Land-preservation tax break survives IRS heat for some owners
Conservation easements face IRS pressure after abusive investor deals, but lawyers say the tool still works for landowners with real preservation goals.
By Frankie Delgado · News Reporter
4 min read
A land-saving tax break that drew years of IRS scrutiny is getting fresh support in Washington and in state capitals, even as the tax agency keeps chasing disputed deals tied to inflated deductions.
CNBC reported that House and Senate farm bill proposals would set up a new program to fund landowners who agree to keep forests standing rather than sell or develop them. More than a dozen states already offer tax credits for donated land, and CNBC identified New York, Colorado and Georgia among states that have expanded conservation easement programs in recent years.
The tax break at the center of the fight is the conservation easement. It lets a property owner keep land, often farms, ranches, open space or wildlife habitat, while giving up certain development rights. Those rights can be donated, or sold below market value, to a land trust, government agency or other qualified group.
In exchange, the owner may claim a charitable deduction. CNBC reported that owners can often continue living on the property and using it for activities such as hunting or fishing, as long as those uses fit the easement limits.
Why the IRS got involved
The IRS crackdown has focused on syndicated conservation easements, CNBC reported. In those transactions, promoters sell investors stakes in land, donate an easement and use high valuations of development rights to generate deductions larger than the investors’ cost.
A recent U.S. Tax Court case showed the stakes. According to CNBC, the court cut a claimed $41.6 million deduction by an Alabama partnership to $800,000 after agreeing with the IRS that the valuation relied on speculative assumptions about the land’s possible use as a limestone quarry.
Congress moved in 2022 to limit values in conservation easement deals in an effort to curb syndicated transactions, CNBC reported. The IRS is still handling about 1,100 cases, and in May offered settlement terms to eligible taxpayers in a bid to reduce the pileup.
Where lawyers still see value
Lawyers who work on conservation easements told CNBC the strategy can still make sense for individuals and families who own land and want to preserve it while reducing taxes.
Florida lawyer Keith Fountain told CNBC that his ranching clients often sell easements so land can stay in the family. He said proceeds can help pay debt or buy out younger relatives who do not want to remain in ranching. When owners sell an easement below fair market value, CNBC reported, they can receive cash and may deduct the gap between the sale price and market value.
Fountain said his clients often prefer discounted sales over donations because donating an easement, while potentially offering stronger tax benefits, can raise audit risk.
Carolyn Schenck, a former IRS national fraud counsel who left the agency in 2025 for Caplin & Drysdale, told CNBC that abusive deals do not erase the policy value of properly supported easements. She said there is a view at the IRS that a well-documented conservation easement is not a loophole.
Paperwork and pricing matter
Diana Norris, associate director for conservation defense at the Land Trust Alliance, told CNBC that recent Tax Court fights have usually centered on the value of the development rights being given up. She said that focus has reduced uncertainty compared with earlier cases that turned on technical problems in deeds or donation documents.
Steve Small, a lawyer who helped write the tax code for conservation easements while at the IRS in the early 1980s, told CNBC the deals are not especially risky when handled by lawyers who regularly do them and follow case law.
Small said the toughest issue is often persuading clients that deductions must be realistic. For recently purchased land, he told CNBC, the deduction should be a percentage of the purchase price, not a multiple of it. He also said any boost in value to nearby property owned by the donor or a relative must be subtracted from the deduction.
His practical tip: include plenty of photos with IRS filings so reviewers can see what the written paperwork is trying to preserve.
This story draws on original reporting from CNBC.