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Probate & Property

Sept/Oct 2023

Tax Incentives for Conservation Easements in Headlines Lately

Juliya L. Ismailov


  • Conservation easements have been, for some time, an audit target for the IRS.
  • The TOT Property Holdings court emphasized the difference between clauses respected for tax purposes that merely assist in interpreting dispositive provisions in an agreement.
  • Easement granted, valued, and reported accurately in good faith continues to be a valid tax planning tool for taxpayers owning certain types of property.
Tax Incentives for Conservation Easements in Headlines Lately
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Why have conservation easements been in the headlines so much lately? What property rights do they create, and what tax benefits can be obtained? Creating a conservation easement is one of the strategies available under the Internal Revenue Code (Code) for estate and income tax planning purposes. Conservation easements are a niche tool not widely used by general estate planning practices. This article sheds light on the conservation easement mechanism for an estate planner and the issues related to conservation easements addressed in recent years by the courts, the legislature, and the Internal Revenue Service (IRS).

Summary of Recent Developments

Conservation easements have been, for some time, an audit target for the IRS. Besides challenging the valuation of the conservation easement deduction, more recently the IRS has been disallowing the deduction based on the failure to meet the requirement that the easement exist in perpetuity (as illustrated by several recent court decisions discussed below). There is an estimated backlog of over 750 docketed conservation easement cases in the Tax Court. See Armando Gomez and Roland Barral, “It’s High Time to Clear Out the Tax Court’s Easement Backlog,” Tax Notes (Apr. 10, 2023). Some experts have been advocating for the IRS to address this backlog in a settlement program; a limited one had been rolled out by the IRS Office of Chief Counsel in 2020 with little success (IR-2020-130, CC-2021-001).

The largest offenders pursued by the IRS have been syndicated conservation easement promoters facilitating large fund partnerships to buy land and donate rights to develop it to generate substantial tax deductions. In 2017, the IRS issued Notice 2017-10 (later modified by Notice 2017-29), designating a syndicated conservation easement deal as a listed reportable transaction subject to penalties under Code § 6662A. In 2022, however, the Sixth Circuit (Mann Construction Inc. v. U.S., 27 F. 4th 1138 (6th Cir. 2022)) and the Tax Court (Green Valley Investors LLC et al. v. Comm’r, 159 T.C. No. 5 (2022)) held that the IRS lacks authority to identify listed transactions by way of a notice for failure to comply with the notice and comment requirements of the Administrative Procedure (APA). This led to the issuance on December 6, 2022, of proposed regulations (REG-106134-22) requiring disclosure of syndicated conservation easement deals as potential listed transactions under threat of perjury.

In March 2023, a settlement was reached in the amount of $6 million between the IRS and EcoVest Capital Inc. in a conservation easement promoter injunction and disgorgement lawsuit. See Kristen A. Parillo, EcoVest Paid $6 Million to Settle DOJ Easement Promoter Suit, Tax Notes (Apr. 10, 2023). The real estate company promoted conservation easement transactions to thousands of customers and facilitated some 138 such transactions, earning an estimated $131 million in gross receipts, resulting in more than $2 billion in deductions based on inflated appraisal values; valuations were conducted as if the vacant underlying property had already been developed.

On April 10, 2023, Notice 2023-30 was issued by the IRS, providing model language for (i) the extinguishment clause under the safe harbor, closely tracking the proceeds regulation, Treas. Reg. § 1.170A-14(g)(6)(ii), and requiring a judicial determination that the easement is extinguished and that the donee is guaranteed its proportionate share of proceeds to be used by the donee consistently with the original conservation purposes, and (ii) the boundary adjustment clause, requiring judicial proceeding to resolve any boundary disputes. The notice also outlines the process for donors to make conforming changes to eligible easement deeds by July 24, 2023.

Characteristics and Purposes of Conservation Easements

A conservation easement is created by a landowner (as grantor) entering into a contract with a qualified private land conservation organization (known as a land trust) or municipal, county, state, tribal, or federal government (as grantee). The grantee is granted the power to constrain private property rights in a specific area of land for conservation purposes, which right is recorded in a deed and which the grantee then monitors and enforces in perpetuity. The grantor continues to own the land, may use it for purposes that do not impair its conservation value, and may sell or bequeath it upon death, subject to the conservation easement, which runs with the land as to present and future owners, in perpetuity.

Real estate developers often grant conservation easements to alleviate environmental impact and obtain land use, zoning, and other relevant permits. As a result, whether the developer is entitled to a charitable deduction for tax purposes would involve an analysis of charitable intent and the relative benefits the developer receives in return. See, e.g., Emanouil v. Comm’r, T.C. Memo. 2020-120.

The purposes of a conservation easement depend on the type of land, the goals of the grantee, and the landowner’s needs. Categories of conservation (as illustrated in the facts of the recent caselaw discussed below) include prevention of development, fostering of agriculture, preservation of grasslands, wetlands, and forestland, improvement of water quality, fostering wildlife habitat and migration paths, and preservation of open spaces and scenic vistas.

The National Conservation Easement Database (NCED) is a database of conservation easements across the United States. According to the NCED website’s front page (, the current number of easements tracked by the NCED is 201,525, conserving over 33.5 million acres in the United States (roughly 1.4 percent of the country’s surface area).

The downside of conservation easements is that they reduce the value of land by 35 to 65 percent by constraining its development potential. See James Olmsted, Conservation Easements: New Perspectives in an Evolving World, Law and Contemporary Problems, 74:4 (Fall 2011). In addition, there is a risk that a conservation easement may be extinguished in the future by eminent domain or tax foreclosure or as result of insurance claims. (The treatment and effect of an easement’s judicial extinguishment under charitable deduction rules are discussed below in the summary of recent court decisions.)

Tax Benefits

Over the years, federal and state legislation has supported the private sector’s creation of conservation easements. Such laws facilitate both the sale of conservation easements by landowners to land trusts and governmental entities and the donation of conservation easements in return for federal and state income and estate tax reductions.

Federal Income Tax Deduction

The federal income tax deduction for conservation easements is available under Code § 170(a) and (h). The deduction for the conservation easement is equal to the value of the donation on the contribution date, reduced by the fair market value of any consideration received by the taxpayer. See Treas. Reg. § 1.170A-1(c)(1), (h)(1) and (2). The value of the donation, as determined by a qualified appraiser, generally equals the difference between the fair market values of the property before and after the easement takes effect. See Treas. Reg. § 1.170A-14(h)(3)(i).

To qualify for this income tax deduction under Code § 170(h)(1), (2), (3), and (4), Treas. Reg. 1.170A-14(a), (b)(2), (c)(1), and (d) provide that the easement must:

a) be perpetual;

b) be held by a qualified governmental or non-profit organization; and,

c) serve a valid “conservation purpose” by having an appreciable natural, scenic, historical, recreational, or open space value.

Among other requirements, such as substantiation of the easement’s value, if the public benefit of the easement is not significant or is exceeded by the benefit received from the donation by the donor, the charitable contribution deduction will be disallowed. See Code § 170(h)(4)(A)(iii); Treas. Reg. § 1.170A-14(d)(4)(iv), (v), (vi), and (h)(3)(i) and (ii).

Under Code § 170(b)(1)(E)(i), conservation easement donors can deduct the value of their gift at the rate of 50 percent of their adjusted gross income (AGI) per year. Under Code § 170(b)(1)(E)(iv), landowners with 50 percent or more of their income derived from agriculture can deduct the donation at a rate of 100 percent of their AGI. Under Code § 170(b)(1)(E)(ii), any amount of the donation remaining after the first year could be carried forward for up to 15 additional years.

Federal Estate Tax Deduction

Upon a landowner’s death, estate taxes attributable to large tracts of land create a challenge for the family to keep the land intact, particularly without engaging in its development. A conservation easement can ease this problem as follows: (i) reduce the value of the overall estate for estate tax purposes by the value of eliminated development rights; (ii) further exclude up to 40 percent of the land value (up to $500,000 maximum) under Code § 2031(c); and (iii) on property that was not already subject to a conservation easement, elect to donate a conservation easement after the landowner’s death under Code § 2055(f).

State Income Tax Credit

Many states have also enacted tax benefits to encourage conservation easements, usually through a tax credit. Some states, including Colorado and Virginia, have enacted laws allowing the transfer of state conservation easement tax credits, subject to restrictions. See Ronald A. Levitt, ABA Section of Taxation, “Planning for and Defending Conservation Easements in an Adverse IRS Environment” (Jan. 2020).

Eleventh Circuit Decisions on Extinguishment Proceeds and Protected-in-Perpetuity Regulation

Below is a survey of the recent appellate and Tax Court decisions illustrating high-frequency issues involving conservation easements.

In TOT Property Holdings, LLC v. Comm’r, 1 F. 4th 1354 (11th Cir. 2021), the court rejected a savings clause included in the conservation deed as an impermissible “condition subsequent,” therefore failing the “protected in perpetuity” requirement of Code § 170(h)(5)(A). The clause was included in the conservation easement deed granted by TOT Property Holdings, LLC to Foothills Land Conservancy, encumbering nearly all of TOT Holding’s approximately 652 acres of rural, undeveloped real estate in Van Buren County, Tennessee. The deed stated that upon termination or extinguishment of the easement (as determined by judicial proceeding if the continued use of the property for conservation purposes becomes impossible or impractical (Treas. Reg. 1.170A-14(g)(6)(i)) as a result of a sale of property, eminent domain condemnation or an insurance claim), the grantee would receive its proportionate share of the proceeds resulting from such termination or extinguishment, (i) reduced by the increase in value of the easement after the easement was granted attributable to improvements or (ii) as “determined [by a subsequent IRS or court determination] in accordance with Section 9.2 or [Treas. Reg.] Section 1.170A-14, if different” (i.e., savings clause). The court emphasized the difference between clauses respected for tax purposes that merely assist in interpreting dispositive provisions in an agreement and those that impose a condition subsequent, which are not so respected.

In Hewitt v. Commissioner, 21 F. 4th 1336 (11th Cir. 2021), rev’d and rem’g T.C. Memo. 2020-89, the court invalidated Treas. Reg. § 1.170A-14, which addresses the “protected-in-perpetuity” requirement in Code § 170(h)(5). The Court ruled that the prohibition in the regulation against reducing the portion of extinguishment proceeds allocable to the easement grantee by the value of the post-donation improvements made by the grantor is arbitrary and capricious and violates the Administrative Procedures Act (APA), which requires the Treasury to “consider and respond to significant comments received during the period for public comment,” such as that made by New York Landmarks Conservancy, among others, that the extinguishment proceeds regulation “could result in an unfair loss to the property owner and a corresponding windfall for the donee.”

The Eleventh Circuit, in overturning the Tax Court decision, contravened the Tax Court decision from the Sixth Circuit, which upheld the regulation and was subsequently affirmed by the Sixth Circuit in 2022 in Oakbrook Land Holdings, LLC v. Comm’r, 28 F. 4th 700 (6th Cir. 2022). This decision created a split in the circuits between the Sixth Circuit (Oakbrook, discussed below) and the Eleventh Circuit (Hewitt). The petition for a writ of certiorari to the Supreme Court by the IRS in Oakbrook requesting to review the decision was denied; the IRS had not made a similar petition in Hewitt.

In Glade Creek Partners LLC, 21 F.4th 1336 (11th Cir. 2022), vac’g and rem’g T.C. Memo. 2020-148, the court remanded the case back to the Tax Court to consider IRS arguments for invalidating the easement deduction besides the argument that the easement failed Code § 170(h)(5)(A)’s in-perpetuity requirement under Treas. Reg. § 1.170A-14(g)(6) because this regulation had been invalidated by Hewitt in 2021 (discussed above).

Tax Court Decisions on Extinguishment Proceeds and Protected-in-Perpetuity Regulation Appealable to Eleventh Circuit

In Hancock County Land Acquisitions LLC v. Commissioner, No. 12385-20 (Tax Ct. Aug. 17, 2022), the court denied the IRS’s motion for summary judgment where the easement deed contained extinguishment proceeds provisions that the IRS claimed violated Treas. Reg. § 1.170A-14(g)(6). The easement involved over 236.12 acres of land in Mississippi near the Stennis Space Center, NASA’s rocket propulsion test facility. The deed provided that the donor could make certain future improvements to the easement property, including access roads, fences, rustic structures within the confines of the landscape’s natural and scenic features, and hunting stations, if they minimized property damage and preserved the value of the wildlife habitat. In denying summary judgment, the Court granted the taxpayer a chance to establish that such improvements would be of negligible value and would not materially impact the division of proceeds under Treas. Reg. 1.170A-14(g)(6). This case would be appealable to the Eleventh Circuit, where in 2021, Hewitt invalidated the extinguishment proceeds regulation.

In Briarcreek Preserve, LLC v. Comm’r, T.C. Dkt. No. 1547-18 (Apr. 4, 2022), the court granted partial summary judgment in IRS’s favor in the denial of charitable deduction where the easement deed reduced extinguishment proceeds allocable to the donee by the value of improvements. The court chose not to rule on the validity of the extinguishment proceeds regulation because the case is appealable to the Eleventh Circuit, which held that this regulation is invalid. This case involved a conservation easement of over 227.46 acres of woodland in Georgia, with reserved rights to conduct commercial agricultural and forestry activities, make some improvements, and construct buildings, including single-family residential dwellings and appurtenant roads and utilities.

Sixth Circuit Decision on Extinguishment Proceeds and Protected in Perpetuity Regulation

In Oakbrook Land Holdings, LLC v. Comm’r, 28 F. 4th 700 (6th Cir. 2022), aff’g 154 T.C. 180 (2020), the court took the opposite position from the Eleventh Circuit in Hewitt, discussed above, on the same legal issue. Oakbrook Land Holdings, LLC gave a conservation easement to the Southeast Regional Land Conservancy on 106 acres of its 143-acre tract of land in Chattanooga, Tennessee (bought just over one year earlier for $1.7 million), retaining the rest for future development, and claiming a $9.5 million charitable contribution deduction. The IRS disallowed the deduction because Treas. Reg. § 1.170A-14(g)(6) requires that proceeds division in the event of the easement extinguishment be based on the relative values of the two shares on the date of the gift, with no adjustments for improvements. Unlike the majority in Hewitt, the majority in Oakbrook held that most of the information addressing public comment, as required by the APA, was present in the legislative history and the notice of proposed rulemaking. The court held that the decision to favor the charitable donee over the donor for post-contribution improvements was consistent with the primary purposes of Code § 170(h)(5)(A). The petition for review of the decision by the Supreme Court was denied on January 9, 2023.

Tax Court Decision on Extinguishment Proceeds Valuation

In Corning Place Ohio, LLC v. Comm’r, T.C. Memo. 2022-12, the court partially denied the IRS’s summary judgment motion and found that a façade easement in a 19th-century historic building in Cleveland, Ohio, did not fail to satisfy the perpetuity requirement of Code § 170(h). The Garfield Building, designed by noted architect Henry Ives Cobb and built by President James A. Garfield’s two sons on John D. Rockefeller’s land, was bought for $6 million and converted from vacant office space to residential apartments and has been on the National Register of Historic Places for 20 years. A façade easement was donated to a qualified charity, with a $22.6 million donation deduction claimed by the owner. The court disagreed with the IRS that the extinguishment proceeds clause in the conservation deed was invalid because it allocated extinguishment proceeds based on the values of the property and the easement determined for income tax purposes. Such valuations did not depend on whether the conservation easement deduction was allowed by the IRS.

Tax Court Decisions on Effect on Conservation Purpose of Grantee’s Right to Consent to Grantor’s Exercise of Reserved Rights

In Pickens Decorative Stone, LLC v. Comm’r, T.C. Memo. 2022-22, the court denied the IRS’s motion for summary judgment on the issue of whether the consent requirements in the deed invalidated the charitable deduction. The property in Georgia subject to the easement was purchased for $490,010 and subsequently contributed to a qualifying charity, claiming a $24.7 million income tax deduction. The deed reserved to the donor the right to engage in forestry and recreational activities and to construct barns, sheds, and facilities “for the generation of renewable electrical power,” exercised in a manner consistent with the conservation purposes and with the prior consent of the charity. In denying summary judgment motion by the IRS, the court explained it would need to consider the donee’s “internal procedures and past practice” to determine whether it was likely to defend the easement’s conservation purposes.

In Hickory Equestrian, LLC v Comm’r, T.C. Dkt. No. 347-21 (Feb. 8, 2022), the court denied the motion for summary judgment by the IRS based on the finding that the mere existence of a deemed-consent provision in the deed did not invalidate the charitable contribution. The easement in Georgia involved the preservation of “open space” and a “natural habitat of fish [and] wildlife,” with a claim of a $6.3 million conservation easement deduction on property purchased for $112,000. In addition to challenging the taxpayer’s failure to report basis information allegedly in reliance on professional advice, the IRS challenged the donor’s reserved right to engage in hunting, fishing, and horseback riding on the land, to build “hunting or observation stands,” bird houses, trails, and signage, to maintain trails, dredge or channel watercourses, to remove damaged trees that blocked trails or threatened injury, and to build a shed to store maintenance equipment. The deed contained a written consent requirement for the exercise of any of such reserved rights that may impair the conservation easement, with the donee’s failure to respond within a stated period stipulating the donee’s constructive consent.


Like other charitable deductions available under the Code to promote benevolent causes, conservation easement deductions have been subject to IRS scrutiny because of potential abuse. But a conservation easement granted, valued, and reported accurately in good faith continues to be a valid tax planning tool for taxpayers owning certain types of property with appreciable environmental, historic, or recreational value.