Supreme Court Allows Maximum Penalty

The U.S. Supreme Court recently ruled that even though a taxpayer invested in a tax shelter based on advice that turned out to be incorrect, the IRS is still able to assess the maximum 40% penalty.  The penalty was assessed for substantial misstatement of the value of property in the tax shelter.

The tax shelter partnership in question involved an offsetting-options structure that would have allowed a $3.2 million investment to shelter more than $45 million in income from being taxed.  The IRS ruled that tax shelters of this type are abusive.

The taxpayer alleged that since there was a factual misstatement by the tax professionals who marketed the tax shelter, the 40% underpayment penalty should not apply.  The 40% penalty applies to a substantial underpayment as a result of a gross valuation misstatement of the underlying property reported on the tax return.

There are a substantial amount of tax shelter partnerships like the one that was the subject of the Supreme Court case that have tax issues that are yet to be resolved.  Many of them are awaiting the outcome of the Supreme Court case to see if they too are going to be subject to the 40% substantial underpayment penalty.

If you were an investor in an offsetting-options structured tax shelter partnership and have been assessed a 40% penalty by the IRS then schedule your free consultation by calling (480) 888-7111 [or submit a web request here].