The IRS Is Done Asking Nicely on Conservation Easements

The fifth — and likely final — settlement initiative is here. Congress is backing it.

The Landscape

On May 13, 2026, the IRS announced a new 90-day settlement window for taxpayers involved in syndicated conservation easement disputes. There are currently more than 1,100 of these cases pending — roughly 740 in Tax Court and 400 more under examination. These cases now represent a significant share of the Tax Court’s docket, consuming court resources and creating a logjam that the IRS is under pressure to break.

This is the fifth settlement initiative attempted by the IRS since 2019. Prior rounds resolved only about 405 cases, with roughly two-thirds of eligible taxpayers declining. The IRS is aware of that track record. It is hoping the revised terms get this round to a 50% participation rate, but it is also making clear that the window is closing.

On June 2, U.S. Sens. Chuck Grassley (R-Iowa) and Steve Daines (R-Mont.) publicly released a letter to Treasury Secretary Scott Bessent urging the Treasury to “faithfully enforce” the settlement terms. Their message was blunt: these transactions “rely on inflated appraisals cooked up to turn a charitable deduction intended to promote conservation into a money-making enterprise.” Grassley and Daines have worked across the aisle with Sen. Ron Wyden (D-Ore.) on this issue since at least 2020, when the three introduced the Charitable Conservation Easement Program Integrity Act — ultimately enacted as part of the SECURE 2.0 Act of 2022. The IRS now has explicit bipartisan political cover from senior members of the Senate Finance Committee.

The Offer

Eligible taxpayers face a simple choice: accept a penalty equal to 10% of the additional tax owed or risk a 40% penalty on that same amount — or worse — at trial. If you claimed a large charitable deduction through a syndicated conservation easement partnership, the IRS believes that deduction was inflated. Under the settlement, the original deduction is eliminated and replaced with a far smaller one based on the cash actually invested.

The timeline is tight. Individualized settlement letters are being sent on a rolling basis. Once yours arrives, you have 90 days to accept. No extensions. A 45-day grace period follows, but the penalty doubles to 20%. After that, the IRS proceeds to trial seeking the full 40% penalty.

The Stakes

The math favors settling for most taxpayers. Courts have overwhelmingly sided with the IRS, consistently allowing only a fraction of claimed deductions and imposing steep penalties. As Treasury Assistant Secretary for Tax Policy and Acting IRS Chief Counsel Ken Kies said last month, “[t]hese are not close calls.” Rejecting the settlement and losing at trial means years of additional interest and substantial litigation costs on top of an already worse penalty outcome.

The Tax Court docket pressure is real. Conservation easement cases have created a backlog that strains the court’s capacity. The success of this initiative would materially reduce the Tax Court’s caseload. Failure would mean years more of contested trials.

Insurance matters. Many investors hold tax result insurance policies that contain litigation conditions, requiring the insured to contest the IRS’ position through trial as a condition of coverage. Accepting a settlement may be treated as a voluntary concession, potentially voiding the policy entirely. If you hold a tax result insurance policy, this must be evaluated with counsel before accepting any settlement offer.

The Signal

This initiative is not just about easements. Kies has stated publicly that this is “not the last initiative” the IRS will pursue, signaling that the coordinated settlement model refined through five rounds of easement cases is ready for deployment against other enforcement targets. Captive insurance arrangements and economic substance disputes have been subject to years of intensifying IRS scrutiny, and the Grassley-Daines letter reinforced this direction, urging deterrence of “similar schemes moving forward.”

The Playbook

If you receive a settlement letter, engage counsel immediately. The 90-day clock is firm.

Run the numbers. Compare total settlement cost — deduction, penalty, and interest — against a realistic trial-loss scenario, including full interest and legal fees. For a taxpayer who claimed a $1 million deduction, the difference between a 10% settlement penalty and a 40% trial penalty could exceed $300,000 in penalties alone — before interest and legal fees.

Review your tax result insurance policy before accepting any offer and consult counsel. If you hold a tax result insurance policy, accepting the settlement without reviewing the policy’s terms could cost you the coverage entirely.

The playbook the IRS has built over five rounds of easement settlements is now a template. Captive insurance and economic substance cases are next.

For taxpayers still in the pipeline, the calculus is simple: this is likely the last structured off-ramp the IRS will offer on easements. For everyone else, the lesson is broader — the IRS spent five rounds refining a playbook for resolving mass tax disputes, and it has said plainly that it intends to use it again.