Two months ago, we shared our analysis showing how the IRS has created a crisis in the Tax Court by attempting to litigate every conservation easement claimed by a partnership. We calculated there are over 700 such cases pending and that the IRS asserts zero valuation in 97% of such cases, demands maximum penalties in 99% of such cases, and rejects negotiations in favor of attempting to litigate every case.
This approach, we wrote, harms all taxpayers seeking justice in the Tax Court. Easement cases are taking about 10 years to resolve, with the Tax Court’s 19 judges struggling to keep on top of the workload the IRS is sending them. IRS leadership should abandon its 100% litigation posture, we wrote, and offer a settlement that matches a prior nondocketed offer (deduction for expenses, a 21% tax rate, and a 5% penalty) to clear the backlog.
We were therefore pleased to hear on May 13 that the IRS unveiled new terms for settlements in conservation easement and historic preservation cases. The terms, which are good for 90 days, unfortunately will likely fall short of what our analysis had indicated was needed to significantly reduce the docket workload:
- No charitable deduction allowed, but instead a deduction will be allowed for cash out-of-pocket costs only. The amounts will be applied against the full tax rate at the time.
- Full interest will accrue.
- 10% penalty, instead of the 40% maximum penalty.
For 45 days beyond the 90 day period, the same terms will be available except with a 20% penalty. All claims are eligible, except for those tried and awaiting an opinion, to be tried within 30 days, on appeal, or already settled. In its announcement, the IRS acknowledged there are 740 conservation cases pending in the Tax Court, with a further 400 currently being examined by the IRS.
This marks the IRS’s fourth settlement offer. In 2020, the IRS sent offers to those with pending litigation demanding the deduction be disallowed in full, that partnerships pay full interest and penalties, and that investors but not partners be allowed to deduct cash costs. In 2024, the IRS offered docketed cases a deduction to basis value, full interest, and a 10% penalty. Later that year, a separate offer to non-docketed cases (described above) included a deduction for expenses against a 21% tax rate and a 5% penalty. Altogether, only 405 cases were resolved through these settlements, leaving over two-thirds of the cases still pending. In some respects, the terms of this new fourth settlement offer would appear to combine elements of the second and third offers rather than extend a more fulsome docket-clearing settlement..
The IRS also recently updated its Conservation Easements issue page, framing its litigation victory as imminent and inevitable. The IRS statement does acknowledge that Congress created the conservation easement deduction to “provide an important public benefit by helping protect environmentally or historically significant property for the benefit of communities and future generations.” But the remainder of the IRS statement depicts every partnership easement as presumptively abusive and asserts that “the IRS has repeatedly prevailed” with taxpayers “on average” receiving 6% of claimed deductions and paying the 40% penalty.
While the full dataset would be needed to be certain, that statistic would also mean that the Tax Court mostly rejects the IRS’s standard zero valuation position. For example, in its statement the IRS points to Jackson Crossroads LLC v. Commissioner as a recent (March 2026) clear victory in the U.S. Court of Appeals for the Eleventh Circuit. There, two partnerships claimed tax deductions of $23 million and $13 million for donating conservation easements on 925 acres in Georgia in 2016. The IRS denied the deduction and asserted zero valuation in 2020. The Tax Court ultimately upheld just under $3 million in deductions, which the Eleventh Circuit affirmed. While the taxpayers certainly did not get all their claimed deductions, the IRS also lost on its zero valuation claim.
In an excellent 2023 retrospective on the 40-plus year history of IRS settlement initiatives, Armando Gomez and Roland Barral of Skadden noted several factors that previous offers tended to have in common in successfully reducing Tax Court backlogs while conserving time and money for all parties involved. These included the obvious (avoiding overly punitive terms) and the less obvious (providing arbitration backstops for technical issues such as valuation). The authors also noted that on the matter of conservation easements, Congress had already imposed limits in 2022 on future transactions, thereby diminishing the need for the IRS to litigate every single remaining case on the docket out of some concern for long-term compliance with this area of law. Viewed through this lens, the latest IRS offer seems to be facing some headwinds toward success.
Any conservation easement settlement initiative should have the goal of clearing out nearly all docketed cases, and the IRS should publicly disclose the take-up rate as the 90 days progresses. If hundreds of cases remain, and the goal is still to clear those cases, the IRS may once again find itself reconsidering the terms. As we wrote in March, letting this crisis drag on “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.” While the IRS can throw lawyers and resources at dragging out a thousand cases for a decade, taxpayers—and the court that many of them are counting on to provide a timely resolution of their disputes—often do not have that luxury.