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Congress is moving to expand a land preservation tax incentive that has spent nearly a decade under IRS scrutiny. 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.
The IRS cracked down on conservation easements after groups of investors used them to generate billions of dollars in inflated tax deductions. However, the tax strategy still has value for individuals and families who want to preserve their land and pay less to Uncle Sam, lawyers who specialize in conservation easements told CNBC.
More than a dozen states offer some sort of tax credit for donating land and some, including New York, Colorado and Georgia, have aggressively expanded their conservation easement programs in recent years.
"I run into people who say, 'Wow, conservation easements are bad things. They're abusive.' No, they're not. They are for a small set of people and a small set of people that are getting sucked into this by bad actors," said Florida lawyer Keith Fountain. "My clients are people who own land and love the land, and the conservation easements provide a way to get some financial benefit and to keep and own and manage that land for the right purposes forever."
Conservation easements let landowners keep ownership of the property while giving up certain development rights. Typically, the owner agrees to permanently limit how the property can be used, often to preserve farmland, wildlife habitats or open space. The landowner can then donate those foregone development rights or sell them at a discount to a land trust, government agency or another qualified group.
In return, the owner can claim a charitable deduction. In many cases, they can still reside on the land and use it for recreational purposes like hunting and fishing, as long as they fit the easement's restrictions.
Fountain said many of his ranching clients sell conservation easements to keep land in the family and use the proceeds to pay off debt or buy out younger family members who aren't interested in ranching. By selling the easements on their land at a discount, the clients collect cash and can claim a charitable deduction for the difference between the sale price and the fair market value.
The transactions targeted by the IRS involve groups of investors, not longtime individual landowners. In these so-called syndicated conservation easement deals, a promoter sells stakes in land to investors and donates the easement. By using an inflated valuation of the property's development rights, the investors are able to claim a tax deduction that exceeds what they paid for the land.
In a recent example 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.
Congress capped conservation easement values in 2022 in order to shut down syndicated easements, but the IRS is still wading through some 1,100 cases. The agency extended a settlement offer in May in an attempt to reduce the backlog.
While the government has targeted syndicated deals, individuals can still trigger an IRS audit by donating an easement. For this reason, Fountain said his clients usually choose to sell easements at a discount even though donating one can come with better tax benefits.
Many lawyers refuse to advise on conservation easements altogether. However, Carolyn Schenck, former IRS national fraud counsel, told CNBC that conservation easements shouldn't be written off.
"The fact that some taxpayers abuse the rules, I don't think means that the underlying policy lacks value in any way," said Schenck, who left the IRS in 2025 for law firm Caplin & Drysdale. "I think there is a sentiment at the IRS that properly supported conservation easement is not a loophole."
Know the rules of the road
In the past two years, the Tax Court has typically centered on what the land's foregone development rights are actually worth, according to lawyer Diana Norris, associate director for conservation defense at the Land Trust Alliance. This focus on valuations has removed a lot of uncertainty for land trusts and landowners, as earlier conservation easement cases often turned on technical defects in the deed or donation paperwork, she said.
Lawyer Steve Small said conservation easements aren't risky if you work with a lawyer who follows the case law and executes them frequently. Small helped write the tax code for conservation easements in the early 1980s when he was with the IRS.
The biggest issue, he said, is dealing with clients who have unrealistically high expectations of how much they can deduct, which he blames on promoters of syndicated easements. For recently bought property, the deduction will be a percentage of the purchase price, not a multiple, according to Small.
Donors also have to consider less obvious factors that can shrink their deduction, he said. For instance, 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 has to be subtracted from the deduction, Small said.
He also recommends that clients include lots of photos of the land with their form submissions.
"What does the IRS get when you take an easement deduction? A lot of typed paper," he said. "They don't get any feel at all for the beauty of the project or the views across the open space."
Small said the risk of an audit is minimal if the conservation easement is sound, especially with the IRS being understaffed.
"Frankly, I think if you do a good honest conservation easement project today, the risk is lower than it was 10 years ago," he said.