IRS announces terms of new conservation easement settlement opportunity

The IRS announced the terms of a new settlement opportunity for certain taxpayers involved in conservation easement disputes with the IRS (IR-2026-65).

The Service has long targeted what it considers improper deductions for a qualified conservation contribution under Sec. 170(h), often of donations made through syndicated arrangements through partnerships. The cases have frequently been the subject of litigation and several broad settlement offers.

In a news release on Wednesday, the IRS said that the new time-limited settlement opportunity for “eligible partnerships” is intended to advance the goals of prior initiatives while addressing issues that may have discouraged the Service from accepting a settlement offer.

Under the new initiative:

• Nearly 450 of the cases docketed in Tax Court or currently in IRS Exam will no longer be required to make an upfront payment of the settlement amount.
• Separately, in as many as 500 cases in which prior settlement offers expired or were rejected by the taxpayer, taxpayers will have the renewed ability to settle their cases.
• The offer will also be extended to as many as 175 cases that did not previously have the opportunity to participate in an IRS settlement initiative.

The IRS will issue, on a rolling basis, individualized correspondence to eligible partnerships that sets forth their specific settlement terms. For a 90-day period following the issuance of a settlement letter, the following terms will be available to an eligible partnership:

• 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, will be allowed.
• A 10% gross valuation misstatement penalty will apply; interest will accrue as required by law.
• The partnership will not be required to make payment at the time it elects into the initiative.
• Nondocketed cases governed by provisions of the Bipartisan Budget Act of 2015 (BBA), P.L. 114-74, 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.

For 45 days after the close of the first 90-day period, eligible partnerships may settle on generally the same terms, except that a 20% gross valuation misstatement penalty will apply. After 135 days from the issuance of the individualized settlement letter, cases will be resolved before a court decision only on the basis of hazards of litigation.

Not all conservation easement or historic preservation easement cases will qualify for the settlement initiative, the release said. The IRS will determine eligibility based on the status of the case and other case-specific considerations relevant to administration of the initiative.

As specified in the news release, the results of accepting a settlement offer will differ based on whether a case is governed by the Tax Equity and Fiscal Responsibility Act (P.L. 97-248) or by the BBA.

— James A. Beavers, CPA, CGMA, J.D., LL.M., is the Journal of Accountancy’s tax technical content manager. To comment on this article or to suggest an idea for another article, contact Neil Amato at Neil.Amato@aicpa-cima.com.