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Supreme Court in U.S. v. Woods Enforces Valuation Misstatement Penalty in Sham Transaction

On December 3rd, 2013, the Supreme Court unanimously held in United States v. Woods that the 40% gross valuation misstatement penalty applies to a partner’s overstated outside basis when the partnership is disallowed as a sham. Mr. Woods engaged in an abusive partnership tax shelter that was marketed to high-income taxpayers. In finding that the partnership lacked economic substance, the lower court found that overstated basis constituted a gross valuation penalty under IRC § 6662. The Taxpayer challenged that finding by arguing, in part, that the penalty should not apply when the change in value is premised solely on a legal finding. The Supreme Court rejected the taxpayer’s argument and upheld application of the penalty even when the misstatement is the result of a legal, rather than a factual, finding.

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Contact our team today with any tax controversy concern you’re facing. We fight every day to protect the interests of the taxpayer, and we look forward to putting you in the best tax situation possible.

GET STARTED

Contact our team today with any tax controversy concern you’re facing. We fight every day to protect the interests of the taxpayer, and we look forward to putting you in the best tax situation possible.

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