The IRS announced Wednesday the creation of the Office of Conservation Easements, which the tax agency said will centralize technical expertise and coordinate strategy on syndicated conservation and historic preservation easement issues.
In addition, the IRS said it’s transitioning the process for settlements in conservation easement dispute cases.
The new Office of Conservation Easements will organize policy, enforcement, and case-resolution strategy across the IRS and with the Office of Chief Counsel. It will support engagement with taxpayers, practitioners, conservation and historic preservation organizations, and other stakeholders. The new office will also work with the Treasury Department to “evaluate administrative and legislative options that advance Congress’s conservation and historic preservation objectives, promote consistent tax administration, and strengthen valuation integrity,” the IRS said in a media release.
Conservation easements play an important role in protecting land from development, providing areas for public outdoor use and enjoyment, and in preserving historically important land areas or structures.
While conservation easements date back to the early 1800s, it wasn’t until the Tax Reform Act of 1976 was passed that they were incorporated into the Internal Revenue Code by an amendment to the deduction for charitable gifts.
This amendment included a deduction for the donation of a lease, option to purchase, or easement of at least 30 years over real property to a unit of government or qualifying charitable organization exclusively for conservation purposes. Partial interests in property are generally not deductible, according to IRS rules, but conservation easements are the exception to the rule. That exception makes it possible for groups to come together to purchase these conservation easements as a “syndicate”—or group—and still claim the tax advantages, according to tax lawyer Peter Rageas, CPA.
But the IRS believes many syndicated conservation easements fail to comply with the basic requirements necessary to claim a charitable deduction for a donated easement.
The agency noted that it has identified widespread abuse involving overstated valuations, failure to meet statutory requirements, and promoter-driven schemes designed to sell tax benefits rather than to preserve property.
Since 2020, the IRS has offered different settlement opportunities in conservation easement disputes that it says were significantly more favorable than the outcomes taxpayers have generally achieved in the U.S. Tax Court.
Most recently, the IRS announced last May that it would offer settlement deals in conservation easement cases to try and clear a backlog of litigation. According to published reports, there are currently more than 1,100 of these cases pending—roughly 740 in U.S. Tax Court and 400 more under examination. These cases now represent a significant share of the Tax Court’s docket, consuming court resources and creating a logjam that the IRS is under pressure to break.
The agency also updated its conservation easement web page, expanding information on abusive conservation easement transactions, recent court decisions, and warning signs for investors.
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But in Wednesday’s media release, the IRS said experience administering the current uniform settlement initiative, together with engagement with taxpayers, “has shown that standardized, unsolicited settlement letters on a rolling basis, each with a fixed response period, are not well suited to the full range of conservation easement cases. Partnership agreements, insurance arrangements, procedural posture, and other circumstances may differ materially and affect when and how taxpayers evaluate settlement.”
As part of this transition, the IRS said it’s ending the current uniform settlement initiative effective Aug. 19 and won’t issue any additional uniform settlement letters under the May 13 program. Any deadlines for accepting previously issued offers are withdrawn. Prior elections to participate in the May 13 settlement framework will remain in effect and will be processed in accordance with their terms, the IRS said.
Taxpayers with pending cases can continue to request settlements under the May 13 framework through their assigned IRS examination or chief counsel representative. If the case remains eligible, the IRS said it will issue a new offer on the same standardized terms. Individual cases can continue to be resolved on different terms where warranted by the hazards of litigation. This transition doesn’t signal a new or more favorable standardized offer, but it ends the issuance of uniform offers and deadlines, the IRS said.
Taxpayers are advised to continue working directly with their assigned representatives on case-specific matters and settlement requests. Once operational, the Office of Conservation Easements will provide central coordination and a channel for general inquiries, the IRS said. Additional contact information will be announced separately.
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