IRS Announces “Time-Limited Settlement Opportunity” for Pending Conservation Easement Disputes

The Internal Revenue Service (IRS) is seeking to reduce its backlog of conservation easement cases by offering a new “time-limited” settlement opportunity to eligible taxpayers. Taxpayers who receive settlement letters under the IRS’ initiative must make an informed decision about whether to accept based on their potential liability exposure. This requires working with a Virginia tax lawyer who is experienced in this complex area of Internal Revenue Code compliance.

Conservation easement deductions have long been a priority enforcement area for the Internal Revenue Service (IRS). The IRS currently has an extensive backlog of these cases and, in an effort to reduce it, recently announced a new “time-limited” settlement initiative similar to ones it has offered in years past. Learn more from Virginia tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group:

The IRS’ 2026 Conservation Easement Settlement Initiative: What Taxpayers Need to Know

The IRS’ current conservation easement settlement initiative is similar to initiatives in years past in that the IRS is offering to settle cases on terms that are “significantly more favorable than the outcomes taxpayers have generally achieved in the Tax Court.” However, unlike prior years, the IRS is not requiring payment at the time of settlement. Instead, taxpayers who settle with the IRS this time around will be subject to “post-settlement collection.”

But, while settling on the IRS’ terms might be beneficial for some taxpayers, those who have claimed valid conservation easement deductions should not be willing to accept unnecessary liability. These taxpayers can continue to pursue their disputed claims with the IRS—and take them to the U.S. Tax Court if necessary.

Settling Requires Taxpayers to Give Up Their Conservation Easement Deductions

The IRS is sending settlement letters to eligible taxpayers. While these letters are “individualized,” the IRS has stated that settlements will generally be subject to the following terms:

• The taxpayer must withdraw its conservation easement deduction;
• The taxpayer may claim an “other deduction” for the taxpayer’s out-of-pocket costs;
• The taxpayer must pay a 10-percent gross valuation misstatement penalty (this increases to 20 percent if a taxpayer does not accept within 90 days);
• The taxpayer must pay interest as accrued pursuant to the Internal Revenue Code (IRC);
• If the taxpayer does not accept within 135 days, the offer will be automatically withdrawn.

Given the complexity of the IRC’s conservation easement deduction rules and the limited acceptance window, taxpayers that receive settlement letters from the IRS should engage experienced tax counsel promptly. If settling is not the best approach, taxpayers will need to work with their tax counsel to determine how best to proceed under the circumstances at hand.

Contact Virginia Tax Lawyer Kevin E. Thorn

If you need to know more about the IRS’s 2026 conservation easement settlement initiative, we invite you to get in touch. To schedule an appointment with Virginia tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, call 703-752-3752 or tell us how we can get in touch online today.