IRS Settlement Offer for Conservation Easements
By Kenneth H. Bridges, CPA, PFS May 2026
As mentioned in previous articles I have written, Georgia has long been the epicenter of the syndicated conservation easements industry, which has been in the IRS’ crosshairs for quite some time. Accordingly, even though we always advised our clients not to participate (and, thankfully, they followed our advice), we have many clients who did invest in syndicated conservation easements before becoming our clients, and so we closely follow the developments in this area.
With more than 700 conservation easement cases docketed with the Tax Court and another 400 or so at the examination level, the IRS announced on May 13, 2026 (IR-2026-65) that it is going to try again to settle these cases en masse rather than continuing to incur the time and expense of litigating them one at a time.
The IRS notes that its prior settlement initiatives resolved 405 cases, with 32% of all offers being accepted. The IRS has been on a winning streak in Tax Court recently, with the Tax Court typically permitting only a minimal deduction and upholding the IRS’ assessment of the 40% gross valuation misstatement penalty. Perhaps wary of offering better terms than offered in the past, the terms of the new offer are very similar to those offered in the past for cases docketed at the Tax Court.
Eligible partnerships will receive individualized correspondence from the IRS, to be issued on a rolling basis, which provides the partnership 90 days (from the date of the letter) to accept the following terms. The partnership forfeits the charitable deduction claimed and instead takes an “other deduction” equal to the amount of its actual out-of-pocket costs, and a penalty of 10% applies, plus accrued interest. Unlike with some of the prior settlement offers, the partnership is not required to make an upfront payment at the time it elects to accept the settlement offer.
No extension of the 90-day period will be available, but, for a period of 45 days following the close of the 90-day period, eligible partnerships can generally settle on the same terms, except that the penalty rate will be 20%. After the expiration of the 135 days, cases will be resolved before a court decision only on the basis of hazards of litigation, and the IRS anticipates that will generally result in a deduction of only 5% to 7% of the originally-claimed amount and a 40% gross valuation misstatement penalty.
The settlement opportunity will not be made available in cases that have been tried and are awaiting an opinion, are on appeal to one of the Circuit Courts of Appeal, have already been settled, have agreed to be bound to another case if the test case has been tried and is awaiting final decision, have a trial date that is set to commence within 30 days of the May 13 announcement, or that are designated as test cases (unless all bound cases have settled or agree to settle under the initiative).
From a procedural standpoint, collection will depend on whether the tax year involved is 2017 or earlier or 2018 and later (as the tax law governing partnership examinations is different for those two time periods). For cases pertaining to tax years 2017 and earlier, once a settlement agreement is reached and approved by the Tax Court, taxpayers will receive IRS notices stating the amount owed by each individual investor. For cases pertaining to tax years 2018 and later, if the partnership elected to “push out” the adjustment, the individual investors will receive a statement from the partnership with the amount of adjustment they must make. If the partnership did not elect to push out the adjustment, then the partnership is responsible for the payment, unless it is unable to pay (which is typically the case) in which case the investors are responsible for payment and the IRS will notify them of the amount they owe.
Consistent with past settlement offers, the offer will be only to the partnership which claimed the conservation easement deduction. There is no mechanism by which an individual investor can accept the settlement offer directly.
Kenneth H. Bridges, CPA, PFS is a partner with Bridges & Dunn-Rankin, LLP, an Atlanta-based CPA firm.
This article is presented for educational and informational purposes only, and is not intended to constitute legal advice. The article provides only a very general summary of complex rules. For advice on how these rules may apply to your specific situation, contact your legal counsel.