Facing an IRS Audit Over a Land Conservation Easement? Here's What to Know
Conservation easements were created to reward genuine land preservation with a charitable contribution deduction. Used correctly, they remain a legitimate planning tool. Used as part of a syndicated conservation easement (SCE) arrangement, where investors buy into a partnership that donates an easement and each investor claims a deduction worth several times their investment, they have become one of the IRS's top enforcement priorities. If you or a client is under examination on a land conservation easement (LCE) deduction, the audit ahead is not a routine one.
Why the IRS is focused on this issue
The IRS designated syndicated conservation easements as listed transactions under Notice 2017-10, which triggers enhanced disclosure requirements and significant penalty exposure. Congress narrowed the issue further through the SECURE 2.0 Act, which added Internal Revenue Code section 170(h)(7). That provision generally disallows a partnership or S corporation conservation easement deduction when the claimed contribution exceeds 2.5 times the partners' basis.
Courts have consistently sided with the IRS. On average, the Tax Court has allowed only around 6% of the deductions claimed in syndicated easement cases, often paired with a 40% gross valuation misstatement penalty, one of the most severe civil penalties in the tax code. In March 2026, the Eleventh Circuit affirmed a Tax Court decision sustaining both a substantial reduction and penalties in a case involving more than $36.9 million in claimed deductions. In May 2026, the IRS updated its conservation easement guidance and signaled a new, time limited settlement opportunity for taxpayers still working through examination.
What makes this audit different from a standard one
Once the IRS flags a deduction as tied to a listed or valuation driven transaction, the examination goes well beyond checking receipts. Agents typically look at the full transaction pattern: the promotional materials used to sell the investment, how quickly the property moved from purchase to donation, and whether the appraisal relied on an aggressive assumption about the land's highest and best use.
A word of caution: taxpayers under this type of exam sometimes try to strengthen their position after the fact, through casual emails, revised explanations, or informal cleanup of the file. These efforts often create the most damaging evidence in the case and can raise separate concerns about inconsistent or inaccurate statements to the IRS. The right response to a tough audit is organized documentation, not improvisation.
What to do if you are facing an LCE examination
Get the full examination file and identify exactly which issues are being challenged: valuation, the perpetuity requirement, qualified organization status, or conservation purpose.
Preserve the original records as they exist. Do not create new explanations or communications intended to justify the deduction after the IRS has already asked questions.
Have the appraisal and the underlying transaction reviewed independently by someone who was not involved in the original deal.
Ask about settlement eligibility. The IRS has periodically offered structured settlement programs to reduce its case backlog, and a new opportunity may be available depending on timing.
Work with a professional who has specifically handled LCE examinations, not general audit representation. The issues involved are technical and the stakes are high.
How Golden Lion Tax Solutions helps
Our team reviews examination notices, helps evaluate whether a settlement track is realistic, and coordinates with legal counsel when a case needs it. The goal is a clear, defensible plan built on the specific facts of the case, not a guess.
Received a notice about a land conservation easement deduction? Do not respond on your own before understanding the full picture.
Contact the Golden Lion Tax Solutions team today.
There is always a solution!
Educational disclaimer: This article is general information and is not legal or tax advice for your specific situation. Options depend on individual facts, filing history, and the IRS or state collection posture on the account.