From Ultimatum to Opportunity: The IRS Rethinks Conservation Easements

Copyright 2026 William A. Stone III. All rights reserved.

I. Introduction

In a press release, the IRS announced that it will no longer offer the syndicated conservation easement transactions (SCETs)¹ settlement initiative that it had announced just a few months ago in May (May settlement).² After months of anticipation sparked by former Treasury Assistant Secretary for Tax Policy and acting IRS Chief Counsel Ken Kies’s comments at the D.C. Bar,³ the IRS formally announced a disappointing settlement initiative that largely mirrored an offer already being made in docketed cases.⁴ Approximately three months later, the IRS abruptly changed course, announcing plans to discontinue the May settlement and create an Office of Conservation Easements. While the announcement is encouraging, the success or failure of the Office of Conservation Easements will be determined by the actions that follow.

This article addresses the (hopefully) good, the bad, and the ugly of the IRS’s latest move.

II. Background

The May settlement marked the most recent in a series of failed IRS efforts to resolve conservation easement cases through broad settlement initiatives.⁵ The catalyst for the May settlement appears to be driven by necessity. Kies acknowledged that “we [the IRS and Treasury] need to do better”⁶ in addressing the growing backlog of conservation easement cases⁷ created by years of a zealous IRS enforcement campaign. After years of aggressive enforcement, failed settlement offers, and litigation, the backlog remains substantial, with hundreds of cases unresolved and significant government resources continuing to be devoted to their administration and litigation.⁸

At the time of the announcement, the IRS appeared hopeful that the May settlement would resolve many of these issues while negotiating from what it perceived to be a position of strength. However, the May settlement raised red flags almost immediately among taxpayers and tax professionals. In the months that followed, the bravado surrounding the initiative appears to have dissipated. The settlement is now a thing of the past, bringing us to the IRS’s most recent press release formally withdrawing it.

III. The Ugly

A. Harm to Taxpayers

1. Unaccepted active offers.

The consequences are particularly significant for taxpayers who have already been offered a settlement but have yet to accept as the release states, “Any deadlines for accepting previously issued offers are withdrawn.” This clearly punishes taxpayers who intended to accept the offer, but for various reasons (awaiting completed partner votes, delay in receiving signatures from the appropriate party, etc.) had yet to finalize.

Importantly, the original acceptance period has not yet expired for a single offer, unless that deadline was separately modified.⁹ Under the May settlement, taxpayers receiving an offer were given up to 135 days to accept. Because the May settlement was not announced until May 13, and the first offers necessarily followed that announcement, the math is straightforward: Even the earliest possible 135-day deadline would not expire until September 25, weeks from now.

2. Taxpayers awaiting offers.

The May settlement was presented as though it would be broadly available to most eligible taxpayers. As a result, many taxpayers had already begun the process of evaluating whether to accept or reject the offer well before formally receiving it. Discussions were already taking place among taxpayers and their representatives concerning the terms of the May settlement, the financial consequences of acceptance, and whether settlement was preferable to continued litigation. In some cases, taxpayers had already substantially completed that analysis and were simply awaiting the offer before moving forward. The abrupt withdrawal therefore affected more than taxpayers who already had an offer in hand. It also disrupted taxpayers who had reasonably relied on the IRS’s representations regarding the availability of the May settlement and had spent time and resources evaluating an offer they expected to receive. For those taxpayers, many of the same concerns remain: continued accrual of interest, additional professional fees, and renewed uncertainty regarding how and when their cases may ultimately be resolved.

3. Financial harm of inability to accept.

By denying taxpayers the ability to accept an offer they already had in hand or reasonably anticipated receiving in the near future, the IRS has imposed real-world costs. These cases do not simply pause because the IRS has changed course. Most importantly, statutory interest continues to compound, and taxpayers will likely continue to incur legal fees as they wait for the IRS to determine what comes next.

B. Uncertainty

Uncertainly is always troubling to taxpayers, and the press release creates more uncertainty than ever before. The press release states that an Office of Conservation Easements will be created that:

Will centralize technical expertise and coordinate policy, enforcement, and case-resolution strategy across the IRS and with the Office of Chief Counsel. It will support engagement with taxpayers, practitioners, conservation and historic preservation organizations, and other stakeholders. The Office will also work with Treasury to evaluate administrative and legislative options that advance Congress’s conservation and historic preservation objectives, promote consistent tax administration, and strengthen valuation integrity.

However, the release is sparse on details other than the conclusion of the May settlement. Important questions for taxpayers still linger such as:

• Will taxpayers who want the May Settlement receive it? The release is wishy-washy on the answer, stating, “Taxpayers with pending cases may continue to request settlement under the May 13 framework through their assigned IRS examination or Chief Counsel representative. If the case remains eligible, the IRS will issue a new offer on the same standardized terms” (emphasis added). What are the eligibility requirements, and who makes this determination? From a recent filing, it appears IRS counsel is taking the position that they do not have to involve the Office of Conservation Easements and will deny offers that are consistent with the May settlement at their sole discretion.¹⁰
• When will the Office of Conservation Easements be created? This is a very important question as the cases continue to go through both audit and litigation phases.¹¹
• Who will the leadership of the Office of Conservation Easements be? The creation of the office presents an opportunity to bring fresh perspectives to an area that has seen numerous unsuccessful settlement initiatives. Effective leadership should include a willingness to engage with taxpayers and explore reasonable, mutually acceptable paths to resolution.¹²
• With many cases pending before the Tax Court, and numerous deadlines looming, when will the Office of Conservation Easements begin to issue future offers?¹³ As with the first concern, timing is very important when a case in docketed and approaching trial because not only does a court deadline loom, but legal expenses rise.
• Will the Office of Conservation Easements deal with docketed and nondocketed cases? In the past, settlements focused on only one set of cases. The May settlement promised to be different, yet only docketed cases ever saw the offer before being pulled.
• Will the Office of Conservation Easements direct IRS counsel to work with taxpayers awaiting the upcoming settlement? In the past, this approach was not taken because the May settlement had shortened timeframes for certain cases and even excluded others solely based on where the case was in the process. IRS counsel was steadfast in their refusal to give any extensions even to accommodate conversations with partners regarding the offer.
• Will the Office of Conservation Easements truly look at each case on its own merits? While this applies universally, an obvious flaw in the May settlement was the lack of workability for any nonsyndicated deal based on the metrics used to calculate the deduction.

IV. The Bad

A. Timing and Optics

As discussed in previous articles, the SCET enforcement regime has already produced several black eyes for the IRS with allegations of backdated documents,¹⁴ misrepresentation to the Tax Court regarding backdating,¹⁵ and attempts to use fraud penalties to address procedural shortcomings.¹⁶

Against that backdrop, the optics of withdrawing a settlement offer that had already been extended to taxpayers are difficult to ignore. The IRS has repeatedly characterized previous offers as its best and final position, only for later developments to prove otherwise. That history will inevitably influence how taxpayers evaluate future offers. Unless a future proposal is simply too favorable to reject, taxpayers may reasonably question whether the IRS’s stated “final” position is truly final. This is an overall bad position for the IRS for any future settlements, SCET or otherwise. We have already seen taxpayers seeking to rescind, and IRS counsel fighting against the rescission of, May settlement offers based on the press release to get a chance to discuss their case with the Office of Conservation Easements.¹⁷

The optics coupled with the timing compound the issue. The press release comes one day after a significant taxpayer win in a SCET case, Malibu Valley,¹⁸ and shortly after Kies’s departure.¹⁹ It is unclear what role, if any, either development played in the decision to withdraw the May Settlement. But the proximity of those events inevitably raises additional questions about what prompted the IRS’s abrupt change in course.

B. Poor Rollout

The shortcomings of the May settlement gave the IRS good reason to reconsider its approach. Its rollout started poorly and ended worse, and there was an understandable need to chart a different path. But that desire to move beyond a flawed settlement appears to have produced an unnecessarily rushed announcement of what comes next.

As late as August 18, IRS counsel was still seeking information from taxpayers in anticipation of extending offers under the May settlement. The sudden reversal only days later therefore makes the new initiative appear less like the product of a fully developed plan and more like an immediate response to the problems with the previous settlement. Although prompt action is welcome, the sparse details in the press release create unnecessary uncertainty. Taking additional time to resolve the obvious implementation questions before announcing the new framework would have made for a far stronger rollout.

V. The (Hopefully) Good

The press release is a far cry from the fearmongering press releases that accompanied the May settlement, which discussed hyperbolic language from the Tax Court, threats of sanctions, lawsuits, very adverse outcomes for every case regardless of the facts, and even criminal charges.²⁰ This press release was much more measured and has the appearance of a true attempt to remedy past failures by the IRS in attempting to settle SCETs, not point fingers and place alleged wrongdoing. The press release states:

Experience administering the initiative, together with engagement with taxpayers, has shown that standardized, unsolicited settlement letters on a rolling basis, each with a fixed response period, are not well suited to the full range of conservation easement cases. Partnership agreements, insurance arrangements, procedural posture, and other circumstances may differ materially and affect when and how taxpayers evaluate settlement.

The first step is recognizing the problem, and the release makes clear that recognition has occurred. Now comes the more important step: acting on it. As discussed above, the release leaves many questions unanswered, and the answers to those questions will ultimately determine whether the Office of Conservation Easements succeeds. Still, there is reason for optimism.

Perhaps the most encouraging aspect of the release is its indication that the IRS will finally evaluate each case on its own merits and, as every tax case should be, based on its particular facts and circumstances. Moving away from a one-size-fits-all approach should create a more meaningful path toward resolving appropriate cases through settlement.²¹

VI. Conclusion

We end where we so often do with a simple solution that requires hard work. I wrote in the last article:

The IRS must do the work of reviewing cases on their individual merits. The premise underlying the current settlement framework, that virtually every SCET should be resolved on substantially the same terms, ignores the reality that these transactions involve different properties, different appraisals, different facts, and different legal issues.²²

The recent press release gives reason for optimism that the IRS finally intends to take that approach. If carried out, the Office of Conservation Easements could mark an important shift toward a more thoughtful and individualized process, one capable of producing meaningful resolutions for both taxpayers and the government.