Fee Simple Land Donations Are Facing New IRS Scrutiny – Here’s What Every Advisor and Taxpayer Should Know

Land Donations To Charity 

If a client has ever told you they’re “just donating the land outright” to a charity or land trust — no easement, no strings attached — you may have breathed a sigh of relief. Fee simple donations have long been viewed as a straightforward conservative donation vehicle, largely because they sidestep the ‘partial interest’ rules that open the door to IRS challenges of easement deductions.

That relief may be premature. The IRS has spent the last several years building an enforcement infrastructure around land-based charitable deductions, and in August 2026 it took the most significant structural step yet: creating a dedicated Office of Conservation Easements. For lawyers who aren’t tax specialists but advise clients on estate planning, real estate, or business transactions involving large land donations, understanding what’s changed — and why fee simple gifts aren’t necessarily safe harbors — matters more than ever.

A Quick Primer: Fee Simple vs. Partial Interest Donations

Under IRC Section 170, a charitable deduction for a gift of property generally requires that the donor give away their entire interest in that property. A fee simple donation does exactly that — the donor transfers full, unrestricted ownership to the charity, with nothing retained.

A conservation easement, by contrast, is a partial interest — the donor keeps title but permanently restricts how the land can be used. Because Congress worried that donors would claim inflated deductions for restrictions that cost them little, Section 170(f)(3) generally disallows deductions for partial-interest gifts unless they qualify for a narrow statutory exception for “qualified conservation contributions.” That exception comes loaded with technical requirements: perpetuity, extinguishment-proceeds formulas, mortgage subordination, and more — many of which have sunk otherwise well-intentioned donations on pure technicalities. Moreover, Section 170(h)(7), enacted as part of the SECURE 2.0 Act in 2022, generally disallows a charitable deduction for a passthrough entity for a conservation easement if the amount of the contribution exceeds 2.5 times the partner or shareholder’s basis.

Fee simple donations avoid all of that. There’s no partial-interest problem to solve, no perpetuity clause to draft around, no mortgage subordination trap, no 2.5 times basis limit. That’s precisely why some land donors — and some promoters — have leaned on fee simple structures, sometimes pairing a fee simple gift with an easement on adjoining parcels, as in the well-known Excelsior Aggregates dispute, where the Tax Court had to sort out how to value a combined easement-plus-fee-simple donation without exceeding the property’s overall fair market value. See Excelsior Aggregates, LLC v. Commissioner, T.C. Memo. 2024-60.

Where the IRS Pushes Back on Fee Simple Gifts

Skipping the partial-interest gauntlet doesn’t mean skipping IRS scrutiny. The challenges tend to cluster in a few recurring themes:

• Valuation overstatement.

This is, by far, the dominant issue. Non-cash charitable deductions are based on the fair-market value of the donated property. Valuation disputes happen with fee simple donations too. The IRS routinely compares a donor’s recent purchase price to the appraised donation value and asks how the property could have appreciated so dramatically in such a short window. The IRS also heavily scrutinizes the donors’ appraisals. Courts have sided with the IRS in some cases involving aggressive application of highest-and-best-use theories, finding them unsupported by realistic development timelines, comparable sales, or absorption rates.

Recent Tax Court decisions have slashed claimed values by 90% or more, and even reduced multimillion-dollar claims to a small fraction of the amount reported on the return. The Courts of Appeals have also recently upheld some of these Tax Court decisions. See, e.g., Savannah Shoals, LLC v. Commissioner, 182 F.4th 1314 (11th Cir. 2026) (affirming Tax Court decision cutting easement value from $23 million to $480,000).

• Qualified appraisal and appraiser defects. 

Deductions over $5,000 require a “qualified appraisal” by a “qualified appraiser,” with specific content and timing requirements under the regulations and Form 8283. Missing signatures, appraiser conflicts of interest, appraisals prepared too far in advance of the donation, or appraisers who lack the required credentials or experience in the relevant property type are common bases for full disallowance — independent of whether the value itself was reasonable.

• Basis and character limitations under Section 170(e). 

If the donated land is inventory, held primarily for sale, or otherwise produces ordinary income on a hypothetical sale, the deduction may be capped at basis rather than fair market value. This issue is easy to miss for non-tax advisors, especially with developers, dealers, or entities that acquired land for resale. This issue is highly fact specific.

• Donee organization and donative intent issues. 

Was the recipient a qualified 501(c)(3) or governmental unit? 

Was there a quid pro quo — development rights, zoning benefits, or other consideration flowing back to the donor — that undermines the “gift” characterization?

• Promoter and listed-transaction exposure. 

Since Notice 2017-10 branded certain syndicated conservation easement transactions as listed transactions requiring special disclosure, the IRS has extended a similarly critical eye to leveraged, promoter-driven land donation structures generally — fee simple arrangements included, particularly when paired with above-market valuations and rapid partnership flips.

• Penalties. 

A 20% accuracy-related penalty applies where the claimed value is 150% or more of the correct value; that penalty rises to 40% — with essentially no reasonable-cause defense available — where the claimed value is 200% or more of the correct value. Given how often courts have found overvaluations well above that 200% threshold, the 40% gross valuation misstatement penalty has become the default outcome in litigated cases, not the exception.

Enter the Office of Conservation Easements

On August 19, 2026, the IRS announced (in IR-2026-95) the creation of a new Office of Conservation Easements, explicitly designed to centralize the agency’s technical, valuation, contractual, and procedural expertise on easement and historic preservation matters, and to coordinate strategy across Examination, Appeals, Counsel, and — where warranted — the Department of Justice. In the same announcement, the IRS ended its short-lived “uniform settlement initiative,” which had offered standardized, rolling settlement letters to the roughly 1,100 conservation easement cases then pending between Tax Court and Examination. The IRS said that one-size-fits-all offers didn’t account for how differently these cases are structured — different partnership agreements, insurance arrangements, and procedural postures — and that future resolutions will be evaluated case by case rather than through a fixed-deadline form letter.

What This Likely Means Going Forward

A few practical implications are worth flagging for advisors and taxpayers alike:

1. Enforcement.  The Office’s stated mission includes “strengthening valuation integrity,” language that signals continued, not relaxed, enforcement.
2. Fee simple donations are unlikely to escape the net. Although the new office is framed around “conservation easements,” its coordination role over valuation and promoter issues will almost certainly touch fee simple transactions that arise in the same partnerships, involve the same appraisers, or use the same promotional structures that have drawn scrutiny in the easement context.
3. Settlement leverage has shifted. With uniform settlement letters gone, taxpayers with pending cases can no longer count on a predictable, agency-wide offer. Case-specific negotiation — informed by the hazards of litigation in each taxpayer’s specific facts — is now the operative framework, which requires an experienced tax controversy counsel. 

The Bottom Line for Practitioners and Taxpayers 

The IRS has made clear, through both its litigation record and its new organizational structure, that large non-cash land donations are a durable enforcement priority. 

Moving to a case by case analysis for settlement purposes is going to require tax controversy advocacy from the first touch by the IRS.