In brief
On May 13, 2026, the IRS announced the terms of a time-limited settlement opportunity for eligible taxpayers facing active conservation easement disputes. The IRS has offered several rounds of settlement initiatives for conservation easement disputes since 2020. Those prior initiatives resulted in the resolution of 405 cases, with a 32% acceptance rate of settlement offers.
Under the new initiative, the government claims to be addressing barriers that discouraged offer acceptance under its prior initiatives. The terms of the new initiative consist of the following:
- No charitable contribution deduction will be allowed.
- An “other deduction,” in an amount determined by the IRS, generally equal to the partnership’s approximate out-of-pocket costs (often based on cash-contributed amounts reflected on Schedule M-2), will be allowed.
- A gross valuation misstatement penalty will apply at a rate of 10%.
- Interest will accrue as required by law.
- The partnership will not be required to make payment at the time it elects into the initiative.
- Non-docketed Bipartisan Budget Act cases will be resolved by closing agreement or similar document.
- Docketed cases will be resolved by stipulated decision.
- No extension of the 90-day period will be available.
Taxpayers that qualify for the settlement opportunity should expect to receive individualized correspondence from the IRS setting forth the government’s specific settlement terms for the taxpayer’s case. The IRS will issue this correspondence on a rolling basis and taxpayers will have 90 days after the issuance of the settlement letter to accept the terms. Notwithstanding the close of the initial 90-day period, eligible taxpayers may still be able to execute a settlement on the same terms for 45 days after the 90-day period except the gross valuation misstatement penalty will be increased from 10% to 20%. No extension of the additional 45-day period will be available, and once the full 135-day period has lapsed, cases can only be resolved based on hazards of litigation (which generally reflects a charitable contribution deduction of approximately 5% to 7% of the claimed deduction and a 40% gross valuation misstatement penalty).
The new settlement initiative will not be available to all taxpayers or conservation easement cases. The IRS news release specifically references the following cases that are not eligible for settlement under the new initiative:
- Cases that have been tried and are awaiting an opinion.
- Cases that are on appeal to one of the United States Circuit Courts of Appeal.
- Cases that have already settled (i.e., settled based on hazards of litigation before trial or conceded, including those in which no decision has been entered).
- Cases that have agreed to be bound to another case if the test case has been tried and is awaiting final decision.
- Cases that have a trial that is set to commence within 30 days of the date of the IRS’s announcement.
- Cases that are designated as test cases, unless all bound cases have settled or agree to settle under the IRS’s initiative.
The IRS anticipates that the new settlement initiative will help resolve more than a thousand active conservation easement cases (including 740 docketed cases in Tax Court and 400 cases in Exam). The new offer is extended to approximately 175 cases that did not have the opportunity to participate in the IRS’s prior settlement initiative, and up to 500 cases where prior settlement offers expired or were rejected will have a renewed opportunity for settlement.