| Less legal cost and faster resolution rather than drawn-out litigation. | No charitable deduction–you won’t benefit from favorable tax treatment; you get only costs. |
| Certainty and closing the case on known terms. | If you decline, worst outcomes likely: deduction ~5-7%, penalty ~40%. |
Examples & Timing
- A partnership claims a $1,000,000 deduction. Under settlement, your “other deduction” might be around $200,000 (just the actual costs). With 10% penalty during the 90-day window, you’d owe penalty on underpayment portion. After 135 days, penalties are much higher.
- If IRS sends settlement letters on May 15, you have until ~August 13 (90 days) to accept the most favorable terms. After that, terms worsen. Timely decision matters.
What You Should Do Now
- Check status: Determine if your easement case qualifies for settlement—file status, trial set, appeal status.
- Act quickly after letter: 90-day window has large advantages—lower penalties.
- Consult experts: Appraisers, tax litigators or attorneys with experience in conservation easement cases—uncertainties in valuation and legal precedent remain large.
- Maintain documentation: Appraisals, out-of-pocket costs, legal fees—critical for computing “other deductions.”
Bottom line: If you’re involved in a qualifying easement dispute, this settlement opportunity offers a safer alternative to steep court penalties—but only if you meet eligibility criteria and act within strict deadlines.