Easing The Easement Backlog

Since it announced in 2016 its intention to heavily scrutinize syndicated conservation easement transactions, the IRS has examined an unprecedented number of taxpayers who invested in these potentially fraudulent and abusive arrangements. Unsurprisingly, given a global pandemic and multiple government shutdowns since then, the IRS is still processing already existing conservation easement cases, while also dealing with a significant backlog pending at IRS appeals and in Tax Court. To ease the burden, the IRS has announced several programs intending to settle these cases without litigation, with the most recent -- and final -- program announced in January 2026.  

Syndicated Conservation Easements Explained 

Conservation easements were intended to encourage the preservation of land by offering landowners a charitable contribution tax deduction in exchange for giving up development rights to their land. The use of conservation easements as a tax planning strategy has existed since the 1950s, but the marketing by promoters of syndicated conservation easements to high-net-worth individuals escalated in the early to mid-2010s. In a typical syndicated conservation easement transaction, a promoter purchases undeveloped land and obtains an appraisal in excess of the purchase price. The promoter then puts the land into a pass-through entity that gives up the development rights to that property, and offers participation interests in the entity to high-net-worth individuals who reap the benefits of a highly-inflated charitable contribution tax deduction.  

IRS Scrutiny of Conversation Easements 

It did not take long for the IRS to determine that syndicated conservation easements were nothing more than an abusive tax shelter and add them to their “Dirty Dozen” list of tax scams. In 2016, the IRS designated them as listed transactions and began aggressively cracking down on their use (and the promotion thereof) in both the civil and criminal arenas. Congress has also taken note of the aggressive use of conservation easements, passing a provision as part of the SECURE 2.0 Act restricting the allowable deductions for partnerships and S corporations in these structures. The Tax Court has not been favorable to taxpayers who have entered into these transactions, often finding that the appraisals of land were significantly inflated resulting in grossly overstated deductions. Indeed, in one case, the Tax Court reduced the appraisal to less than 4% of what the taxpayers reported. 

By 2019, the IRS was seeing a rise in unresolved cases leading to a large backlog. To combat this backlog, the IRS has offered several different settlement programs to taxpayers who are under IRS examination for their participation in a syndicated conservation easement transaction. The IRS offered a settlement to eligible taxpayers wherein their charitable contribution deduction would be fully or substantially disallowed but penalties, which could be as great as 40% of the tax benefit from the deduction (or 75% if fraud is found), would be reduced. To be eligible, taxpayers had to receive a letter from the IRS and not have a case already pending in the Tax Court. Promoters of syndicates were not included in the settlement program, and the IRS continues to go after them.  

Tackling the Backlog 

As a result of the settlement initiatives, many cases were resolved, Of the taxpayers who were offered a settlement, approximately 40% of them accepted. However, with many long-running cases still at examination and in litigation, and with the IRS’ continued aggressive enforcement campaign against syndicated conservation easement transactions, the IRS and the Tax Court continue to see a significant backlog of inventory. To ease their burden (pun intended), the IRS has announced that it is offering one final round of settlement offers.  

While the final details have not been published as of the writing of this article, Ken Kies, Assistant Treasury Secretary for Tax Policy, has given us some general ideas: namely, the IRS will not be any more generous in this round of settlement offers than it has been in the past. Treasury also intends to compile a list of “wins” at Tax Court to provide clarity to taxpayers as to their risk should they not accept the offer and choose to instead litigate.  

Given the precedent set by the Tax Court, including the significant reevaluation of the property value, taxpayers who receive the offer may very well find themselves in a position to accept the offer and forego litigation. If you have received correspondence from the IRS about conservation easement deductions or other issues, contact us below to see how we can assist.