• U.S. Supreme Court Resolves Circuit Split: Holds Valuation Misstatement Penalty Applies in Partnership Tax Shelter Case and Federal District Court Has Jurisdiction to Determine Provisional Applicability of Penalty Assessed to Partners
  • January 2, 2014
  • Law Firm: Sutherland Asbill Brennan LLP - Washington Office
  • On December 3, 2013, the U.S. Supreme Court unanimously reversed the U.S. Court of Appeals for the Fifth Circuit and held that (1) a federal district court in a partnership-level proceeding had jurisdiction to determine the provisional applicability of section 6662 valuation misstatement penalties assessed against individual partners when the partnership lacked economic substance, and (2) the valuation misstatement penalties applied when a partner’s underpayment of taxes was attributable to the partner having claimed an adjusted basis that exceeded the correct amount of that adjusted basis and the resulting “overstatement” of basis was due to the partnership’s lack of economic substance. United States v. Woods, No. 12-562 (Dec. 3, 2013). In making these determinations, the Court resolved a split among federal appellate courts on the second question and effectively reversed two federal appellate courts on the first question.