Litigation by Default: How the IRS Turned Conservation Easements into a Court Crisis

Originally published in Tax Notes on March 23, 2026. 

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Executive Summary

A misguided IRS litigation strategy has clogged the docket of the Tax Court, delaying justice for ordinary taxpayers who must wait in line.

A National Taxpayers Union Foundation (NTUF) review of 798 resolved and pending Tax Court cases involving partnership conservation easement deductions finds that the IRS has taken an extreme zero-valuation position 93 percent of the time and imposed hefty misstatement penalties 99 percent of the time. Most of these cases remain unresolved; the Treasury Department recently estimated^[1] that there are 700 pending conservation easement cases at the Tax Court and 400 more on their way from audits. While the Tax Court accepts about 20,000 cases per year, all but a few hundred of these are settled so adding several hundred trials to the docket is significant.^[2]

Although Congress has approved of conservation easement deductions,^[3] these data points show an IRS strategy to deny nearly 100 percent of all conservation easement deductions claimed by partnerships and to take legal positions that all but guarantee most of them will be resolved only with litigation. Nineteen Tax Court judges now face a docket of 18,000 cases, most of which are resolved without a full trial. Together, the judges issue about 200 opinions per year, so the IRS adding several hundred more cases is a considerable burden.

Thousands of other taxpayers must therefore wait longer for their turn at justice. The backlog is significant enough that the Tax Court noted in its 2024 annual congressional budget justification report^[4] that “the Court experienced an increase in the duration of special sessions, primarily related to cases involving conservation easement donations.”

We find that the IRS has taken an average of four years and six months to complete audits in these cases, at which point taxpayers can then file in Tax Court to wait years more for their day in court. The situation is untenable, and IRS leadership should reconsider this problematic 100 percent litigation strategy.

History of Conservation Easements

Through its creation of the deduction in 1976 and bipartisan expansion of it in 2006, Congress has authorized charitable deductions for conservation easement donations to achieve conservation benefits at a lower cost to taxpayers. Today, over 37 million acres of wildlife habitat, open spaces, wetlands, rangelands, historically important property, and areas for public enjoyment have been voluntarily set aside for conservation through more than 220,000 conservation easements.^[5] The deduction, which reduces federal revenue by $1 billion to $5 billion per year, contrasts with the over $30 billion per year spent managing publicly owned lands, often with poor oversight and substantial maintenance backlogs.^[6] The National Park Service administers 85 million acres (two-thirds of which are in Alaska) with 20,000 employees and 315,000 volunteers; private land trusts administer 55 million acres with 8,000 staff and 208,000 volunteers.

Despite this congressional authorization of conservation easement deductions, the IRS has evidently decided to deny and contest all such deductions claimed by partnerships. Those actions have taken the form of audits that participants describe as excessively adversarial,^[7] invalidating deeds or appraisals for minor procedural or technical errors^[8] (foot faults), contesting the conservation purpose,^[9] sweeping generalizations^[10] that easements by partnerships or syndicates are all unlawful shams that lack economic substance, and appraisal disputes.^[11] Starting in 2016, the IRS began characterizing syndicated conservation easement deductions as listed transactions,^[12] requiring additional (and in some cases, retroactive) filings of Form 8886, “Reportable Transaction Disclosure Statement,” by the partnership and Form 8918, “Material Advisor Disclosure Statement,” by the advisers. As the data in this report shows, the IRS’s all-enforcement strategy apparently includes claiming zero valuation in essentially every case, imposing maximum penalties in essentially every case, and insisting on full litigation in essentially every case.

The unsustainability of this strategy has spurred commentary. In 2019 IRS Chief Counsel Michael Desmond acknowledged the need for a solution^[13] beyond “litigating to trial and win 500 cases and then we start settling.” That same year, legal expert Jenny Johnson Ware reported^[14] that 80 percent of deduction values reported by taxpayers were upheld in Tax Court cases, and she urged the IRS to focus on policing excessive valuations rather than “a game of gotcha . . . with supposed prerequisites that it has never articulated outside litigation.” (Litigants have scored their own gotchas, such as one case in which the IRS was caught backdating penalty approvals, earning a rare reprimand from the Tax Court.)^[15] In several reports, the U.S. National Taxpayer Advocate recommended that the IRS “avoid litigation by providing model language taxpayers could use in deeds,” which the agency resisted doing for years.^[16]

Those years have included a court loss and congressional action. The IRS’s 2017 “notice” on conservation easements was invalidated in 2022 after the Tax Court held^[17] that it was actually a regulation that must go through notice and comment procedures. Only two Tax Court judges out of 17 agreed with the IRS’s argument that notice and comment shouldn’t apply to the agency. In late 2022, Congress passed the Charitable Contribution Easement Program Integrity Act as part of the SECURE 2.0 Act, which denies partnership conservation easement deductions when the valuation exceeds 2 1/2 times the basis unless the easement was held for at least three years, is a donated building certified as historic for preservation purposes, or the partnership is owned by members of a family. But even easements that meet this test are not treated as being in a safe harbor, and the IRS has continued litigation against them.

Settlement offers have tried to resolve the issue, with little success. In 2020^[18] the IRS sent offers to those with pending conservation easement litigation, demanding that the deduction be disallowed in full, that partnerships agree to pay full penalties and interest, and that investors be allowed to deduct costs but that service partners be prohibited from deducting any. Given the unfair terms, it was no surprise that few taxpayers accepted the offer. The IRS offered revised terms to docketed cases in early 2024, limiting the deduction to the basis value and requiring full interest and a 10 percent penalty (as opposed to 40 percent). A third settlement offer later in 2024^[19] targeted those who had not yet appealed to the Tax Court, offering a deduction for out-of-pocket costs, a 21 percent tax rate (down from 35 percent), and a 5 percent penalty (down from 40 percent). Acceptance rates for these offers have fallen short of expectations with the IRS privately reporting a take-up of 40 percent, far short of what is required to clear the docket. IRS leadership reportedly plans to propose a new settlement offer for 2026.^[20]

Data

The NTUF identified and analyzed 798 partnership conservation easement cases filed in the Tax Court between 2011 and 2025. For each case, our analysts reviewed the complaint, answer, and the attached IRS-issued final partnership adjustment (FPA) or final partnership audit adjustment (FPAA) to determine the date of donation, date of FPA or FPAA, taxpayer appraised value, IRS claimed value, and whether the IRS asserted penalties of 40 percent.

In 93 percent of the cases (744 of 798), the IRS asserted a valuation of zero. In many of these cases, the IRS offered secondary and tertiary valuations of greater than zero as fallback positions, but far lower than the taxpayer’s asserted valuation. For the few cases in which the IRS asserted a nonzero valuation, the average was 2 percent of the taxpayer’s claimed valuation. IRS assertion of zero valuation became almost universal for FPAs and FPAAs issued since 2022, after which point 97 percent of cases (448 out of 462) involved the IRS claiming zero valuation.

Despite the dubious correctness of a zero valuation, the IRS apparently felt confident enough to assert a 40 percent penalty for gross valuation misstatement or other accuracy-related understatement in 99 percent of the cases (792 of 798). Because the waiver of this penalty is a key element of the IRS’s settlement offers, it is likely included to enhance IRS negotiating leverage.

The delays caused by the enormous caseload are evident in the data. An average of 4.52 years, or four years and six months, elapses between the donation date and the date the IRS issues an FPA or FPAA. While we did not closely analyze how long it takes for cases to be resolved by the Tax Court, periods of four to six years are not unusual. Many of the cases we analyzed filed in 2022 or after remain pending. Conservation easement cases are taking about a decade from the donation date to reaching a Tax Court decision, involving enormous costs for litigants and the government alike.

Conclusion

Congress created and expanded the conservation easement deduction to encourage voluntary land preservation in a cost-effective manner. The evidence in this report shows that the IRS has instead chosen to treat nearly every partnership easement as presumptively abusive, regardless of facts, circumstances, or statutory compliance. By asserting zero valuations and maximum penalties in virtually all cases, the IRS has substituted blanket enforcement for sound tax administration.

This approach has predictable consequences. It overwhelms the Tax Court, delays resolution for thousands of unrelated taxpayers, and imposes years of uncertainty and expense on individuals and businesses attempting to comply with the law. A strategy that requires nearly every disputed case to be litigated to the end is not a sign of toughness; it is a sign of systemic failure. When audits last more than four years and cases routinely take a decade to resolve, taxpayers are denied timely justice and the integrity of the system is weakened.

IRS leadership should abandon the current 100 percent litigation posture and return to principled, case-specific enforcement. That means providing clear rules, recognizing legitimate conservation efforts, and resolving disputes earlier through fair and realistic settlements. Any future settlement offer should aim to clear out nearly all docketed cases, which means it should at least match the terms of the prior nondocketed offer (deduction for expenses, a 21 percent tax rate, and a 5 percent penalty). Doing so would conserve resources, reduce court backlogs, and restore confidence among taxpayers who seek to follow the law.