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 subject to AGI limits.

The applicable statutes and authorities

• 26 U.S.C. §170(h) (qualified conservation contribution).
• 26 U.S.C. §170(h)(7) (2.5x basis limitation on partnership-syndicated easements, added in 2022).
• Treas. Reg. §1.170A-14.
• 26 U.S.C. §2031(c) (estate-tax exclusion for qualifying conservation easement).
• Notice 2017-10 (syndicated conservation easement transactions designated as listed transactions).
• 26 U.S.C. §6662(h) (gross-valuation misstatement penalty).
• Many recent Tax Court decisions, including Hewitt v. Commissioner, 21 F.4th 1336 (11th Cir. 2021), on 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 2017. Notice 2017-10 designated certain syndicated transactions as listed; Charitable Conservation Easement Program enforcement has produced criminal indictments of promoters and substantial Tax Court litigation.

The §170(h)(7) limitation enacted in the Inflation Reduction Act of 2022 (Section 605) caps deduction on syndicated easements at 2.5x the contributing partner's allocable basis — effectively ending the typical syndicated-easement economics. Non-syndicated traditional conservation easements remain a workable structure.

The Tax Court has applied strict regulatory compliance requirements:

• Perpetuity requirement — extinguishment-proceeds clauses are heavily scrutinized; Hewitt ruled invalid certain Treas. Reg. proceeds-allocation requirements that had been the basis for many easement disallowances.
• 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 property subject to qualifying conservation easement, up to defined limits.
• 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 (2022) and the Notice 2017-10 listed-transaction designation have effectively ended syndicated easement promotions. Pending Tax Court litigation continues to address legacy syndicated transactions; the IRS's Charitable Conservation Easement Program enforcement campaign continues to produce indictments and adjustments.

The Hewitt and related decisions invalidating certain Treasury Regulations on procedural-rulemaking grounds have produced uncertainty over the validity of disallowance positions taken against many legitimate easement structures. The Service has issued post-Hewitt guidance updating its position.

Reviewed May 2026