Reduce Penalties, Avoid Litigation, & Get Relief in SCE Cases
Qualifying investors dealing with Syndicated Conservation Easement (SCE) cases have a new opportunity to settle – but only for a limited time. In May 2026, the IRS announced a new SCE settlement initiative. The offer reduces penalties and provides a deduction for out-of-pocket costs, but deadlines are strict with no extensions available.
To take advantage of the settlement, you must act promptly, and we can help you. The tax attorneys at Wiggam Law have extensive experience representing Georgia taxpayers in SCE disputes. Contact our conservation easements attorneys to talk about the settlement offer and whether it’s the right option for your case.
Key takeaways
- IRS 2026 settlement for SCE investors – deduction based on cash contributed, penalty reduced to 10%.
- Who’s eligible? Investors in over 1000 SCE cases, including many taxpayers who missed the deadlines or rejected offers for previous settlements.
- Deadline – 90 days after the IRS notice about the settlement (135-day deadline available with a 20% penalty).
- Alternatives – Continue to pursue the case in Tax Court, which carries a significant risk of deduction disallowance and higher penalties.
- Next steps – Consult with a tax attorney who’s experienced in negotiating and litigating in SCE audits and cases.
2026 SCE Settlements Now Available – Subject to Deadlines
The May 2026 SCE settlement allows most investors to claim a deduction based on what they contributed to the SCE, a reduced penalty of only 10%, and interest as allowed by law. To qualify, you don’t have to pay the tax in advance, which was a stumbling block in previous settlement offers.
Investors who take advantage of this IRS settlement can avoid litigation costs, get a final number on what they owe, and move forward without worrying about additional penalties or risk of civil fraud exposure.
Deadline for the SCE Settlement – Announced May 2026
The deadline for the 2026 SCE settlement is 90 days after the postmark or electronic transmission date of the IRS notice about the settlement. You cannot extend the deadline.
The IRS does offer an alternative settlement with slightly higher penalties for an additional 45 days after the deadline– that’s 135 days after the notice’s postmark or transmission date.
What If You Miss the Settlement Deadline?
Once the deadline passes, all docketed cases must go to Tax Court unless they qualify for resolution on the basis of the hazards of litigation. Otherwise, claimants do not have the right to settle. They must go to court.
If your case is still in exam, you are not obligated to go to court, but that’s typically your only recourse if you disagree with the auditor’s claims.
Who’s Eligible?
The settlement is for partnerships, not individuals. According to the IRS’s news release, eligible partnerships include those whose cases are currently docketed in Tax Court or under review, including:
- 500 cases where previous settlements expired or were rejected.
- 450 cases that previously only qualified for a settlement with a prepayment of the tax.
- 175 cases that have not received settlement offers.
The IRS plans to send notices to all eligible partnerships, but if your partnership hasn’t received a notice, you can contact a tax attorney to talk about potential eligibility.
Who’s not eligible?
Unfortunately, not everyone is eligible. According to the IRS, you will not get a settlement offer if any of the following apply to your case:
- It has a trial that is set to commence within 30 days of the announcement, which was made on May 13, 2026.
- Been tried and awaiting an opinion.
- On appeal to the US Circuit Courts of Appeal.
- Has already been settled – including cases settled based on hazards of litigation and conceded cases, including those where no decision has been entered.
- Agreed to be bound to a test case that has been tried and is awaiting an opinion.
- Designated as a test case, unless all bound cases have settled or agreed to settle under this initiative.
Alternatives to Settling SCE Cases
Settling tends to be the most advantageous option in most SCE cases, but it’s not necessarily the right option for everyone. A tax attorney can evaluate your case and help you decide the best course of action based on the unique factors of your case.
Historically, the Tax Court’s rulings have not favored investors. The Court has only ruled to uphold valuations in a very small number of SCE cases – and typically, those cases involved land that had been owned for decades, which is an anomaly in SCE cases involving promoters.
According to the IRS, the Tax Court has only allowed an average of 6% of the original claimed deductions and applied a 40% misvaluation penalty in most cases. Although that’s significantly less than the 75% civil fraud penalty, it’s significantly higher than the 10% penalty offered with the IRS’s new settlement.
Acting IRS Chief Counsel Kenneth J. Kies has said, “Taxpayers and their advisors should carefully review the terms of this initiative and the substantial litigation risks of continuing to contest these cases.”
SCE Settlement Offers Vs. Litigation Results
When deciding if a settlement is right for your situation, compare it to the most common results for these cases, but talk with a specialist to ensure you take into account the nuances of your case.
Here’s a breakdown of the main differences between the IRS’s newest settlement offer at both the 90- and 135-day deadlines and the results of a typical SCE Tax Court Case.
| Tax Court Case | 90-day deadline | 135-day deadline | |
|---|---|---|---|
| Charitable contribution deduction allowed? | 5 to 7% of the original deduction | No | No |
| Other deduction allowed? | No | Equal to investor’s out-of-pocket costs | Equal to investor’s out-of-pocket costs |
| Gross valuation misstatement penalty | 40% | 10% | 20% |
| Interest accrual | As allowed by law | As allowed by law | As allowed by law |
| Prepayment required? | No | No | No |
| Extensions available? | No | No | No |
More Details on the 2026 SCE Settlement for Investors
In exchange for accepting a disallowance of the SCE charitable deduction claimed on their returns, investors may claim a deduction roughly equal to their cash contributions, have their valuation misstatement penalty capped at 10% (20% in some cases), and only face interest as allowed by law.
Here are more details on how that works.
Allowable deduction
The IRS’s newest settlement offer disallows the charitable contribution deduction but allows investors to claim an “other deduction” as determined by the IRS. In most cases, the “other deduction” will be approximately equal to the partner’s out-of-pocket costs, based on cash-contributed amounts reflected on Schedule M-2.
For most investors, this is the amount you put into the SCE. For example, if you invested $100,000 in an SCE and claimed a $400,000 charitable donation based on that investment, the IRS will generally allow the $100,000 deduction. Note, in most cases, it is not dollar-for-dollar to the investment amount due to how the partnerships are structured.
Reduced penalty
Eligible investors will also have their valuation misstatement penalties capped at 10%. The penalty is based on the tax that was underreported as a result of the original deduction claimed on the return.
To explain, imagine that after reducing the deduction, the IRS determines that you underreported your tax liability by $120,000. That makes the 10% penalty $12,000. If you apply within 45 days of the 90-day deadline, you qualify for a 20% penalty ($24,000 on a $120,000 understatement).
Interest
The settlement offer says the IRS will apply interest as allowed by law. Generally, that means interest will be backdated to the tax’s original due date at the applicable rate for any quarter in which the tax was unpaid.
However, in the 2025 case, Kwong v. United States, a court held that the IRS was required to disregard certain deadlines during the COVID-19 pandemic. As a result of this decision, investors may be able to reduce their liabilities even further by working with a tax attorney who understands how to navigate Kwong refunds and interest abatements.
Potential Savings With SCE Settlements in 2026
The exact savings vary depending on how much you contributed, your individual tax rate, whether you’ve paid a deposit or are still accruing interest, and multiple other factors. To help you get a sense of the potential savings, let’s look at an example of how the 2026 settlement offer compares to the typical outcome of an SCE Tax Court case.
Background: For this example, consider an investor who unknowingly invested $100,000 in an abusive SCE partnership and claimed a $400,000 charitable donation deduction. They saved approximately $148,000 in federal income tax, based on a 37% tax rate. For the sake of simplicity, imagine the return’s original due date was five years ago, and the IRS applied 6% interest to the understated tax and penalty, compounded daily.
| Sample Costs: 2026 SCE Settlement Vs. Typical Court Case | |||
|---|---|---|---|
| Tax Court | 90-day deadline | 135-day deadline | |
| Allowed deduction | $24,000 (6% of claimed deduction) | $100,000 (100% of contributed cash) | $100,000 (100% of contributed cash) |
| Disallowed deduction | $376,000 | $300,000 | $300,000 |
| Increase in tax | $139,120 | $111,000 | $111,000 |
| Penalty rate | 40% | 10% | 20% |
| Penalty amount | $55,648 | $11,100 | $22,200 |
| Total tax and penalties | $194,768 | $122,100 | $133,200 |
| Backdated interest (6% for five years) | $68,135 | $42,714 | $46,597 |
| Total due | $262,903 | 164,814 | 179,797 |
| Potential savings vs Tax Court | N/A | $98,089 | $83,106 |
Remember, these are just sample numbers. The potential savings vary widely, and the best protection you can offer yourself is experienced legal representation.
Tax Rates on Liabilities From SCE Settlements
At the time of writing, the IRS has not released a statement on how it will calculate the tax on liabilities determined by the 2026 SCE settlements. Generally, when the IRS disallows SCE deductions, the tax is based on the partner’s individual income tax rate.
However, the settlement the IRS offered SCE investors in 2024 also included a break on the tax rate – for non-docketed cases, the liabilities were taxed at the corporate rate of 21%, significantly lower than the 37% rate applied to most of these deductions.
How the 2026 Settlement Compares to Previous Offers
The IRS offered SCE settlements in 2024, 2020, and 2005, resolving 405 cases with about a third of offers accepted. Comparing the IRS’s 2026 offer to the benefits of previous settlements may be an exercise in futility, as those offers are no longer available.
However, previous offers can provide some insights into whether the IRS may offer a better settlement in the future – the chance of a better offer seems very unlikely. Here’s why:
With limited exceptions, the 2026 SCE settlement has slightly worse terms for investors than previous offers. This implies the IRS is willing to extend an olive branch but not willing to sweeten the deal from previous offers:
- Higher penalty caps – While undocketed cases could get penalties capped at 5% in 2024, the lowest penalty is 10% with the 2026 initiative.
- No reduced tax rate – Undocketed cases could qualify for a 21% tax in 2024, but as of May 2026, the IRS has not made a similar announcement for 2026 settlements.
- Stricter deadlines – The 2024 cases were limited-time offers, but none of the press from that year notes a strict deadline. In contrast, the IRS immediately announced a 90-day deadline for its 2026 SCE offers.
Additionally, the IRS is pursuing SCE litigation extremely aggressively, allowing these cases to fill the Tax Court’s docket at a much faster and higher rate than most other types of cases.
However, one major advantage of the 2026 settlement versus previous SCE settlements is that partnerships don’t need to pay the tax in a lump sum prior to agreeing to the settlement. That requirement blocked many partnerships from taking advantage of the previous offer.
Next Steps – Settle Your SCE Case
If you are eligible for a 2026 SCE settlement, contact Wiggam Law for guidance today. We can help you decide if a settlement is the right option and explore alternatives if not. Our attorneys can also help you navigate SCE audits, litigation, penalty abatement requests, and paying off the settlement.
This is a highly complex part of the tax code involving multiple moving parts and newly emerging case law. The IRS pursues these cases very aggressively, but it also makes mistakes on everything from collection expiration dates to interest calculations. Experienced litigation is critical. Don’t wait – contact us for a consultation today.
FAQs – 2026 SCE Settlement Initiative
When will the IRS send the 2026 SCE settlement letters?
In May 2026, the IRS announced that it would send SCE settlement letters to eligible partnerships on a rolling basis.
How are these cases processed if you take the settlement?
If your case is docketed, it will be resolved by stipulated decision, meaning that the court record will show that both parties reached an agreement. Non-docketed cases will be resolved by a closing agreement or a similar document.
Do SCE investors ever win in Tax Court?
It’s very rare and typically based on IRS procedural errors, such as backdating a document or missing deadlines. The key, however, is to engage experienced representation.
Who pays the penalty – partners or the partnership?
Partners pay the settlement in cases governed by the Tax Equity and Fiscal Responsibility Act (TEFRA), which applies to most cases from tax years 2017 and earlier. Partnerships pay the settlements in cases governed by the Bipartisan Budget Act of 2015 (BBA), unless the partnership elects to push out the adjustments, which applies to most cases from tax years 2018 and onward. In most cases, the partnership will push out the adjustment to the individual partners, and they will then be responsible for repaying the imputed tax, penalties, and interest.
What if the partnership can’t pay the SCE settlement in a BBA case?
If the partnership cannot pay, the IRS will send demands for payment to the individual partners. If the partnership decides to push the liability to the partners, it must send statements to the investors and to the IRS, showing the adjustments.
Does the IRS still allow SCE deductions?
SCE deductions are still allowed, but the SECURE 2.0 Act of 2022 disallowed conservation contribution deductions by partnerships or S corporations if the contribution claimed was more than 2.5 times the sum of each partner’s or shareholder’s basis. Before making an investment in an SCE, check the regulations closely and look for the red flags of abuse.
Sources:
https://www.irs.gov/charities-non-profits/conservation-easements
https://www.irs.gov/pub/foia/ig/appeals/ap-08-0924-0018-public.pdf
