Part III · Structures · No. 12

Conservation easements

A perpetual restriction on the development of real property, contributed to a qualified conservation organization, produces a charitable deduction equal to the diminution in value. The mechanism has supported legitimate conservation for decades and produced massive enforcement litigation in the syndicated form.

What the structure is

A qualified conservation easement under §170(h) is a perpetual restriction on the use of real property — typically prohibiting development, subdivision, or commercial use — granted to a qualifying conservation organization or governmental unit. The owner retains the property and may continue residential or agricultural use consistent with the easement; the donee enforces the restriction.

The tax problem it addresses

Real property with substantial development value but limited current income (a family farm in the path of suburban growth; a coastal ranch with frontage; a backcountry estate adjoining preserved land) produces a tax problem: the development value is taxed in the estate but the owner has no intention of developing. A conservation easement permanently restricts development, creates an immediate income-tax charitable deduction equal to the diminution in value, reduces the property's estate-tax base, and preserves the land for its intended use.

Mechanics

• Owner identifies the qualifying conservation purpose (open space, habitat, agricultural preservation, historic preservation).
• Qualified conservation organization (land trust, government agency) is the donee.
• Easement deed is recorded perpetually restricting defined uses.
• Qualified appraisal establishes "before" and "after" values; deduction equals the diminution.
• Charitable deduction taken under §170. Qualified conservation contributions by individuals are deductible up to 50% of AGI with a 15-year carryforward (§170(b)(1)(E)); qualified farmers and ranchers may deduct up to 100% of AGI. From 2026 the One Big Beautiful Bill Act adds a 0.5%-of-AGI floor on itemized charitable deductions and caps the tax value of itemized deductions at 35% for top-bracket taxpayers.

The applicable statutes and authorities

• 26 U.S.C. §170(h) (qualified conservation contribution).
• 26 U.S.C. §170(h)(7) (2.5x relevant-basis limitation on partnership and S corporation contributions, added by the SECURE 2.0 Act of 2022, Pub. L. 117-328, Div. T, §605, for contributions after 29 December 2022).
• Treas. Reg. §1.170A-14.
• 26 U.S.C. §2031(c) (estate-tax exclusion of up to 40% of the value of land subject to a qualified conservation easement, capped at $500,000).
• Notice 2017-10 (syndicated conservation easement transactions identified as listed transactions — held invalid for failure to follow notice-and-comment procedures in Green Valley Investors, LLC v. Commissioner, 159 T.C. 80 (2022), and Green Rock, LLC v. IRS (11th Cir. 2024)); superseded by final regulations, Treas. Reg. §1.6011-9 (T.D. 10007, 8 October 2024).
• 26 U.S.C. §6662(h) (gross-valuation misstatement penalty).
• Hewitt v. Commissioner, 21 F.4th 1336 (11th Cir. 2021), and Oakbrook Land Holdings, LLC v. Commissioner, 28 F.4th 700 (6th Cir. 2022), on the extinguishment-proceeds regulation.

Substance and audit risk

The syndicated conservation easement transaction — promoted partnership arrangements producing deductions multiples of contributed cash — has been the subject of sustained IRS enforcement since 2016. Notice 2017-10 identified these transactions as listed transactions; after the Tax Court and the Eleventh Circuit held the notice procedurally invalid, Treasury reissued the designation through notice-and-comment regulations (Treas. Reg. §1.6011-9, effective 8 October 2024). Enforcement has also produced criminal prosecutions: in January 2024 promoters Jack Fisher and James Sinnott were sentenced to 25 and 23 years in prison after convictions in the Northern District of Georgia for a scheme the Justice Department said generated more than $1.3 billion in fraudulent deductions.

The §170(h)(7) limitation, enacted by the SECURE 2.0 Act of 2022 (Pub. L. 117-328, Div. T, §605), disallows a partnership's (or S corporation's) qualified conservation contribution if it exceeds 2.5 times the sum of each partner's relevant basis, subject to exceptions for contributions made after a three-year holding period, family partnerships, and (separately reported) historic-structure contributions. It applies to contributions made after 29 December 2022 and effectively ends the typical syndicated-easement economics. Non-syndicated traditional conservation easements remain a workable structure.

The Tax Court and the courts of appeals have applied strict compliance requirements:

• Perpetuity requirement — extinguishment-proceeds clauses are heavily scrutinized. The Tax Court (Oakbrook, 154 T.C. 180 (2020)) and the Sixth Circuit upheld Treas. Reg. §1.170A-14(g)(6)(ii), under which deeds that subtract post-donation improvements from the donee's share fail; the Eleventh Circuit in Hewitt held that application of the regulation arbitrary and capricious under the APA. The result depends on the circuit to which an appeal lies.
• Conservation-purpose requirement — the protected purpose must qualify under §170(h)(4).
• Qualified-donee requirement — the donee organization must meet the §170(h)(3) qualifications.
• Qualified-appraisal compliance with §170(f)(11) and Treas. Reg. §1.170A-17.

Cost and complexity

Setup: qualified appraisal (specialized real-estate appraisers in the conservation field), legal counsel, deed preparation and recording. Cost varies; high-quality appraisals of complex properties run materially. Donee organizations may charge stewardship endowment contributions.

Common combinations

• Family-estate conservation easement. Multi-generational ranch or farm easement preserving the property for family use.
• Historic-preservation façade easement. §170(h) conservation easement on certified historic structure facades; the IRS has scrutinized this category closely.
• Easement combined with §2031(c). Estate-tax exclusion for land subject to a qualifying conservation easement of up to 40% of the land's value, limited to $500,000.
• Easement on trophy real estate. Property with development value but personal use; easement converts unrealized development value to current charitable deduction.

Recent developments

The §170(h)(7) syndicated-easement limitation (SECURE 2.0, December 2022) and the listed-transaction designation, now in final regulations (T.D. 10007, October 2024), have largely ended syndicated easement promotions. Tax Court litigation continues to work through legacy syndicated transactions, typically on valuation and on gross-valuation-misstatement penalties. SECURE 2.0 also directed the IRS to publish safe-harbor deed language for extinguishment and boundary-line-adjustment clauses, which it did in Notice 2023-30; amended deeds signed and recorded by 24 July 2023 are treated as effective from the original recording date.

The circuit split between Hewitt (11th Cir.) and Oakbrook (6th Cir.; certiorari denied 2023) leaves the validity of the proceeds regulation dependent on venue; the safe-harbor deed language of Notice 2023-30 is the practical route to avoiding the issue for new and amended easements.

Reviewed October 2026