Case Studies
Settlement Window: What The IRS’s Conservation Easement Initiative Means for Partnerships
A sweeping, time-limited program offers partnerships embroiled in conservation easement disputes a chance to settle under much more favorable terms—if they act within specific windows.
By NomadicTax Research Team • 5-8 min read • May 28, 2026
## Understanding the IRS Initiative
Beginning May 13, 2026, the IRS introduced a **new settlement initiative** aimed at taxpayers in **conservation easement or historic preservation easement disputes**. This offer allows eligible partnerships to settle under **more favorable terms than most have experienced 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))
Since 2020, prior IRS settlement efforts have occurred but covered fewer cases and less lenient terms—often requiring penalties and disallowing charitable deductions entirely. This new opportunity aims to change that.([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 Qualifies and Who Doesn’t
Eligible parties are mostly **partnerships** in cases that are currently under IRS audit (Exam) or in **Tax Court (docketed)**. The categories include:
- As many as **450 cases** won’t require **upfront payment**; liability payments are deferred.
- Up to **500 cases** where prior offers expired or were rejected get a second chance.
- About **175 cases** that did **not previously have opportunity** can now participate. ([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))
However, some cases are excluded:
- Cases already tried and awaiting decision,
- Those on appeal to a Circuit Court,
- Already settled or finalized cases,
- Cases with trials starting soon (within 30 days),
- “Test-cases” unless all bound cases have settled or agree to settle under this initiative. ([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 Settlement Terms Are Offered
| Time Frame | Gross Valuation Misstatement Penalty Rate | Other Key Terms |
|------------|-----------------------------------------------|------------------|
| **First 90 days** after you receive your letter | **10%** | No charitable contribution deduction; deduction equals **out-of-pocket costs**; no upfront payment required; docketed cases resolved via stipulated decision; non-docketed via closing agreement. ([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)) |
| **Next 45 days** after the 90 days lapse | **20%** | Similar terms, except higher penalty; still no extension beyond 135 days from issuance. ([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 135 days** | Courts decide under “hazards of litigation” terms—historically low deduction (≈ 5-7%) and **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)) |
## Why These Terms Are Significantly Better
Historically, in tested easement cases:
- The **charitable contribution deduction** (the claimed amount) is **almost always rejected**—most often only ~6% allowed in court.
- Courts impose **40% penalties** for gross valuation misstatements.
This initiative offers:
- Higher allowed “deductions” (equal to **out-of-pocket costs**);
- Reduced penalties (10-20% vs. 40%);
- No need for upfront payment (for many cases);
- Certainty versus litigation which can be unpredictable and expensive.
## What Partnerships Should Do Now
- If you get an individualized settlement letter, mark carefully the **issue date**, then move quickly—**90 days** to get the best terms.
- Consult your tax advisors or attorneys to review your case status and whether you were eligible earlier.
- Evaluate whether gaining certainty now (with less favorable penalties but reduced risk) is worth avoiding litigation.
- Keep detailed financial records: out-of-pocket cost basis, appraisals, investment structure, and communications with promoters.
- For investors who are subject to partnership adjustments (non-TEFRA or BBA), understand how liabilities might flow through and what notices each partner receives.
## Example Situation
*ABC Capital Partners* invested through a syndicated conservation easement in 2019. The IRS audited the transaction, disallowed the claimed charitable contribution deduction (worth $10 million), and assessed a 40% penalty. Under this new initiative, ABC may receive a settlement letter offering—without needing an upfront payment—an “other deduction” based on actual out-of-pocket cost of, say, $500,000, with a 10% penalty if they accept within 90 days. Accepting saves money compared to litigation while eliminating uncertainty.
## Key Takeaways
- This initiative is a rare opportunity: **significantly better terms** than court outcomes, but only if you act in prescribed time windows.
- Not every case qualifies—check whether yours has been tried, appealed, or is too far along.
- Engagement with qualified tax and appraisal professionals is critical; improper documentation or inflated appraisals are often what causes disallowed claims.
This settlement window won’t stay open forever—but for those eligible, it could mean huge savings and avoidance of harsh penalties.