Conservation Easements, Done Quietly

A conservation easement is one of the older tools in the American land-preservation toolkit and one of the more misunderstood corners of the federal charitable-deduction rules. The bona fide version — a ranching family, a working farm, or a landowner with genuine conservation motive placing a perpetual restriction on their own land in favor of a qualified land trust — remains a defensible, well-worn structure. The syndicated version — a promoter, a pooled investor group, an outsized appraisal, and a marketed deduction ratio — has, since IRS Notice 2017-10 and the transactions that followed it, become one of the more heavily audited arrangements in the tax code.

The two structures share a statute. They do not share an audit posture. Understanding which one you are actually inside — or being asked to enter — is the single most important step before signing.

What a conservation easement actually is

Under Internal Revenue Code Section 170(h), a landowner may claim a federal charitable-contribution deduction for the donation of a qualified conservation contribution: a perpetual restriction on the use of real property, granted to a qualified organization (typically a governmental unit or a Section 501(c)(3) land trust), for one of four qualifying conservation purposes — preservation of land for outdoor recreation or education, protection of a natural habitat, preservation of open space (including farmland or ranchland) for the scenic enjoyment of the public or under a governmental policy, or preservation of a historically important land area or a certified historic structure.

The Texas Natural Resources Code (Chapter 183, the Texas Conservation Easement Act) provides the state-law framework within which the restriction is granted, enforced, and — in limited circumstances — amended. The federal deduction is claimed under the Internal Revenue Code and its implementing regulations at Treasury Regulation § 1.170A-14. Both frameworks must be satisfied. Neither is optional.

The taxpayer does not sell the land. The taxpayer continues to own it, continues to work it, continues to pay property tax on it (at a potentially different valuation), and — subject to the restriction — continues to pass it to the next generation. What the taxpayer gives up is a defined subset of the future development potential of the land: the right to subdivide, the right to build beyond defined intensity, the right to convert from agricultural to commercial use, or whatever specific restriction the deed identifies.

What survives audit

The audits we have seen resolve in the taxpayer's favor tend to share the following characteristics. None of them is optional; missing any one is a significant risk factor.

A qualified appraisal by a qualified appraiser. Not a friendly appraisal. Not a promoter-selected appraisal. An appraisal prepared in conformity with the Uniform Standards of Professional Appraisal Practice by an appraiser with demonstrable experience valuing conservation easements in the same class of land — rural, agricultural, ranch, coastal, historic, urban. The appraisal must comply with the very specific requirements of Treasury Regulation § 1.170A-13, and the appraiser must sign a Form 8283 that accompanies the return.

A qualified organization as the easement holder. A land trust with a genuine, funded, ongoing monitoring program. Not a newly formed shell. Not an organization whose only easement is the one being donated. The IRS will look at the holder's capacity to enforce the restriction in perpetuity; a holder that plainly lacks that capacity is a red flag on its face.

A properly recorded and enforceable deed of easement. The restriction has to be perpetual — that is the statute — which means the deed has to be drafted to survive changes in ownership, changes in land use, and challenges to the restriction. It must permit reasonable inspection by the holder. It must specify what uses are permitted and what uses are forbidden. It must comply with the state-law requirements of the Texas Conservation Easement Act.

Mineral-rights subordination — where relevant. Texas is a state where surface and mineral estates are often severed. Under Treasury Regulation § 1.170A-14(g)(4), if the property is subject to a mortgage, mineral lease, or other encumbrance that could defeat the conservation purpose, that encumbrance must be subordinated to the easement — or the deduction is at risk. Failing to secure a subordination from a mineral leaseholder is one of the more common technical defects we see.

A defensible baseline documentation report. The land trust must prepare, at the time of the donation, a written record of the conditions of the property — photographs, maps, aerial imagery, ecological description, existing improvements. This is the record against which future compliance is measured. A cursory or missing baseline is an evidentiary hole the IRS will use.

Genuine donor motive. The IRS is entitled to look at whether the transaction was undertaken with an actual charitable purpose, and the courts have deferred to that inquiry. A landowner who genuinely wanted to preserve their ranch, considered the tax benefit as a consequence rather than a primary purpose, and can articulate that motive contemporaneously is on far stronger ground than a landowner whose file consists of appraisal-driven deduction calculations.

What does not survive audit

The syndicated conservation easement — the SCE — is a materially different animal. In its typical form, a promoter forms a partnership, admits outside investors, uses the pooled capital to acquire land, arranges a conservation easement on the acquired land shortly after acquisition, and allocates a charitable-contribution deduction to the investors that is a multiple (frequently four times, sometimes more) of the capital contributed. The IRS designated syndicated conservation easement transactions with a deduction-to-basis ratio of 2.5:1 or greater as “listed transactions” in IRS Notice 2017-10 — requiring separate disclosure and creating specific penalty exposure for participants, promoters, and material advisors.

The failure modes are consistent across the reported cases: inflated appraisals unsupported by comparable-sales evidence; land recently acquired at a price that materially undercuts the claimed easement value; promoter-designed materials that emphasize deduction ratios rather than conservation purpose; investors with no meaningful connection to the land or to any conservation purpose; and structural features (short investor timelines, fee arrangements, exit mechanics) that reveal the transaction to be, at its core, a tax-deduction sale rather than a charitable donation.

In Section 605 of the SECURE 2.0 Act of 2022 (Division T of the Consolidated Appropriations Act, 2023, enacted December 29, 2022), Congress added § 170(h)(7) to the Internal Revenue Code, disallowing charitable-contribution deductions for qualified conservation contributions made by a partnership if the amount of the contribution exceeds 2.5 times the sum of each partner's relevant basis — codifying, statutorily, what Notice 2017-10 had targeted administratively. The syndicated market has contracted materially since. The audit and litigation queue has not.

The bona fide conservation easement remains a defensible planning tool. The syndicated version does not. Confusing the two is the single most expensive mistake in the category.

The Texas ranchland use case

The Texas conservation easement most often makes sense for a landowner who intends to keep the ranch in the family for another generation, has legitimate development pressure on the property (or would in the foreseeable future), has meaningful federal income to shelter over the carryforward period, and cares about the land itself — not just the deduction. In that setting, a properly drafted easement with a qualified holder, a qualified appraisal, appropriate subordinations, and a defensible baseline is a well-tested pathway that has withstood decades of IRS scrutiny.

It is also a permanent choice. The restriction is perpetual. Amendments are permitted only in narrow circumstances defined in the deed and consistent with Treasury regulations, and any amendment must not diminish the conservation purpose. Families that want optionality about future land use should think hard before choosing this structure; the point of the structure is precisely that optionality is being given up.

How Lone Star ★ Counsel helps

We advise Texas ranch and working-farm families on the planning, drafting, and documentation of bona fide conservation easements — including holder selection and diligence, deed drafting to satisfy both the Texas Conservation Easement Act and the federal Section 170(h) requirements, appraisal engagement and review, mineral-rights and mortgage subordination coordination, baseline documentation, and Form 8283 reporting. We also review proposed syndicated conservation easement participation — typically at the request of a family CPA — and, in the great majority of those reviews, recommend against participation. Nearly 30 years of Texas business, estate, and tax counsel.

Ready to consider a conservation easement, or asked to evaluate one? Call (888) 517-4575 or visit LoneStarCounsel.com to request a confidential planning conference. Please do not send Social Security numbers, financial account numbers, tax returns, or copies of sensitive documents through the general website form.

LONE STAR ★ COUNSEL is a dba of Pratt Law Group, PLLC. This article provides general information about federal tax law and the Texas Conservation Easement Act and is not legal or tax advice for a particular transaction. Every conservation easement depends on the specific parcel, the specific conservation purpose, the qualifications of the appraiser and the holder, the state of any mortgage or mineral interests, and the applicable Internal Revenue Code and Treasury Regulation provisions in effect at the time of the donation.

Preserve the land. Defend the deduction. — Planning Today. Protecting Tomorrow.® — Lone Star ★ Counsel  |  (972) 712-1515