Conservation easements in 2026: courts, settlements and the new IRS office

Facts checked 2026-10-20. Related: Syndicated Conservation Easements, Direct Conservation Easements.

Two kinds of conservation easements need to be kept apart.

• A genuine donation: a landowner permanently gives up development rights to protect land, and may qualify for a charitable deduction.
• A syndicated deal: investors buy into a partnership that donates an easement at an inflated value.

The IRS treats syndicated deals as listed transactions.¹ 2026 brought several developments.

The Tax Court keeps cutting values

On October 19, 2026 the Tax Court decided Watson Lake Investments. Two Georgia partnerships bought rural tracts for $325,000 and $320,000, then claimed easement deductions of $8,109,000 and $11,116,000.² Investors were offered a 4.5:1 "deduction-to-investment ratio", which one planner described as: "For every dollar [invested] you get $4.50 in deductions."²

The court held the partnerships "are entitled to charitable contribution deductions of $115,300 and $208,500, respectively", and that "a 40% penalty for a gross valuation misstatement applies in each case."²

The same day, in Del Monte LLC, the court denied historic facade easement deductions outright: "We conclude that the easements are not protected in perpetuity, as the statute requires, and therefore a deduction is not allowed."³

These results match the IRS's summary of recent litigation: "On average, the Tax Court has only allowed 6% of the original claimed deduction and has generally imposed a 40% gross valuation misstatement penalty, plus interest."⁴

The settlement offer, then a change of approach

On May 13, 2026 the IRS announced a time-limited settlement.⁴ Within 90 days of an offer letter it provided:

• no charitable deduction;
• a deduction for roughly the partnership's out-of-pocket costs;
• a 10% penalty, rising to 20% in a following 45-day window.

After those windows, cases are resolved "only on the basis of hazards of litigation. In general, that will reflect a charitable contribution deduction of approximately 5% to 7% of the claimed deduction and a 40% gross valuation misstatement penalty."⁴

On August 19, 2026 the IRS created an Office of Conservation Easements. It said it "will not issue any additional uniform settlement letters under the May 13 program" and that "Any deadlines for accepting previously issued offers are withdrawn."⁵

Taxpayers with pending cases "may continue to request settlement under the May 13 framework" through their assigned representative. The IRS added: "This transition does not signal a new or more favorable standardized offer."⁵

The law that already limits syndicated deals

For contributions after December 29, 2022, a partnership's easement deduction is generally disallowed if it exceeds 2.5 times the sum of each partner's relevant basis, with limited exceptions.⁶ Final regulations published October 8, 2024 identify syndicated conservation easement transactions as listed transactions, which carries disclosure duties and penalties.¹

A bill to watch (not law)

H.R. 10813, the "Historic Preservation and Land Conservation Certainty Act", was introduced October 15, 2026. It would create an "election to resolve certain open partnership controversies involving donations of conservation easements" for contributions claimed in tax years ending on or before December 31, 2025. It would also change the historic-structure standard in §170(h)(4)(C).⁷ It is a bill only and has no effect unless enacted.

What legitimate donors should take from this

The deduction remains available for real conservation gifts. The requirements are:

• a qualified real property interest;
• given to a qualified organization;
• exclusively for a conservation purpose;
• protected in perpetuity;
• supported by a qualified appraisal.⁸

The annual limit is generally 50% of the contribution base, or 100% for qualified farmers and ranchers, with a 15-year carryforward.⁸ Be wary of offerings that quote a deduction ratio.

Want to see which strategies fit your situation? The Tax Savings Finder asks a few anonymous questions to help you figure out how you might save on taxes, and the strategy pages show the IRS scrutiny level for each.

Education only; not tax, legal or investment advice.

Sources

1. T.D. 10007, 89 FR 81341 (Oct. 8, 2024), https://www.federalregister.gov/documents/2024/10/08/2024-22963/syndicated-conservation-easement-transactions-as-listed-transactions
2. Watson Lake Investments, LLC v. Commissioner, T.C. Memo. 2026-106 (Oct. 19, 2026), U.S. Tax Court docket No. 13696-20 (opinion on the DAWSON docket record), https://dawson.ustaxcourt.gov/case-detail/13696-20
3. Del Monte LLC v. Commissioner, T.C. Memo. 2026-107 (Oct. 19, 2026), U.S. Tax Court docket No. 3411-21 (opinion on the DAWSON docket record), https://dawson.ustaxcourt.gov/case-detail/3411-21
4. IRS IR-2026-65 (May 13, 2026), https://www.irs.gov/newsroom/irs-announces-terms-of-a-time-limited-settlement-opportunity-for-eligible-taxpayers-involved-in-conservation-easement-disputes
5. IRS IR-2026-95 (Aug. 19, 2026), https://www.irs.gov/newsroom/irs-establishes-office-of-conservation-easements-and-transitions-settlement-process
6. 26 U.S.C. §170(h)(7), https://www.law.cornell.edu/uscode/text/26/170
7. H.R. 10813, 119th Cong. (introduced Oct. 15, 2026), bill text as introduced (U.S. Government Publishing Office, GovInfo), https://www.govinfo.gov/content/pkg/BILLS-119hr10813ih/html/BILLS-119hr10813ih.htm
8. 26 U.S.C. §170(b)(1)(E), (h), https://www.law.cornell.edu/uscode/text/26/170