Conservation easements

Tax Shelters Disguised as Conservation: Promoters Peddled Abusive Tax Schemes with Inflated Promises and Costly Consequences

Syndicated conservation easement (SCE) transactions have increasingly been used to generate inflated tax deductions that undermine the conservation incentives Congress intended to promote. The IRS, supported by bipartisan findings from Congress and consistent Tax Court decisions, has identified widespread abuse involving overstated valuations, failure to meet statutory requirements, and promoter-driven schemes designed to sell tax benefits rather than preserve property. Courts have repeatedly disallowed these deductions, often allowing only a small fraction of the claimed amounts, and have upheld substantial penalties, while appellate courts have affirmed those outcomes. The IRS is continuing coordinated enforcement, including actions against promoters and advisors, and will be offering a time-limited opportunity for taxpayers to resolve these matters before facing continued litigation, penalties, and potential sanctions.

Why is the IRS focusing on conservation easements?

In recognition of our need to preserve our heritage, Congress allowed an income tax deduction for owners of property who give up certain rights of ownership to preserve their land or buildings for future generations. Properly used, conservation easements can provide an important public benefit by helping protect environmentally or historically significant property for the benefit of communities and future generations.

The IRS has seen abuse of this tax provision that compromises Congress’ intended policy. The IRS has seen taxpayers, often encouraged by promoters and armed with inflated appraisals, take inappropriately large charitable contribution deductions. In some cases, taxpayers claim deductions when they are not entitled to any deduction at all (for example, when taxpayers fail to comply with the law and regulations governing deductions for contributions of conservation easements). 

A legitimate conservation easement often reflects long-standing ownership, an accurate and property-specific valuation, and compliance with the rules governing qualified conservation contributions. For investors, the warning signs of an abusive tax scheme are different: highly artificial features such as promoter-driven structuring, inflated valuations, and promised deductions that far outstrip the economics of the investment. Those are the kinds of indicators that should cause investors to pause and ask whether they are being sold a tax product, rather than participating in a genuine conservation easement transaction.

Why is the IRS also focusing on historic conservation easements?

Syndicated historic preservation easements often present the same issues seen in syndicated conservation easement transactions, especially overvaluation.

In addition, in many cases, the property is already subject to local preservation laws or zoning restrictions, meaning the taxpayer may be giving up little or nothing. A taxpayer cannot donate rights they do not have, and deductions based on such restrictions may be disallowed.

Recent Tax Court decisions reinforce these concerns:

• In Capitol Places II, the court disallowed a $23.9 million deduction for failure to establish a valid conservation purpose because the building was not a certified historic structure.
• In Corning Place Ohio, the court rejected a $22.6 million deduction based on speculative “air rights,” describing the valuation as implausible, limiting the deduction to $900,000, and upholding a 40% penalty.

Corning Place Ohio demonstrates how historic easement transactions rely on unrealistic development assumptions to support inflated valuations.

Accordingly, the IRS is continuing to examine and litigate these cases, with a focus on consistent treatment of substantially similar abusive transactions.

What has Congress said about these transactions?

In August 2020, the Senate Finance Committee issued a bipartisan report PDF  describing syndicated conservation easements as “nothing more than retail tax shelters that let taxpayers buy tax deductions.” They went on to say that land valuations appear so inflated they cannot reasonably be characterized as anything other than abusive tax shelters. The report analogized transactions to a “Dollar Machine,” explaining that promoters of SCE transactions promised their taxpayer-investors that they would receive two dollars back from the Federal government for every dollar paid to promoters.

What has the Tax Court said about these transactions?

The Tax Court has consistently disallowed the claimed charitable contribution deductions, in whole or in part, and imposed substantial penalties.

On the central issue of valuation, the IRS has repeatedly prevailed. On average:

• The Court has allowed approximately 6% of the claimed deduction; and
• Imposed a 40% gross valuation misstatement penalty.

Taxpayers should not expect materially different results in ongoing litigation.

The Court has also used unusually strong language to describe these transactions and valuations, including:

• “Ludicrous” and “laughable”¹
• “Exorbitantly high” and “baseless”²
• “Wholly implausible”³
• “Firmly planted somewhere in the realm of fantasy”⁴
• “Outrageous” and “wholly untethered from reality”⁵

Will abusive partnerships fare any better in the Courts of Appeals than in the Tax Court?

Recent appellate decisions indicate that partnerships should not expect more favorable outcomes on appeal.

For example, in a March 2026 opinion, the Eleventh Circuit affirmed in full a Tax Court ruling sustaining both substantial reductions to the claimed deduction and gross valuation misstatement penalties in a conservation easement case involving more than $36.9 million in claimed deductions.

The court emphasized that:

• Valuation disputes in these cases are largely factual, reviewed only for clear error; and
• Where the Tax Court credits the IRS’s expert evidence over the taxpayers’, appellate courts will not reweigh that evidence absent a clear mistake.⁶

Are there additional litigation risks?

Yes. The Tax Court has warned that sanctions under section 6673 may apply to taxpayers and attorneys who continue to advance similar valuation positions.

In addition, the IRS will continue to pursue, where appropriate:

• 40% gross valuation misstatement penalty (§ 6662),
• Penalties on promoters of abusive tax shelters (§ 6700),
• Penalties for aiding and abetting understatement of tax liability (§ 6701),
• Penalties for understatement of taxpayer’s liability by tax return preparer (§ 6694),
• Penalties for fraud (§ 6663), and
• Criminal enforcement provisions.

Will the Tax Court begin imposing sanctions on taxpayers’ lawyers in these cases?

The Tax Court has increasingly signaled that sanctions against taxpayers’ counsel may be imposed in syndicated conservation easement cases where meritless arguments are pursued.⁷

These statements reflect a broader concern that repetitive, unsupported arguments in SCE litigation are consuming judicial resources and imposing unnecessary costs.  The Tax Court recently held, “both the unrelated fact witnesses and the tax system in general were harmed by this trial.  The witnesses were inconvenienced.  They were not involved in the transactions in any way. They missed days of work and had to travel into Atlanta for trial so that petitioner could pursue an argument deemed by the courts to be ‘not credible’ and ‘nonsense.’”⁸

Are the IRS and DOJ pursuing criminal enforcement related to syndicated conservation easements?

Yes, where appropriate. IRS Criminal Investigation, in coordination with the Department of Justice, has pursued criminal cases against promoters and facilitators of abusive syndicated conservation easement transactions.

To date, multiple tax professionals (including accountants and an appraiser) have pleaded guilty to criminal conduct arising from their roles in promoting these transactions.

In a significant recent case, two promoters, Jack Fisher and James Sinnott, were convicted by a federal jury in 2023 of conspiracy to defraud the United States and other offenses related to a large-scale SCE scheme. They were sentenced in 2024 to 25 years and 23 years in prison, respectively, and ordered to pay hundreds of millions of dollars in restitution. Their scheme involved the sale of more than $1.3 billion in fraudulent tax deductions, supported by inflated appraisals, backdated documents, and false tax filings. These convictions are currently on appeal.

The evidence showed that the promoters marketed deductions to investors, often promising returns multiple times their investment, while using valuations that far exceeded the actual purchase price of the underlying property.

Additional facilitators of the scheme, including CPAs, also pleaded guilty and face sentencing.

What settlement options are available?

The IRS will soon be releasing a time-limited settlement opportunity for partnerships to resolve the federal tax consequences of these transactions with certainty.

How have promoters of syndicated conservation easements used lobbying and misinformation to influence public perception?

The bipartisan Senate Finance Committee report noted coordinated lobbying efforts and misleading narratives by promoters to protect their business model and shape public perception.

The report noted that following IRS Notice 2017-10 designating these transactions as listed transactions, promoters organized a concerted campaign advocating for reduced IRS scrutiny. Their efforts focused on urging Congress to pressure the IRS to withdraw the notice or restrict enforcement funding.

Promoters frequently characterized these arrangements as legitimate investment opportunities or conservation-driven transactions, emphasizing potential land development or stewardship outcomes. However, internal communications tell a different story: investors are usually motivated by purchasing tax deductions, not by economic returns or conservation goals.⁹

This divergence reflects a broader pattern of misinformation. Promoters used technical complexity, selective legal arguments (e.g., reliance on “highest and best use”), and marketing narratives to obscure the true nature of the transactions and defend them publicly as compliant and beneficial.

Are investors suing promoters of these transactions?

The IRS is aware of litigation in which investors have brought claims against promoters of syndicated conservation easement transactions.

For example, in a recent complaint filed in Georgia, investors alleged that they were sold a “fraudulent and defective tax-savings strategy” involving real estate donations with values that were “artificially and improperly inflated.” The complaint further alleges that the easements were valued at multiples of the underlying cost basis, in some cases as high as 600 times.

Taxpayers may want to carefully evaluate these developments, including ongoing litigation trends, when assessing their positions.

What should taxpayers do next?

Taxpayers who participated in these arrangements should carefully review:

• The terms of any pending settlement offer;
• The terms of the IRS’ new settlement opportunity when it is released; and,
• All relevant Tax Court opinions addressing SCE transactions.

Further, taxpayers should contact reputable, independent tax professionals to evaluate any settlement terms they are offered. The IRS believes that settling these cases is the most efficient way to achieve finality and resolve these matters.

¹JL Minerals v. Comm’r, T.C. Memo. 2024-93.

²Savannah Shoals v. Comm’r, T.C. Memo. 2024-35.

³Excelsior Aggregates v. Comm’r, T.C. Memo. 2024-60.

⁴Buckelew Farm v. Comm’r, T.C. Memo. 2024-52.

⁵Ranch Springs, LLC v. Comm’r, 164 T.C. No. 6, at * 3 (Mar. 31, 2025).

⁶Jackson Crossroads, LLC v. Comm’r, No. 25-10744, 2026 WL 822261 (11th Cir. Mar. 25, 2026).

⁷In Paul-Adams Quarry Trust, LLC v. Commissioner, Docket No. 10145-21, Entry No. 171, Order Jan. 9, 2026, the court cautioned that advancing certain arguments brought the parties “mighty close” to sanctions and noted that sanctions may be imposed on counsel under section 6673(a)(2) for pursuing meritless positions. In Veribest Vesta, LLC v. Commissioner, Docket No. 9158-23, Entry No. 199, Transcript of July 11, 2025 (Bench Op.), the court criticized the litigation as wasting judicial and public resources, noting that the case imposed unnecessary burdens on witnesses and taxpayers to pursue arguments already deemed “not credible” and “nonsense.” In Cottonpatch Timber Company, LLC v. Commissioner, Docket No. 26103-22, Entry No. 54, Order Oct. 29, 2025, the court warned that continuing to press “incredible” and “nonsensical” arguments in similar cases could result in sanctions against both the taxpayer and its counsel.

⁸Veribest Vesta, LLC v. Commissioner, Docket No. 9158-23, Entry No. 199, Transcript of July 11, 2025 (Bench Op. at *62).

⁹In Hancock County Land Acquisitions, LLC, the Tax Court even noted that investors were, in substance, purchasing tax deductions. T.C. Memo. 2026-28.