The Internal Revenue Service (IRS) has announced a new time-limited settlement opportunity for eligible taxpayers involved in conservation easement or historic preservation easement disputes. This initiative aims to resolve over 1,100 pending cases, including approximately 740 docketed in Tax Court and 400 in Exam, by offering terms more favorable than previous settlements and typical court outcomes.
Since 2020, prior IRS settlement initiatives resolved 405 cases, with taxpayers required to pay penalties and limited to deductions for estimated out-of-pocket costs, without claiming a charitable contribution deduction. This new offer addresses barriers that may have discouraged acceptance, with nearly 450 cases no longer requiring an upfront payment of the settlement amount.
The initiative also provides a renewed ability to settle for as many as 500 cases where prior offers expired or were rejected. Additionally, it extends to approximately 175 cases that did not previously have the opportunity to participate. IRS Chief Executive Officer Frank J. Bisignano said, "Congress created the conservation easement deduction to encourage genuine preservation, not to subsidize tax shelters built on inflated valuations."
Acting IRS Chief Counsel Kenneth J. Kies urged taxpayers and their advisors to review the terms carefully, highlighting "substantial litigation risks." He noted that courts have "repeatedly found abusive activity in this area," regularly sustaining major reductions in claimed deductions and imposing significant penalties and interest. On average, the Tax Court has allowed only 6% of the original claimed deduction and generally imposed a 40% gross valuation misstatement penalty, plus interest.
Eligible partnerships will receive individualized correspondence outlining specific settlement terms. For 90 days, no charitable contribution deduction will be allowed, but an "other deduction" for approximate out-of-pocket costs will be permitted, along with a 10% gross valuation misstatement penalty. For a subsequent 45-day period, the penalty increases to 20%. After 135 days, cases will be resolved based on hazards of litigation, typically reflecting a charitable contribution deduction of 5% to 7% of the claimed amount and a 40% penalty.
This settlement opportunity is not available for cases already tried, on appeal, previously settled, or with trials commencing within 30 days. The IRS will determine eligibility based on case status and other specific considerations.