Land conservation tax breaks gain support as IRS pursues abusive deals

Congress is considering an expansion of land preservation incentives even as the IRS continues to pursue conservation easement transactions it says generated inflated tax deductions. House and Senate farm bill proposals would establish a program funding landowners who keep forests intact rather than selling or developing them, according to CNBC.

The renewed policy support comes after nearly a decade of heightened federal scrutiny of conservation easements, a tax structure used by landowners to restrict development while retaining ownership. Lawyers who work on such arrangements told CNBC the tool remains useful for some families and individual owners, despite enforcement actions aimed at syndicated investor deals.

More than a dozen states provide tax credits for donated land, CNBC reported. New York, Colorado and Georgia are among states that have broadened conservation easement programs in recent years.

How conservation easements work

A conservation easement allows a property owner to keep the land while surrendering specified development rights, often permanently. The restrictions may preserve farmland, wildlife habitat or open space. The landowner may donate those rights or sell them below market value to a land trust, government agency or other qualified entity.

In return, the owner may claim a charitable deduction. CNBC reported that owners can often continue living on the property and may use it for activities such as hunting and fishing, provided those uses comply with the easement terms.

Keith Fountain, a Florida lawyer, told CNBC that many of his ranching clients use easement sales to keep property in the family, reduce debt or buy out younger relatives who do not want to stay in ranching. In a discounted sale, the owner receives cash and may claim a charitable deduction for the gap between the sale price and fair market value, according to Fountain.

Fountain said conservation easements have been unfairly tarnished by abusive transactions involving a narrow group of participants and promoters. His clients, he told CNBC, are landowners who want to preserve, keep and manage property over the long term while receiving some financial benefit.

IRS focus remains on syndicated deals

The IRS has concentrated on syndicated conservation easements, in which promoters sell interests in land to groups of investors and then donate an easement. CNBC reported that the contested deductions typically rely on valuations of development rights that exceed what investors paid for the land.

In a U.S. Tax Court case filed last week, the court reduced a $41.6 million deduction claimed by an Alabama partnership to $800,000, agreeing with the IRS that the claimed value depended on a speculative assessment of the property’s possible use as a limestone quarry, according to CNBC.

Congress placed limits on conservation easement values in 2022 to curb syndicated transactions, CNBC reported. The IRS is still handling about 1,100 cases and in May offered settlement terms intended to reduce the backlog.

Carolyn Schenck, a former IRS national fraud counsel who joined Caplin & Drysdale in 2025, told CNBC that abuse by some taxpayers does not undermine the policy rationale for properly supported conservation easements. She said there is a view within the IRS that a well-supported easement is not a loophole.

Valuation and documentation matter

Individual landowners can still face IRS scrutiny when donating an easement. Fountain told CNBC that his clients often prefer discounted sales, even when outright donations may offer larger tax benefits, because donations can increase audit risk.

Diana Norris, associate director for conservation defense at the Land Trust Alliance, told CNBC that recent Tax Court cases have focused on the value of development rights given up by the landowner. She said that emphasis has reduced uncertainty compared with earlier cases that turned on technical problems in deeds or paperwork.

Steve Small, a lawyer who helped write the conservation easement tax code while at the IRS in the early 1980s, told CNBC the arrangements are not risky when handled by lawyers who understand the case law and work on them regularly. He said recently purchased property should generally produce a deduction tied to a percentage of the purchase price, rather than a multiple.

Small also told CNBC that landowners must account for benefits to nearby property they or relatives own, such as improved views or privacy, because those gains can reduce the allowable deduction. He advises clients to include extensive photographs with tax filings so the IRS can see the land being preserved.

This story draws on original reporting from CNBC.