Conservation Easement Lawsuit: Tax Court, Penalties, and 2026 Settlement

A conservation easement lawsuit, in the sense that dominates federal tax dockets today, is a dispute between the IRS and a partnership that claimed a large charitable deduction for donating a development restriction on land. More than 1,100 such cases are pending, the Tax Court has allowed on average only about 6% of the originally claimed deductions, and the IRS opened a new time-limited settlement window on May 13, 2026 that runs 135 days from the date each partnership receives its letter.¹

What the Fight Is Actually About

A conservation easement is a permanent restriction on developing a piece of land, donated to a qualified organization like a land trust. The donor can deduct the difference between the property’s value before and after the restriction.

The lawsuits center on a specific product built on top of that rule: the syndicated conservation easement. A promoter buys undeveloped land, forms a partnership, and sells interests to investors. An appraiser then values the land at many times its purchase price by declaring its “highest and best use” to be a granite quarry, a limestone mine, a resort, or some other lucrative venture the land is not currently being used for. The partnership donates an easement based on that inflated appraisal, and the investors claim deductions that often run four times or more what they put in. A 2020 Senate Finance Committee investigation found promoters pitching deals with the promise that every dollar of fees would return two dollars in tax savings.²

Treasury regulations issued October 8, 2024 formally designate syndicated conservation easement transactions as listed transactions, meaning participants and their advisors must file disclosure forms with the IRS.³ And I.R.C. § 170(h)(7), added by the SECURE 2.0 Act in December 2022, automatically disallows deductions by partnerships and S corporations when the claimed amount exceeds 2.5 times each partner’s relevant basis, with narrow exceptions for easements held at least three years, family-owned pass-through donations, and certified historic properties.⁴

How the Tax Court Is Ruling

The pattern in Tax Court is consistent and unfavorable for taxpayers. Partnerships arrive with deductions valued by a discounted-cash-flow model that treats raw land as though a mine or resort were already operating on it. Courts reject the model, adopt something close to the purchase price as fair market value, and impose a 40% penalty.

In Ranch Springs, LLC, 164 T.C. No. 6 (2025), the Tax Court called a DCF valuation of Alabama farmland as a limestone quarry “wholly illogical and erroneous as a matter of law.” The taxpayer had bought the land for $715,000 and claimed a $25.8 million deduction; the court set the easement value at $335,500. The land was zoned agricultural and no rezoning application had ever been filed.⁵

The same story runs through the other cases. Beaverdam Creek Holdings, LLC: $22 million cut to about $193,000 after the court rejected a granite-quarry theory. Veribest Vesta, LLC: $20.4 million cut to $111,000. Brank Cove Capital, LLC: $11.7 million cut to $750,000 after the vacation-resort hypothesis fell apart.⁶

Some deductions collapse entirely on procedural grounds. In Jackson Stone South, LLC v. Commissioner, T.C. Memo. 2025-96, the court disallowed one partnership’s deduction completely because the baseline documentation report misidentified nearly half the land cover, making it impossible for the donee to monitor compliance. The related JSS partnership saw a $19 million deduction cut to $460,000.⁷ In a group of cases involving Rock Cliff Reserve, Jack’s Creek Reserve, East Village Reserve, and Baker’s Farm Nature Reserve, the court disallowed over $62 million in combined deductions on the ground that the donors had a prearranged agreement with the appraiser to inflate values, meaning the appraiser was not independent and no deduction was allowable at all.⁶

Analysis of 798 partnership cases filed between 2011 and 2025 found the IRS asserted a property valuation of zero in 93% of cases, rising to 97% for cases filed since 2022, and asserted a 40% penalty in 99%.⁸

Penalties and What Defenses Work

The 40% gross valuation misstatement penalty is the taxpayer’s real problem. The Tax Court has treated it as a near-strict-liability provision, with no reasonable-cause defense available for charitable contribution property.

North Donald LA Property, LLC v. Commissioner, T.C. Memo. 2026-19, decided in February 2026, illustrates both what does and doesn’t work as a defense. The court cut a $115.4 million deduction to $175,824 after rejecting a commercial clay mine theory for Louisiana farmland. It declined to impose the IRS’s 75% civil fraud penalty because the taxpayer had transparently disclosed the gap between cost basis and claimed value on its returns, showing no intent to conceal. But that same transparency did nothing to prevent the 40% valuation misstatement penalty.⁹

The Fourth Circuit reinforced the strict-compliance approach in Brooks v. Commissioner, 109 F.4th 205 (4th Cir. 2024), holding that baseline documentation requirements are “essential” rather than “relatively ancillary.” Taxpayers who bought 85 acres for $1.35 million and claimed a $5.1 million deduction saw the whole thing disallowed, and the 40% penalty upheld, on findings that the baseline survey was inadequate, the contemporaneous written acknowledgment deficient, and the cost basis misstated.¹⁰

On March 25, 2026, the Eleventh Circuit affirmed 40% penalties in the consolidated cases of Jackson Crossroads, LLC and Long Branch Investments, LLC, finding no error in the Tax Court’s valuation or penalty analysis.¹¹

Where Geography Changes the Outcome

One live question splits the circuits: whether Treasury Regulation § 1.170A-14(g)(6)(ii), which controls how proceeds are calculated if a conservation easement is judicially extinguished, was validly adopted. In Hewitt v. Commissioner, 21 F.4th 1336 (11th Cir. 2021), the Eleventh Circuit ruled the regulation invalid because Treasury failed to respond to significant public comments during rulemaking. The Sixth Circuit went the other way in Oakbrook Land Holdings, LLC v. Commissioner, 28 F.4th 700 (6th Cir. 2022), holding the comments were not significant enough to require a formal response.¹²¹³ Taxpayers in Alabama, Florida, and Georgia benefit from Hewitt; taxpayers elsewhere face the regulation as upheld.

A separate issue narrowed a common taxpayer position on June 6, 2025, when the Eleventh Circuit affirmed in Glade Creek Partners, LLC v. Commissioner that when contributed property qualifies as inventory in the hands of the contributing partner, the charitable deduction is capped at the partnership’s adjusted basis rather than fair market value. The lower court had already reduced the claimed deduction from $17 million to $3.7 million on that ground.¹⁴¹⁵

Lawsuits Against Promoters

Enforcement has not stopped at the deduction. The Department of Justice sued EcoVest Capital, Inc. and several associates in December 2018 in the Northern District of Georgia, naming executives Alan N. Solon, Robert M. McCullough, and Ralph R. Teal Jr., appraiser Claud Clark III, and fund promoter Nancy Zak. The complaint alleged at least 96 syndicates reporting over $2 billion in improper deductions. Zak settled in March 2021, accepting a lifetime bar from the conservation easement business. The remaining defendants consented to a permanent injunction in March 2023, without admitting the allegations, and were permanently barred from organizing, promoting, or selling any arrangement involving a conservation contribution deduction.¹⁶¹⁷

The criminal side has produced convictions. A federal grand jury in Atlanta indicted North Carolina developer Jack Fisher in February 2022 on 135 counts, including wire fraud, conspiracy to defraud the United States, money laundering, and aiding in the filing of false returns, over $1.3 billion in alleged tax shelters. A jury convicted him in September 2023 on all substantive counts. On January 9, 2024, U.S. District Chief Judge Timothy C. Batten sentenced Fisher to 25 years in prison and ordered roughly $457.9 million in restitution. Judge Batten said, “It shocks the conscience, the degree of fraud in this case.” Brothers Corey and Stein Agee, tax professionals involved in the deals, pleaded guilty to conspiracy to defraud the United States.¹⁸¹⁹

Investors have also sued. In March 2020, a group of investors filed a class action in the Northern District of Georgia, Lechter v. Aprio, LLP, alleging that promoters knowingly violated tax laws and invoking the Racketeer Influenced and Corrupt Organizations Act. The plaintiffs sought damages for back-taxes, penalties, and professional fees after the IRS disallowed their deductions. The 12-count complaint named the accounting firm Aprio, Nancy Zak, and others. The case has survived early motions to dismiss on some claims, though at least one defendant, Baker Donelson, was dismissed.²⁰²¹

The 2026 Settlement Window

On May 13, 2026, the IRS announced its broadest settlement initiative to date, covering the full universe of pending cases. Partnerships that accept within 90 days of receiving their individualized letter give up the charitable contribution deduction entirely but may claim a smaller “other deduction” approximating actual out-of-pocket costs. The 40% gross valuation misstatement penalty drops to 10%, and no upfront payment is required at acceptance. Partnerships that miss the initial 90 days get an additional 45 days on the same substantive terms, but the penalty doubles to 20%. After the full 135-day period, cases return to resolution based on litigation risk, where the typical outcome is a deduction of 5% to 7% of the amount claimed and a 40% penalty.¹

The offer covers nearly 450 cases eligible for the no-upfront-payment structure, roughly 500 cases where earlier offers were rejected or expired, and up to 175 cases that never previously received a settlement opportunity. Deadlines are strictly enforced with no extensions. Cases that have already been tried, are on appeal, have already settled, or were set for trial within 30 days of the announcement are excluded.¹

Reaction from practitioners has been mixed. The elimination of the upfront payment removes a practical barrier that had prevented some partnerships from settling earlier, since collecting settlement money from individual investors at the fund level was often difficult. Some practitioners nonetheless characterized the 2026 terms as worse for most taxpayers than earlier non-docketed offers.²² Prior initiatives since 2020 resolved 405 cases, with about 32% of offers accepted.¹

The Backlog and the Wait

Docketed conservation easement cases surpassed 1,000 in late 2024 according to Chief Judge Kathleen Kerrigan, and the figure has grown to roughly 1,100 when cases still under IRS examination are included.²³ The Tax Court normally manages about 18,000 total cases with 19 judges. On average, an IRS audit of these deals takes four and a half years, and the Tax Court process adds another four to six, so a taxpayer who donated an easement can wait roughly a decade for a final answer.⁸

Some partnerships are still filing new suits despite the trial record, betting that IRS resource constraints and anticipated staffing reductions will weaken the agency’s ability to litigate every case. A June 2025 report noted a $215 million increase in new conservation easement filings in Tax Court over a single month.²⁴ Whether that gamble works, or simply lengthens a backlog that already takes a decade to clear, is the open question for the more than 1,100 partnerships still waiting.

1
IRS. IRS Announces Terms of Time-Limited Settlement Opportunity for Conservation Easement Disputes
2
Senate Finance Committee. Finance Committee Releases Report on Syndicated Conservation Easement Transactions
3
Federal Register. Syndicated Conservation Easement Transactions as Listed Transactions
4
Greenberg Traurig. IRS Issues Final Regulations for Syndicated Conservation Easement Transactions
5
Current Federal Tax Developments. Ranch Springs LLC v. Commissioner
6
The Tax Adviser. Current Developments in Taxation of Individuals
7
Current Federal Tax Developments. Tax Court Again Not Impressed With a Syndicated Conservation Easement Transaction
8
National Taxpayers Union Foundation. Litigation by Default: How the IRS Turned Conservation Easements Into a Court Crisis
9
Current Federal Tax Developments. Analysis of North Donald LA Property LLC v. Commissioner
10
FindLaw. Brooks v. Commissioner, Fourth Circuit
11
Eleventh Circuit Court of Appeals. Jackson Crossroads LLC v. Commissioner
12
Wolters Kluwer. Validity of Conservation Easement Regulations
13
Steptoe. Sixth Circuit Upholds Conservation Easement Regulation
14
Eleventh Circuit Court of Appeals. Glade Creek Partners LLC v. Commissioner
15
Bloomberg Tax. Basis Caps Conservation Easement Deduction, Appeals Court Rules
16
U.S. Department of Justice. Justice Department Sues to Shut Down Promoters of Conservation Easement Tax Scheme
17
U.S. Department of Justice. Final Judgment and Permanent Consent Injunction, United States v. Zak et al.
18
U.S. Department of Justice. Two Tax Shelter Promoters Sentenced to 25 Years and 23 Years in Billion Dollar Syndicated Conservation Easement Case
19
ProPublica. Syndicated Conservation Easement IRS Tax Scam
20
Bloomberg Tax. Syndicated Easement Scrutiny Forges New Front With RICO Lawsuit
21
Tax Notes. Some Claims Dismissed in Syndicated Conservation Easement Suit
22
RSM. IRS Announces New Settlement Opportunity for Syndicated Conservation Easements
23
Bloomberg Tax. Easement Bottleneck Confuses Path to Settlement or Litigation
24
Bloomberg Tax. A Changed IRS May Finally End Conservation Easement Legal Mess