The IRS announced on May 13, 2026, a new time limited settlement opportunity for taxpayers caught in conservation easement and historic preservation easement disputes. The terms apply to eligible partnerships and arrive with one major change from prior rounds: most participants will not have to pay the settlement amount upfront when they elect into the initiative. Instead, the liability moves into post settlement collection.
Eligible partnerships will receive individualized letters on a rolling basis. From the postmark or electronic transmission date, the clock starts. For the first 90 days, the deal looks like this: no charitable contribution deduction is allowed, an “other deduction” roughly equal to out of pocket costs (often pulled from Schedule M-2 cash contribution figures) is permitted, a 10% gross valuation misstatement penalty applies, and interest accrues by operation of law. Non docketed Bipartisan Budget Act cases close by closing agreement. Docketed cases close by stipulated decision. No extensions.
If the 90 day window passes, a second 45 day window opens on the same terms with one change: the penalty rate doubles to 20%. After day 135, the door closes. From there, cases will only be resolved before a court decision based on hazards of litigation, which the IRS pegs at roughly 5% to 7% of the claimed deduction with a 40% gross valuation misstatement penalty.
The scope of this initiative is significant. The IRS reports more than 1,100 conservation easement cases in inventory (around 740 docketed in Tax Court and 400 in Exam). Nearly 450 cases get the no upfront payment treatment. As many as 500 cases where prior settlement offers expired or were rejected now have a second chance. Another 175 cases that never had access to a prior IRS settlement initiative become eligible for the first time.
Certain cases are excluded by design. The initiative is not available to cases that have been tried and are awaiting opinion, cases on appeal to a Circuit Court, cases already settled or conceded, cases bound to a test case still awaiting final decision, cases with trial set to commence within 30 days of the announcement, or designated test cases (unless all bound cases settle or agree to settle under this initiative). The IRS retains discretion to determine eligibility based on case status and other administrative considerations.
Why this matters for tax pros
If you represent or advise any partnership investor with exposure in this area, this is a decision point with a hard deadline and serious downside math. Counsel should be looking at three things immediately.
First, identify the procedural posture. TEFRA cases (generally tax year 2017 and earlier) and BBA cases (generally 2018 and later) settle differently and the downstream notices to investors flow differently. Under BBA, if the partnership did not push out the liability, the partnership itself is on the hook for payment; if it cannot pay, the IRS issues notices to investors. If push out was elected, the partnership must furnish adjustment statements to investors and the IRS, and investors must take the adjustments into account accordingly. That distinction drives who actually writes the check and when.
Second, run the litigation math honestly. The IRS is publicly anchoring expectations to the Tax Court track record: on average the court has allowed only 6% of the original claimed deduction and has generally imposed a 40% gross valuation misstatement penalty plus interest. A 10% penalty in the first window, with no upfront payment required, is materially better than the typical litigated outcome. Clients who refuse the offer should do so on a documented, reasoned basis, not on hope.
Third, mind the calendar. The 90 day and 45 day periods do not extend. The clock runs from the postmark or transmission date of the individualized letter, not the date your client opens the envelope. Build internal intake and tracking now so a settlement letter does not sit in a stack while the favorable window closes.
A note on language from Acting IRS Chief Counsel Kenneth J. Kies, quoted in the release: courts have repeatedly found abusive activity in this area and have sustained major reductions, penalties, and interest. Read together with IRS CEO Frank J. Bisignano’s framing that the deduction was meant for “genuine preservation, not to subsidize tax shelters built on inflated valuations,” the posture is clear. This is a closing door, not an open invitation.
THE TTR TAKE The IRS just removed the single biggest obstacle to settling these cases (the upfront check) and put a 135 day clock on the room. If you have a client with conservation easement exposure, the conversation this week is not whether to engage, it is who runs the numbers and who watches the calendar.
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Direct link to the official Internal Revenue Service announcement.