IRS Targets Conservation Easements, Offers New Settlement Initiative

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Jason B. Freeman

Jason B. Freeman

Managing Member


Mr. Freeman is the founding member of Freeman Law, PLLC. He is a dual-credentialed attorney-CPA, author, law professor, and trial attorney.

Mr. Freeman has been named by Chambers & Partners as among the leading tax and litigation attorneys in the United States and to U.S. News and World Report’s Best Lawyers in America list. He is a former recipient of the American Bar Association’s “On the Rise – Top 40 Young Lawyers” in America award. Mr. Freeman was named the “Leading Tax Controversy Litigation Attorney of the Year” for the State of Texas for 2019 and 2020 by AI.

Mr. Freeman has been recognized multiple times by D Magazine, a D Magazine Partner service, as one of the Best Lawyers in Dallas, and as a Super Lawyer by Super Lawyers, a Thomson Reuters service. He has previously been recognized by Super Lawyers as a Top 100 Up-And-Coming Attorney in Texas.

Mr. Freeman currently serves as the chairman of the Texas Society of CPAs (TXCPA). He is a former chairman of the Dallas Society of CPAs (TXCPA-Dallas). Mr. Freeman also served multiple terms as the President of the North Texas chapter of the American Academy of Attorney-CPAs. He has been previously recognized as the Young CPA of the Year in the State of Texas (an award given to only one CPA in the state of Texas under 40).

As previously published by Jason B. Freeman in Forbes.

The Internal Revenue Service recently announced a settlement program for many cases pending before the United States Tax Court that involve syndicated conservation easement transactions.  The new settlement initiative follows years of IRS scrutiny of the transactions and comes on the heels of several recent IRS court victories.

IRS Focus on Syndicated Conservation Easements 

The IRS’s focus on syndicated conservation easements is nothing new.  In 2017, the IRS issued Notice 2017-10, classifying certain syndicated conservation easement transactions as “tax avoidance transactions” and “listed transactions.”  In 2019, syndicated conservation easements made their mark on the IRS’s “Dirty Dozen” list of tax scams—a clear sign that they have become an IRS priority.

The new settlement initiative is the most recent move by the IRS to combat and deal with the perceived problem.  As part of its announcement, IRS Commissioner, Charles Rettig, sent an unequivocal message, indicating that the Service will continue to target conservation easements that it views as abusive: “The IRS will continue to actively identify, audit and litigate these syndicated conservation easement deals as part of its vigorous and relentless effort to combat abusive transactions.”  “Ending these abusive schemes remains a top priority for the IRS.”

The IRS has established a cross-divisional team to carry out its enforcement strategy.  That strategy is particularly focused on the professionals and organizations associated with the transactions at issue: promoters, return preparers, donee organizations, and appraisers.  It has even created two new offices that are actively investigating conservation easement transactions: The Promoter Investigation Coordinator and the Office of Fraud Enforcement.  And it has established a policy of asserting stringent penalties, which can include, among others, the following penalties:

Separately, the IRS’s Criminal Investigation division is actively pursuing criminal investigations.  And the Service has a backlog of conservation easement cases docketed in the Tax Court, a fact that prompted the perceived need for the new settlement program.

What is a Listed Syndicated Conservation Easement Transaction?  

In the listed transactions at issue, promoters syndicate ownership interests in real estate through partnerships.  That is, professionals solicit investors in a partnership that generally holds real estate as its primary or only asset.  In the process, they typically use promotional materials, suggesting that a prospective investor will share in a conservation easement contribution deduction that equals or exceeds 2.5 times the investment amount.  In abusive transactions, the promoter solicits an appraisal that the IRS believes significantly inflates the value of the easement in order to obtain the deduction.  Once investors are on board, the partnership donates a conservation easement to a land trust and reports charitable deductions to the investor-partners based on the inflated value of the easement.

There are, of course, two sides to the story.  And many have argued that the transactions at issue comply with existing laws and IRS standards.  In fact, much of the IRS’s recent litigation successes have come about due to technical defects with deeds granting conservation easements.  Regardless, the IRS shows no signs of slowing its focus on the transactions.


Taxpayers who participate in a syndicated conservation easement transaction are required to file a Form 8886, Reportable Transaction Disclosure Statement.  This, of course, flags the transaction and the taxpayer’s return.  And the IRS has developed a habit of carefully scrutinizing those returns.  Reports indicate that more than 80% of top-tier pass-through partnerships connected with syndicated conservation easement transactions have been subject to audit in recent years.  That is, by any measure, an exceptionally high audit rate, and implies that more litigation cases are in the pipeline.

The Settlement Structure

As part of its enforcement campaign, the IRS Office of Chief Counsel recently announced a settlement initiative for taxpayers with certain docketed Tax Court cases involving syndicated conservation easements.   The IRS will be sending settlement offers to eligible taxpayers by mail.  The key terms of the settlement offer that are known at this point are set out below:

As the new settlement initiative is just rolling out, its success rate remains to be seen. But one thing is certain: Expect to see more activity from the IRS focused on what it views as abusive conservation easement transactions.

For those looking for more background on conservation easements and the IRS, follow the link here for podcast episodes with in-depth coverage of several recent Tax Court conservation easement decisions.


Representation in Tax Audits & Appeals 

Need assistance in managing the audit process? Freeman Law’s team of attorneys and dual-credentialed attorney-CPAs regularly represents taxpayers before the IRS and Texas Comptroller. Our team also provides tax return-related representations and helps taxpayers navigate state tax laws. Our Firm offers value-driven services and provides practical solutions to complex issues. Schedule a consultation or call (214) 984-3000 to discuss our tax representation services.