Conservation Easement Fraud Enforcement is a Growing Concern for High-Income Taxpayers in New Jersey

The Internal Revenue Service is ramping up investigations into high-income taxpayers’ conservation easement deductions. It has also recently launched a “time-limited” settlement program for taxpayers accused of claiming fraudulent deductions. For high-income taxpayers targeted in these initiatives, working closely with an experienced New Jersey tax attorney will be critical for making smart and strategic decisions.

Due to widespread fraud, conservation easement deductions have come under the microscope in recent years. The Internal Revenue Service (IRS) is aggressively targeting high-income taxpayers suspected of fraud with both civil and criminal penalties. Learn more from New Jersey tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group:

Allegations of Conservation Easement Fraud Pose Substantial Risks for High-Income Taxpayers

Conservation easement deductions offer significant federal tax savings opportunities for high-income taxpayers. Under Section 170(h) of the Internal Revenue Code, “qualified conservation contributions” can be used to offset individuals’ and entities’ taxable income—potentially resulting in hundreds of thousands or even millions of dollars in tax savings.

Due to the potential for significant tax savings, the conservation easement deduction has also proven to be ripe for abuse. The IRS currently has more than 1,100 active cases involving allegations of conservation easement fraud, and it has had significant success pursuing these cases in court. According to the IRS:

• On average, courts allow just six percent of disputed conservation easement deductions; and,
• Courts routinely impose the maximum 40-percent gross valuation misstatement penalty in these cases.

High-income taxpayers accused of intentionally submitting fraudulent conservation easement claims can also face criminal prosecution in some cases. When prosecuted criminally, taxpayers can face not only liability for back taxes, interest, and administrative penalties but also substantial fines and prison time.

Targeted High-Income Taxpayers May Receive Settlement Letters from the IRS

On May 13, 2026, the IRS announced that it has begun issuing settlement letters to partnerships and other high-income taxpayers suspected of claiming fraudulent conservation easement deductions. It issues settlement letters on a rolling basis, and once a taxpayer receives a settlement letter, the taxpayer has 90 days to accept the IRS’ offer before facing additional consequences.

However, taxpayers that receive these letters need to make informed and strategic decisions about how to respond. Accepting the IRS’ offer will not necessarily be the best approach in all cases. If taxpayers have grounds to dispute the IRS’ allegations of conservation easement fraud, settling could mean agreeing to unwarranted liability.

Likewise, taxpayers that have concerns about their conservation easement deductions but that have not yet received a settlement letter from the IRS need to make informed decisions in this scenario as well. If corrective action is warranted, taking it before the IRS opens an investigation could be critical to avoiding unnecessary consequences.

Schedule a Call with New Jersey Tax Attorney Kevin E. Thorn

If you are facing scrutiny (or have concerns about facing scrutiny) related to a federal conservation easement deduction, we encourage you to contact us promptly. Call 201-842-7696 or contact us online to schedule a call with New Jersey tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group.