Case Studies
Navigating the New Conservation Easement Settlement: Risks & Strategies
The IRS’s May 13, 2026 settlement opportunity for conservation easement cases offers partnerships a chance to resolve disputes with lower penalties—but strict deadlines and valuation risks remain.
By NomadicTax Research Team • 5-8 min read • May 23, 2026
## What’s changing?
On **May 13, 2026**, the IRS launched a **time-limited settlement opportunity** for eligible taxpayers involved in **conservation easement 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)) The key features:
- No requirement for **upfront payment** when electing the initiative; liabilities instead managed post-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))
- If accepted within **90 days** after receiving an IRS settlement letter: a **10% gross valuation misstatement penalty**, only out-of-pocket “other deductions” (no charitable deduction), and interest apply.([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 that window, in a subsequent **45-day period**, the penalty increases to **20%**. Late acceptances face harsher terms as in 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))
## Who is eligible?
- Partnerships involved in syndicated or promoter-driven conservation easements. Case status (docketed, non-docketed, prior rejections, etc.) affects eligibility.([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 already tried, under appeal, settled, or with trial imminent 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))
## Risks to assess
- **Valuation risk**: courts have typically upheld deductions only ~6% of what was claimed. Penalties are steep.([irs.gov](https://www.irs.gov/charities-non-profits/conservation-easements?utm_source=openai))
- **Admissibility of deductions**: Charitable contribution deductions not allowed under the settlement—only “other deduction” reflecting 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))
- **Time sensitivity**: Missing the 90- or 45-day windows leads to default litigation terms—higher penalties and stricter 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))
## Actionable strategies
- **Get expert valuation work**: It’s essential to have accurate, defensible valuations. Overstatements could trigger audit or exclusion.
- **Analyze your case status**: If your case is docketed or under appeal, confirm whether you can participate. Cases awaiting court opinion may be 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))
- **Understand your costs and paperwork**: Collect all records proving out-of-pocket expenses—the “other deduction” calculation hinges on these, particularly Schedule M-2 items.([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))
- **Evaluate cost vs risk**: Settlement avoids litigation costs, uncertain court outcomes, and substantial penalties—but could require giving up potential deduction benefits. Sometimes, fighting in court (if valuations are rock-solid) might be better.
## Real-life example
Jane Partnership claimed easements in 2018 with valuations totaling \$10 million based on campaign runups by promoters. Under audit, the government offered this settlement. Jane receives a letter on May 20—so her 90-day window runs until **August 18, 2026**. She opts in, accepts 10% penalty (~\$1 million), forgoes deduction of original \$10M charity claim, but deducts \$500,000 of her real expenses. Litigation avoided; certainty achieved.
## Checklist: Should you opt-in?
| Question | If yes | If no |
|---|---|---|
| Is your case among those eligible (non-tried, non-appealed)? | Settlement possible | Only litigation remains |
| Can you document your out-of-pocket costs reliably? | “Other deduction” may help | Risk of underestimating taxable income |
| Are you comfortable with lower deduction, but avoid severe penalties and risk? | Settlement probably favorable | Court challenge may get more if successful |
| Do you understand the penalties if you miss deadlines? | You must act within the 90- or 45-day windows | You’ll face up to 40% penalty and low allowed deduction |
**Bottom line**: If your partnership is involved in one of these cases, review IRS correspondence immediately—it may contain your settlement offer. Weigh settlement vs. litigation with quality professional advice. Do not wait past the deadlines.