What Are Conservation Easement Disputes?
These involve partnerships or individuals claiming deductions for donating property or property rights (land or historic preservation easements). Courts have identified abuses—claims often involving inflated valuations, resulting deductions being slashed (on average to ~6%) and steep penalties. (irs.gov)
Key Features of the New Time-Limited Opportunity
IRS has announced a settlement initiative covering a number of historic and conservation easement cases, with more favorable terms than typical litigation outcomes. Major points include: (irs.gov)
- Who’s eligible: Current cases—both docketed in Tax Court or under Examination—including many that previously rejected settlement offers. Up to around 1,100 cases in total.
- Penalties & deductions:
- During the first 90-day offer period: 10% gross valuation misstatement penalty (instead of 40%), no charitable contribution deduction but deduction based on out of pocket “other deduction.”
- Next 45-days: terms are similar except penalty rate rises to 20%.
- Payment: No upfront payment required to elect the settlement—liability deferred.
Do You Qualify?
Check this if your case meets all of the following:
- Partnership case (TEFRA / BBA)
- Not yet tried and awaiting opinion
- Not under appeal
- Didn’t settle previously under equivalent terms
- Not part of test case unless other bound cases have settled or agree to settle under this initiative
If your case meets the criteria, you’ll receive a settlement letter from the IRS with your specific offer terms. (irs.gov)
Example Scenario
Partnership GreenFields claimed a $5 million deduction for a land easement in 2020. After audit, IRS allowed only $300,000 (6% of original) with a 40% penalty. GreenFields rejected earlier offers. Now, via the new settlement initiative, it may receive a letter offering an “other deduction” close to its $200,000 out-of-pocket contribution with only 10-20% penalty and no upfront payment.
What You Should Do ASAP
- Be on lookout for letters from the IRS if you believe your easement dispute is eligible.
- Review valuation documentation and out-of-pocket investment amounts—your proof will drive the “other deduction.”
- Consult counsel experienced in easement law and IRS litigation.
- Understand that if you don’t act during the settlement windows (90 or next 45 days), default litigation outcomes usually mean harsh penalties and tiny deductions.
Long-Term Implications
- Encourages more conservative valuation practices in future easement donations.
- Courts and IRS may increasingly view inflated valuation claims skeptically.
- Planning arrangements should now include realistic appraisal documentation and risk assessments.
This initiative could effectively reshape easement dispute resolution. If you're part of a qualifying case, innovative terms offer a chance for a much better outcome—don’t let the deadline pass.