Congress is advancing farm bill proposals to expand land preservation tax incentives through a new funding program for forest conservation, while the IRS continues scrutinizing conservation easements after syndicated deals generated billions in inflated tax deductions. The IRS cracked down on groups of investors who used inflated property valuations to claim deductions exceeding their land purchase costs. Lawyers specializing in conservation easements told CNBC that the tax strategy retains value for individual landowners seeking to preserve property while reducing tax liability, with over a dozen states offering tax credits and several states including New York, Colorado and Georgia expanding programs in recent years.
Congress Proposes Farm Bill Expansion for Forest Conservation Funding
House and Senate proposals of the farm bill would create a new program to provide funding to landowners who agree to keep forests intact rather than sell or develop them. Conservation easements allow landowners to retain property ownership while giving up certain development rights, typically to preserve farmland, wildlife habitats or open space. Landowners can donate foregone development rights or sell them at a discount to land trusts, government agencies or qualified groups, then claim a charitable deduction.
Florida lawyer Keith Fountain told CNBC that many ranching clients sell conservation easements to keep land in the family and use proceeds to pay off debt or buy out younger family members not interested in ranching. By selling easements at a discount, clients collect cash and claim a charitable deduction for the difference between the sale price and fair market value.
IRS Targets Syndicated Conservation Easement Deals With Inflated Valuations
The IRS enforcement actions target groups of investors rather than longtime individual landowners. In syndicated conservation easement deals, a promoter sells stakes in land to investors and donates the easement. By using inflated valuations of property development rights, investors claim tax deductions exceeding what they paid for the land.
Congress capped conservation easement values in 2022 to shut down syndicated easements. The IRS is processing approximately 1,100 cases and extended a settlement offer in May to reduce the backlog. Carolyn Schenck, former IRS national fraud counsel who left the agency in 2025 for law firm Caplin & Drysdale, told CNBC that properly supported conservation easements are not considered loopholes by the IRS.
Tax Court Reduces Alabama Partnership Deduction From $41.6 Million to $800,000
In a case filed last week, the U.S. Tax Court slashed a $41.6 million deduction claimed by an Alabama partnership to $800,000. The court agreed with the IRS that the deduction was based on a speculative valuation of the property's potential as a limestone quarry.
Diana Norris, associate director for conservation defense at the Land Trust Alliance, said Tax Court cases in the past two years have typically centered on valuations of foregone development rights. This focus removed uncertainty for land trusts and landowners, as earlier cases often turned on technical defects in deed or donation paperwork.
Lawyers Advise Proper Valuation and Documentation to Avoid IRS Audits
Lawyer Steve Small, who helped write the tax code for conservation easements in the early 1980s while with the IRS, said conservation easements are not risky if executed by lawyers who follow case law and handle them frequently. For recently bought property, the deduction will be a percentage of the purchase price, not a multiple.
Donors must consider factors that can shrink deductions, Small said. Easements can enhance the value of surrounding properties by preserving scenic views and privacy. If the easement benefits nearby property owned by the landowner or a relative, the additional value must be subtracted from the deduction. Small recommends clients include extensive photos of the land with form submissions and said audit risk is minimal for sound conservation easements, especially with the IRS being understaffed.
FAQ
What did Congress propose regarding conservation easements?
House and Senate proposals of the farm bill would create a new program to provide funding to landowners who agree to keep forests intact rather than sell or develop them.
Why did the IRS crack down on conservation easements?
The IRS targeted syndicated conservation easement deals where groups of investors used inflated property valuations to claim tax deductions exceeding what they paid for the land, generating billions of dollars in inflated deductions.
What happened in the recent Alabama conservation easement case?
The U.S. Tax Court reduced an Alabama partnership's claimed $41.6 million deduction to $800,000 in a case filed last week, agreeing with the IRS that the deduction was based on a speculative valuation of the property's potential as a limestone quarry.
