Supreme Court of the United States

United States, Petitioner v. Gary Woods.

December 3, 2013571 U.S. 31

Summary

The Court held that a district court conducting a partnership-level proceeding under TEFRA has jurisdiction to determine whether a valuation-misstatement penalty may apply, even when imposing the penalty would require later partner-level determinations. It further held that the penalty applies to tax underpayments resulting from the COBRA shelter because the taxpayers overstated adjusted outside basis, and that the statute covers legal as well as factual misstatements of basis. The Court therefore reversed the judgment below.

Holding

  • Partnership-level jurisdiction under TEFRA. A court in a partnership-level proceeding has jurisdiction to determine the applicability of any penalty that could result from an adjustment to a partnership item, even if imposing the penalty would require additional determinations concerning affected or non-partnership items such as outside basis.
  • Applicability of the valuation-misstatement penalty. The valuation-misstatement penalty applies to a tax underpayment caused by claiming an adjusted outside basis greater than zero in a partnership that is disregarded for lacking economic substance, and the statutory term adjusted basis encompasses legal as well as factual misstatements.

Docket 12-562

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