On May 13, 2026, the Internal Revenue Service (the “Service”) announced a time-limited settlement offer for certain eligible partnerships who have syndicated conservation easement or historic preservation easement disputes with the IRS. The time frame for accepting the settlement offer is short- 90 days from the date the settlement offer is mailed to the taxpayer. Therefore, taxpayers who receive settlement offers from the Service may wish to take swift action to determine whether the settlement offer makes sense in their case.
Syndicated conservation easement transactions have been an enforcement target of the Service for many years. Though the Service achieved success in litigating some of these transactions, many pending examinations and court cases remain unresolved. According to the Service, more than 1,100 syndicated conservation easement cases remain pending in the Tax Court and in Exam.
The Service has offered three settlement initiatives since 2020 to encourage taxpayers to resolve their syndicated conservation easement disputes. The new settlement offer is intended to address issues that prevented some taxpayers from resolving their disputes in the prior settlement initiatives. Notably, eligible partnerships will not be required to make full payment at the time they accept the settlement offer. This change may provide additional flexibility for partnerships that want to take advantage of the offer but do not have sufficient liquidity to make full payment within the short 90-day deadline.
Terms of the Settlement Offer
Who Is Eligible?
The settlement offer applies to partnerships that receive offer letters from the Service, which will be issued on a rolling basis.
The Service states that the following syndicated conservation easement cases are ineligible for the settlement offer: (i) cases that have already been tried but are pending decision; (ii) cases that are on appeal in a U.S. Circuit Court of Appeals; (iii) cases that have already settled; (iv) cases that have agreed to be bound by another case that has already been tried and is pending decision; (v) cases that are set for trial on a date within 30 days of the date of the Service’s announcement (i.e., within 30 days of May 13, 2026); and (vi) cases that are designated as test cases unless all bound cases have agreed to accept the settlement offer. The Service reserves the discretion to determine eligibility based on other facts.
What is the Time Limit to Accept the Settlement Offer?
Eligible partnerships must accept the settlement offer within 90 days of the letter’s postmark date. The 90-day period cannot be extended.
What Are the Terms?
- The charitable deduction for the syndicated conservation easement or historic preservation easement will be disallowed.
- An eligible partnership will be allowed an “other deduction” in an amount to be determined by the Service. Generally, the “other deduction” will be equal to the partnership’s approximate out-of-pocket costs. According to the Service’s press release, this will often be based on cash contributions reported on Schedule M-2.
- A 10% gross valuation misstatement penalty will apply.
- Eligible partnerships will owe interest computed under the applicable rules.
When Is the Settlement Payment Due?
Unlike the prior three settlement initiatives, eligible partnerships are not required to make full payment of the tax liability, penalty, and interest at the time they accept the settlement offer. Instead, the settlement payment will be subject to post-settlement collection procedures.
What If an Eligible Partnership Misses the 90-Day Deadline?
If an eligible partnership does not accept the offer within the 90-day period, it may have an additional 45 days to settle on generally the same terms. However, the gross valuation misstatement penalty will increase from 10% to 20%. The 45-day period may not be extended.
What If an Eligible Partnership Misses the Deadlines or Chooses Not to Accept the Settlement Offer?
If a partnership does not accept the settlement offer, its case will only be resolved administratively based on the hazards of litigation. In that case, the charitable deduction will generally be limited to 5 to 7% of the charitable contribution taken on the return, and a 40% gross valuation misstatement penalty will apply.
Conclusion
The Service’s new settlement offer demonstrates its commitment to resolve the numerous disputes involving syndicated conservation easements and historic preservation easements. Because the 90-day deadline cannot be extended, partnerships who receive settlement offers should consult with their tax advisors to understand how the settlement offer impacts them and to consider whether to accept it.
