This advisory discusses United States v. Woods, where the Supreme Court of the United States ruled that the substantial valuation misstatement penalty could be determined in a TEFRA audit and applied when the audited partnership was found to violate the economic substance doctrine. To the Fifth Circuit, that meant that the partnership was a sham that did not exist for federal income tax purposes. Because the partnership did not exist, the partners could not have any basis in their partnership interest. When they reported having any basis at all, that basis must have been more than 400 percent greater than zero and the penalty applied.
The full alert is provided on the Alston & Bird website: http://www.alston.com/advisories/fed-tax-stuatuory-interpretation-571-US/
Written by Edward Tanenbaum, Partner, Federal & International Tax | Alston & Bird LLP
