Colorado farmer Marc Arnusch rejected solar leases on 2,700 acres; Instead, he chose a conservation easement to protect the family farm and then faced an IRS audit.

Colorado farmer Marc Arnusch had a simple choice: accept millions of dollars from solar companies seeking to lease 2,700 acres of his family’s farmland, or keep ownership in agriculture for the next generation. He chose the farm. Now, after spending nearly $1 million documenting a conservation easement, he faces an IRS audit over the tax deduction associated with it. Reports from Just the News, recent statements from the Internal Revenue Service, and reports from Colorado Public Radio help illuminate the dispute and broader debate over conservation easements. Arnusch, a third-generation farmer in Weld County, said the solar offers were tempting but ultimately incompatible with what he wanted for the land.Instead, his family requested a conservation easement, a legal agreement that permanently limits certain uses of privately owned land to protect its conservation values. Federal law allows qualified conservation easements to generate charitable tax deductions, as long as legal requirements are met.The decision required extensive documentation. Arnusch’s family hired about a dozen specialists, including tax attorneys, engineers, solar experts, mineral geologists and land use professionals. Soil testing, core sampling, zoning and boundary studies and other studies were used to establish what is known as the “highest and best use” of the property, a valuation concept that considers the most valuable use that is legally permissible, physically possible and financially viable.Solar companies’ interest in the property was part of that equation. Their bids provided evidence that solar development could represent a significant economic use of the land. An independent appraisal was then prepared using information gathered by the family’s experts. Arnusch claimed a tax deduction based on the resulting valuation, although he claims that he has not yet been able to take advantage of the full deduction because he did not have sufficient income.Then, about three years after the deduction was claimed, the IRS opened an audit. According to Arnusch, an IRS employee visited the farm and questioned whether the person conducting the review had the experience necessary to evaluate such a complicated property.Arnusch said the family had relied on numerous experts throughout the process, but the IRS later sent an auditor who Arnusch said was conducting his first audit of a farm. The IRS did not respond to requests for comment.Arnusch’s experience is part of a much broader fight over conservation easement assessments. Critics of the IRS approach argue that government reviews can reach dramatically lower valuations than those produced by taxpayers who commission extensive studies from experts.Bernie Donachie, a value analysis specialist with interests in conservation easement properties, examined 10 publicly available cases. It found that taxpayer experts had collectively valued the properties at $358.2 million, while IRS valuations totaled about $1.57 million, a reduction of about 99 percent, according to its analysis reported by Just the News. Those numbers represent Donachie’s sample, not an official government-wide assessment.The controversy comes against the backdrop of years of IRS enforcement regarding conservation easements. The agency has argued that legitimate conservation deductions should be protected, while abusive transactions and inflated valuations should not receive tax benefits. Now, the IRS is changing the way it handles the problem.On Aug. 19, the agency announced the creation of an Office of Conservation Easements, saying the new office will centralize technical expertise and coordinate policies, enforcement strategies and resolution of cases involving conservation easements and historic preservation. At the same time, the IRS ended its current uniform settlement initiative, saying that standardized settlement letters were not suitable for the variety of cases it was handling.For taxpayers with pending cases, the change does not automatically mean their disputes will go away. The IRS says they can continue to seek settlements through their assigned examiner or lead counsel representatives, and that individual cases are potentially resolved on different terms depending on the circumstances and litigation risks.For Arnusch, however, the issue is more personal than a dispute over a tax bill. He chose conservation because he wanted his family’s land to remain a farm instead of becoming a solar development. Now he is waiting to see if the government will accept the assessment that helped him make that decision.He does not want to continue fighting against the government; he simply wants to protect the farm. For a family that has spent generations working the same land, the question is whether preserving that future will ultimately come with a tax price they can’t afford.