IRS Makes Time-Limited Conservation Easement Settlement Offer

On May 13, 2026, the IRS announced the terms of settlement offers to taxpayers involved in disputes relating to conservation easement or historic preservation easement deductions. According to the announcement, there are over 1,100 conservation easement disputes pending, about 740 in the U.S. Tax Court and another 400 under examination. The offers will be time-limited: once an eligible partnership receives a customized settlement letter, it will have 90 days to accept. It can also take up to an additional 45 days to accept, but the gross valuation misstatement penalty will be increased from 10 percent to 20 percent. The offers will expire at the end of the additional 45-day period.

The key elements of the settlement offers, which will be sent out on a rolling basis, are:

• 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.

Certain disputes will not be eligible for the offers, including ones where trial has been completed or a settlement has already been reached.

A week earlier the IRS also announced it had updated its conservation easements webpage.

Coverage: National Law Review; The Tax Adviser.