Land conservation tax break draws scrutiny as Congress weighs expansion

Congress is weighing new support for land preservation while the IRS continues to scrutinize a tax break tied to conservation easements, CNBC reported. The debate matters for landowners because the same tool used in abusive tax shelters can still offer legitimate benefits for families trying to keep farms, ranches and forests undeveloped.

House and Senate farm bill proposals would create a program to fund landowners who agree to keep forests intact rather than sell or develop them, according to CNBC. The proposals come as more than a dozen states already offer tax credits for land donations, with New York, Colorado and Georgia among states that have expanded conservation easement programs in recent years, CNBC reported.

A conservation easement lets an owner keep title to land while giving up some development rights, according to CNBC’s description of the tax structure. The restrictions are usually permanent and can protect farmland, wildlife habitat or open space; the owner may donate those rights or sell them below market value to a land trust, government agency or another eligible organization.

In exchange, the landowner may qualify for a charitable deduction, CNBC reported. In many cases, owners can keep living on the property or use it for recreation, including hunting and fishing, as long as those uses comply with the easement’s limits.

Florida lawyer Keith Fountain told CNBC that some ranching clients sell easements to keep land in the family, pay debt or buy out relatives who do not want to remain in ranching. When those clients sell easements at a discount, CNBC reported, they can receive cash and claim a charitable deduction for the gap between the sale price and fair market value.

The IRS crackdown has centered on syndicated conservation easement deals, CNBC reported. In those transactions, promoters sell interests in land to investors and then donate an easement, using what the IRS says are inflated valuations to produce deductions larger than the investors’ cost.

In one case filed last week, the U.S. Tax Court reduced an Alabama partnership’s claimed $41.6 million deduction to $800,000, CNBC reported. The court sided with the IRS in finding that the deduction relied on a speculative valuation tied to possible limestone quarry development.

Congress placed limits on conservation easement values in 2022 to curb syndicated deals, according to CNBC. The IRS is still working through about 1,100 cases and in May offered settlement terms for some taxpayers involved in conservation easement disputes, CNBC reported.

Lawyers told CNBC that individual landowners can still face audit risk when donating an easement. Fountain said his clients often prefer discounted sales over outright donations, even though donations can produce larger tax benefits, because donations may draw more IRS attention.

Carolyn Schenck, a former IRS national fraud counsel who joined Caplin & Drysdale in 2025, told CNBC that abuse by some taxpayers does not eliminate the policy value of properly supported conservation easements. Diana Norris of the Land Trust Alliance told CNBC that recent Tax Court fights have focused more on valuation than on technical errors in deeds or donation paperwork.

Steve Small, a lawyer who helped write the conservation easement tax rules while at the IRS in the early 1980s, told CNBC the structure is not especially risky when handled by counsel familiar with the case law. Small said deductions for recently purchased property should be tied to the purchase price rather than a multiple of it, and he advised donors to document the land with photographs when filing forms.

This story draws on original reporting from CNBC.