By Mahmoud Abotteen, CPA  ·  October 20, 2026

Is a Conservation Easement a Scam or Legitimate Tax Planning? What Four Recent Tax Court Cases Show

A plain-English guide for landowners and investors who are being pitched a conservation easement deduction, with the tax code, the regulations and the court decisions behind each point.

The short answer

Conservation easements are real, and Congress created the tax deduction on purpose. But one version, sold to investors and called a “syndicated conservation easement,” has become one of the IRS’s most targeted abusive tax shelters. On October 19, 2026, the Tax Court rejected the deductions in four such deals and added 40% penalties.

What is a conservation easement?

A conservation easement is a legal promise, made by a landowner to a charity or land trust, that the land (or a historic building’s exterior) will be protected forever. You keep owning the property. You give up certain rights, such as building on it.

Because the promise lowers the property’s value, the tax law lets you deduct that drop in value as a charitable gift. The value is usually measured as “before and after”: what the property was worth before the easement, minus what it is worth after. (If there is a real record of sales of comparable easements, those sales can be used instead.) The regulation also reduces the deduction if the easement raises the value of other property you or a related person own (Treas. Reg. §1.170A-14(h)(3)).

A simple example. Dorothy owns an 80-acre family farm near a growing town. A developer would pay $1,000,000 for it, because homes could be built there. She donates an easement to a land trust that permanently bars development. The farm is now worth $300,000 as working farmland. The easement’s value is the $700,000 drop, and that is her charitable deduction, subject to income limits. For an individual, the deduction for these gifts is generally limited to 50% of income (100% for a qualified farmer or rancher), and any unused amount can be carried forward for 15 years (IRC §170(b)(1)(E)).

Why Congress allowed it

The general rule is that you cannot deduct a gift of only part of your property (IRC §170(f)(3)). Congress made an exception in 1980 for “qualified conservation contributions,” because it wanted private landowners to protect land and historic buildings that the public values. Congress later made the enhanced incentives permanent.

To qualify, the gift must meet three tests (IRC §170(h)(1)):

• A qualified property interest. For example, a permanent restriction on how real property may be used (IRC §170(h)(2)(C)).
• A qualified recipient. A government unit or a qualifying charity (IRC §170(h)(3)).
• A conservation purpose. Recreation or education for the public, wildlife habitat, open space, or a historically important land area or a certified historic structure (IRC §170(h)(4)(A)).

The protection must last forever, which tax professionals call “in perpetuity” (IRC §170(h)(5)(A)). You also need a qualified appraisal: generally for gifts of property over $5,000, and the appraisal must be attached to your return when the claimed deduction is over $500,000 (IRC §170(f)(11)). The gift is reported on Form 8283. A qualified appraisal and Form 8283 do not fix a deal that fails the other requirements.

How a good idea became a tax shelter

The abuse happens when the deduction is sold to investors who have no connection to the land. Here is how a typical “syndicated” deal works:

1. A promoter finds inexpensive land, or an older building, and sets up a company to own it.
2. A second company sells ownership interests to investors who want a tax deduction.
3. The first company donates an easement to a charity.
4. An appraiser, usually chosen by the promoter, says the property was worth many times its price because it could have been developed into something valuable.
5. The deduction is passed to the investors in proportion to their ownership.

The sales pitch is a “deduction-to-investment ratio.” In one of the cases below, investors were told they would get $4.50 of deductions for every $1 invested. Put in a hypothetical: an investor puts in $100,000 and is promised a $450,000 deduction. If the deduction were fully allowed and usable, at a 37% federal rate it would be worth about $166,500, which is more than the investor paid. That is the hook. It assumes no income limits, no other taxes, and no IRS adjustment, and as the cases below show, the IRS often adjusts it.

The IRS calls these arrangements abusive. It says promoters “take a provision of tax law for conservation easements and twist it” using inflated appraisals (IRS News Release IR-2021-144). In October 2026, the Tax Court wrote that the IRS’s audits were “an inevitable and appropriate response to literally thousands of abusive transactions following the same cookie-cutter pattern,” and that the IRS “has handily prevailed in dozens of recent cases” (Watson Lake Investments, LLC v. Commissioner, T.C. Memo. 2026-106).

Sales pitches you may hear, and why they do not protect you

“Our attorney and a tax opinion back this up.” To avoid most penalties, you must show you had reasonable cause and acted in good faith (IRC §6664(c)(1)). Relying on advice from the promoters of the deal, or from people tied to them, is often not enough. The Tax Court said advice “hardly qualifies as disinterested or objective if it comes from parties who actively promote or implement the transactions in question” (Del Monte LLC v. Commissioner, T.C. Memo. 2026-107, quoting Stobie Creek Investments LLC v. United States, 608 F.3d 1366 (Fed. Cir. 2010)). And for the 40% penalty for a gross valuation misstatement, the reasonable-cause defense is not available at all (IRC §6664(c)(3)).

“A developer and an appraiser reviewed it.” In the cases below, the courts found that the plans were made up to support the appraisal, and the appraiser was supplied by the promoter. An appraisal is not a guarantee. A judge decides the value (Treas. Reg. §1.170A-14(h)(3)).

“We have insurance, so if the IRS imposes penalties, you are covered.” Tax insurance exists, but an insurance policy cannot make a deduction valid, and what it pays depends entirely on the policy. Policies often exclude fraud or other wrongdoing, and they often require deductibles and leave part of the risk with the insured (Hale E. Sheppard, “Conservation Easements, Legitimate Risks, and Tax Result Insurance,” Taxation of Exempts, Jan./Feb. 2020). Ask for the full policy in writing, and have an independent advisor read the exclusions, the limits, and whether the insurer can cancel the policy, before you rely on it. Insurance is not a substitute for checking the deal itself.

“Everyone is doing it.” The Tax Court has ruled against these deals in dozens of cases (Watson Lake Investments, T.C. Memo. 2026-106). A promoter saying the IRS will lose is not evidence that it will.

What is a “listed transaction,” and why does it matter?

A listed transaction is a tax shelter the IRS has publicly named as one it considers abusive. If you take part in one, you generally must disclose it to the IRS on Form 8886 with your tax return (Treas. Reg. §1.6011-4). Failing to do so can bring penalties and can keep the IRS’s time to audit open longer (IRC §6707A; IRC §6501(c)(10)). Form 8283, the form for donated property, does not replace Form 8886.

On December 23, 2016, the IRS issued Notice 2017-10 listing syndicated conservation easements (2017-4 I.R.B. 544). Courts later held the notice invalid because the IRS skipped the public comment process (Green Valley Investors, LLC v. Commissioner, 159 T.C. No. 5 (2022); Mann Construction, Inc. v. United States, 27 F.4th 1138 (6th Cir. 2022); Green Rock, LLC v. IRS, 104 F.4th 220 (11th Cir. 2024)). The IRS then issued final regulations that followed the process. They took effect on October 8, 2024 (T.D. 10007; Treas. Reg. §1.6011-9). Whether and how a deal from an earlier year must be reported can depend on the facts, including whether the IRS’s time to assess tax for that year is still open and what you already disclosed. Ask your advisor.

Under those regulations, a syndicated conservation easement is generally a deal where:

1. You get promotional material offering a charitable deduction of at least 2.5 times your investment;
2. You invest, directly or indirectly, in a partnership or other pass-through entity that owns the property;
3. That entity donates a conservation easement and passes the deduction to you; and
4. You claim the deduction.

The regulations also contain rules on projected returns, a presumption that can apply for three years, and rules aimed at “stuffing” extra assets into an entity.

Separately, Congress added IRC §170(h)(7) in December 2022 (Pub. L. 117-328, §605). For gifts made after December 29, 2022, it generally disallows the entire deduction, not just the excess, when a partnership or other pass-through entity makes a conservation gift worth more than 2.5 times its owners’ “relevant basis” (roughly, what they paid). It does not apply to gifts made directly by individuals who are not in a pass-through entity. The main exceptions are:

• Three-year holding period. The gift is made at least three years after the entity or its owners acquired the property or their interests, with special rules for tiered entities.
• Family partnerships. At least 90% of the interests are held by an individual and family members, with further conditions.
• Certified historic structures. The conservation purpose is preserving a certified historic structure.

Other penalties, including the 40% gross valuation penalty, can apply to deals like these, but only if their own requirements are met (IRC §6662(h)).

In plain terms, when you file Form 8886, you are telling the IRS’s tax shelter office that you took part in a transaction it has said it is targeting.

Four recent Tax Court cases

These are the most recent decisions, both issued on October 19, 2026. They read like a pattern. The details are different, but the structure is the same.

Case 1: Del Monte LLC (Columbus, Ohio)

Del Monte LLC v. Commissioner, T.C. Memo. 2026-107

An investment company and a local developer bought a 1902 brick building in downtown Columbus in December 2015 for $1.3 million. They renovated it and had it about 90% leased within a year. A bank appraised it at $1.85 million in 2016 and said its best use was the one it already had: an office building.

Then the owners donated an easement on the building’s front and claimed a deduction of $18,742,000. Their appraiser assumed a condominium tower could be built on top of the building. The court found that “highly improbable” and valued the easement at $200,000.

Why the deduction failed:

• The promise was not really forever. If a court ever ended the easement and the property were sold, the charity must be guaranteed its proportionate share of the sale money (Treas. Reg. §1.170A-14(g)(6)(ii); IRC §170(h)(2)(C), (5)(A)). The agreement’s math carved out the development rights so the charity’s share was only about 5%, even though the deduction assumed the easement was worth about 95% of the building. The court said the agreements were also silent on how the development rights would be valued.
• Where you live can change the result. Courts disagree about this regulation. The Tax Court has held it procedurally invalid (Valley Park Ranch, LLC v. Commissioner, 162 T.C. 110 (2024)), and the Eleventh Circuit has held the regulation’s rule invalid in Hewitt v. Commissioner, 21 F.4th 1336 (11th Cir. 2021). But Ohio cases are appealed to the Sixth Circuit, which upheld it (Oakbrook Land Holdings, LLC v. Commissioner, 28 F.4th 700 (6th Cir. 2022)), and the Tax Court follows its own circuit’s precedent (Golsen v. Commissioner, 54 T.C. 742 (1970)). The court also said the Code itself requires that the restriction be protected in perpetuity.
• The value was a fraction of the claim. Property must be valued at its highest and best use, and a proposed use must be reasonably probable (Treas. Reg. §1.170A-14(h)(3)(ii)). The claimed value was overstated by more than 9,000%.
• The 40% penalty applied. The overstatement was “gross” (more than 200% of the correct value), so no reasonable-cause defense was available (IRC §6662(h)(2)(A)(i); IRC §6664(c)(3)). Fees paid to the promoter were also not deductible as business expenses, and a 20% penalty applied to other items.

Case 2: Continental Downtown Properties LLC (Columbus, Ohio)

Continental Downtown Properties, LLC v. Commissioner, T.C. Memo. 2026-107 (decided together with Del Monte)

An eight-story office building from 1924, bought in 1988 for $6.6 million. The owner’s own companies used about 80% of it, and the owner said he had no plans to move or build. A promoter suggested he could turn the “unused air” above the building into a tax deduction.

The partnership raised money from investors. The investors’ fund was pitched at about $1.27 of deductions for every $1 invested, according to the opinion. The partnership claimed $20,658,000. The appraisal said the building was worth $27.9 million before the easement. The owner testified that it struck him as a “wild guess,” and the court said the plan to build an apartment tower was “no more than a brainstorming exercise.”

The court valued the easement at $550,000. The same proceeds problem applied: the deduction assumed the charity held about 74% of the building’s value, while the contract gave it only about 5% of sale proceeds. The overstatement was more than 3,600%, so the 40% penalty applied.

The court did reject some IRS arguments, including that the owners lacked charitable intent. This shows judges look at each argument on its own. The deal still failed.

Case 3: Watson Lake Investments (rural Georgia)

Watson Lake Investments, LLC v. Commissioner, T.C. Memo. 2026-106

In December 2015, two developers bought 144 acres in a county of about 22,000 people for $325,000. The land was near an airstrip, about 500 yards from a state prison, and roughly a quarter of it flooded. The county’s population had grown by less than 0.1% a year, and it issued about three single-family building permits a year.

A “development plan” then appeared for 66 homes, 525 apartments and senior units, and commercial lots. The court found it was drawn only for the appraisal: no roads were built, no studies were done, and no rezoning application was ever filed. The appraiser valued the land at $8.4 million and the developers directed the numbers used in his spreadsheet.

Twelve investors paid about $1.77 million. The deal was marketed at $4.50 of deductions for every $1 invested. The partnership claimed $8,109,000 for an easement recorded in December 2016. The court valued the easement at $115,300.

Why the deduction failed:

• The land’s best use was its current use. A proposed use must be legally permissible, financially feasible, and reasonably probable in the near future (Treas. Reg. §1.170A-14(h)(3)(ii); Olson v. United States, 292 U.S. 246 (1934)).
• Rezoning was not shown to be reasonably probable. The only evidence was a letter in which a city official gave his opinion. He testified he had no power to approve rezoning and that no application had been filed.
• Market data pointed the other way. No 50 to 250-acre property in the county had sold for more than $1 million between 2015 and 2018, and the court relied on the actual purchase price and comparable sales.
• The 40% penalty applied. The claim was overstated by more than 2,000% (IRC §6662(h)).

Case 4: Meadow Lake Investments (rural Georgia)

Meadow Lake Investments, LLC v. Commissioner, T.C. Memo. 2026-106 (decided together with Watson Lake)

Two miles away, the same developers bought 189 acres in April 2016 for $320,000 from an unrelated seller who had paid $483,200 for it in 2006 and had listed it at $375,000. The seller’s principal called $320,000 a “fair price.”

The appraiser valued the land at $11.5 million using a similar mixed-use plan. Twenty-nine investors paid about $2.28 million, again at a 4.5-to-1 ratio. The partnership claimed $11,116,000 for an easement recorded in December 2017. The court valued the easement at $208,500.

The court found no credible evidence anyone investigated rezoning this land. A letter from a city official was a forgery, according to the court, which noted the official’s own testimony that the letterhead, phone number and signature were not his. “A forged document has no probative value,” the court said. The 40% penalty applied.

In both Georgia cases the court called the constitutional arguments, such as that the penalty violated the Fifth, Seventh, Eighth and Fourteenth Amendments, “wholly without judicial support” and “frivolous.” It also wrote that “the real victims in cases like these are the U.S. Treasury and the countless honest taxpayers who voluntarily pay the tax due.”

The four deals side by side

Other risks investors often miss

• The 2.5 times rule is an all-or-nothing rule. Under IRC §170(h)(7), going over the limit can wipe out the whole deduction, not just the extra. Working out “relevant basis” in layered partnerships is complicated.
• The deduction may be limited to what was paid. If the property was held mainly for sale, or the partnership rules or economic substance doctrine apply, the deduction can be limited or denied, whatever the appraisal says.
• Many technical rules must all be met. These include the baseline documentation, the deed language, lender subordination, mineral rights, the written acknowledgment, the appraisal and the return disclosures. A miss on any one can sink the deduction.
• Penalties can exceed the tax benefit. A gross valuation misstatement carries a 40% penalty, and a civil fraud finding carries 75% (IRC §6663). Promoters, appraisers and preparers can face separate consequences.
• A land donation is not automatically safe. A deal that is substantially similar to a syndicated conservation easement can still raise listed transaction reporting, even if the land is given outright.

What if you are already in a deal like this?

Do not ignore it. The IRS has said it will pursue these deals and, in its words, urged participants to “immediately consult an independent, competent tax advisor” (IRS News Release IR-2019-213). Here are practical steps:

1. Get the documents. The offering materials, the appraisal, the easement agreement, any tax opinion, and any insurance policy.
2. Check your Form 8886. If you took part in a listed transaction, ask whether it was properly disclosed (IRC §6707A).
3. Talk to an independent advisor. That means someone with no financial stake in the deal and no connection to the promoter.
4. Do not sign anything with the IRS, including an extension of time, before you get advice.
5. Ask about settlement options. In 2020, for example, the IRS offered settlements to certain taxpayers with cases pending in the Tax Court (IRS News Release IR-2020-152). Whether any option is available to you depends on your facts.

Questions to ask before you invest in any conservation easement

• What is the deduction-to-investment ratio? If it is 2.5 to 1 or more, why?
• Who chose the appraiser, and who pays the appraiser?
• Has the property’s proposed development ever been studied, zoned, financed or started?
• Is the person who advises me independent of the people who sell the deal?
• What exactly does the insurance cover, and what does it exclude?
• Will I have to report this to the IRS as a listed transaction?

Legitimate ways to give appreciated assets to charity

If you own stock, land or a business with a large gain and want to give to charity while managing the tax, there are well-established tools. They have their own rules and are not right for everyone.

• Gifts of appreciated assets. Giving long-term appreciated property to a public charity is generally deductible at fair market value, without selling it first. The deduction is subject to reductions under IRC §170(e) (for example, for certain ordinary-income components) and to percentage limits, which are generally 30% of income for this kind of gift (IRC §170(b)(1)(C)).
• Charitable remainder trusts. A charitable remainder annuity trust or unitrust can provide you income for life or a set term, and the remainder goes to charity (IRC §664). These trusts are generally irrevocable and have strict rules.
• Real conservation easements. An easement on land you actually own and want to protect can be legitimate when the conservation purpose is real and the value is properly appraised (IRC §170(h)).

Common questions about conservation easements

Is a conservation easement a scam?

Not by itself. A conservation easement made for real conservation reasons is a legitimate part of the tax law (IRC §170(h)). The problem is the syndicated version, where investors buy a deduction, and where the value depends on a development plan that is not realistic. The IRS and the courts have repeatedly rejected those deals.

What is the 2.5 times rule?

There are two. The IRS uses a 2.5 times test to identify a syndicated conservation easement as a listed transaction: promotional material offering a deduction of at least two and a half times the investment (Treas. Reg. §1.6011-9). Congress also uses a 2.5 times test in IRC §170(h)(7), where a pass-through entity’s gift can lose its entire deduction if it is more than 2.5 times the owners’ relevant basis, subject to exceptions.

What penalty can I face?

A 40% penalty on the underpayment attributable to the overstatement if the claimed value is more than 200% of the correct value (IRC §6662(h)). Reasonable cause is not a defense to that penalty (IRC §6664(c)(3)). A 20% penalty can apply to other parts of the underpayment (IRC §6662(a)).

Does an appraisal protect me?

No. A qualified appraisal is a requirement for the deduction (IRC §170(f)(11)), but the court decides the value. In all four cases above, the court rejected the taxpayer’s appraisal.

Can I rely on the promoter’s tax opinion or insurance?

Reliance on advice from the promoter or people tied to the promoter is often not enough to show reasonable cause, and it has no effect on the gross valuation penalty. Read any insurance policy for its exclusions.

How long do these cases take?

A long time. In the Georgia cases, the partnership returns covered 2016 and 2017, the IRS issued its formal notices in 2020 and 2022, trial was in October 2025, and the decisions came in October 2026.

Your next step

If you have been pitched a conservation easement, or you are already in one, a short review before you invest or sign anything can save a great deal of trouble. Mahmoud Abotteen, CPA, and our team can review the documents with you, explain the risks in plain English, and discuss other charitable planning for appreciated assets.

Resources and citations

Tax code and regulations

• IRC §170 (charitable contributions)
• IRC §664 (charitable remainder trusts)
• IRC §6501 (limitations on assessment)
• IRC §6662 (accuracy-related penalty)
• IRC §6663 (civil fraud penalty)
• IRC §6664 (reasonable cause)
• IRC §6707A (reportable transaction penalty)
• Treas. Reg. §1.170A-14 (qualified conservation contributions)
• Treas. Reg. §1.6011-9 (syndicated conservation easement listed transaction), T.D. 10007 (Oct. 8, 2024)
• Pub. L. 117-328, §605 (added IRC §170(h)(7), December 2022)

IRS guidance

• Notice 2017-10 (Dec. 23, 2016), 2017-4 I.R.B. 544
• IR-2019-213 (Dec. 20, 2019)
• IR-2020-152 (July 13, 2020)
• IR-2021-144 (July 1, 2021)
• Action on Decision 2024-01 (Green Rock)
• About Form 8886 (Reportable Transaction Disclosure Statement)
• About Form 8283 (Noncash Charitable Contributions)

Court decisions

• Del Monte LLC v. Commissioner and Continental Downtown Properties, LLC v. Commissioner, T.C. Memo. 2026-107 (Oct. 19, 2026)
• Watson Lake Investments, LLC v. Commissioner and Meadow Lake Investments, LLC v. Commissioner, T.C. Memo. 2026-106 (Oct. 19, 2026)
• Oakbrook Land Holdings, LLC v. Commissioner, 28 F.4th 700 (6th Cir. 2022)
• Hewitt v. Commissioner, 21 F.4th 1336 (11th Cir. 2021)
• Valley Park Ranch, LLC v. Commissioner, 162 T.C. 110 (2024)
• Green Valley Investors, LLC v. Commissioner, 159 T.C. No. 5 (2022)
• Mann Construction, Inc. v. United States, 27 F.4th 1138 (6th Cir. 2022)
• Green Rock, LLC v. IRS, 104 F.4th 220 (11th Cir. 2024)
• Stobie Creek Investments LLC v. United States, 608 F.3d 1366 (Fed. Cir. 2010)
• Olson v. United States, 292 U.S. 246 (1934)
• Golsen v. Commissioner, 54 T.C. 742 (1970)

Commentary

• Hale E. Sheppard, “Conservation Easements, Legitimate Risks, and Tax Result Insurance,” Taxation of Exempts (Jan./Feb. 2020)

A note on private letter rulings. This article does not rely on IRS private letter rulings because, by statute, they are issued to a specific taxpayer and generally may not be used or cited as precedent by anyone else (IRC §6110(k)(3)). It relies on the Code, regulations, IRS notices and court decisions instead.