Supreme Court Briefing Underway in Woods on Penalty and TEFRA Issues

The government has filed its opening brief in the Supreme Court in the Woods case, which involves whether the 40% gross valuation overstatement penalty applies in the context of a basis-inflating transaction held not to have economic substance.  See our earlier report here.

The government’s arguments on the question whether the penalty can be applied in these circumstances are similar to those discussed here previously and addressed in several court of appeals decisions.  It relies on the “plain text” of the statute, arguing that “[t]he word ‘attributable’ means ‘capable of being attributed’” and therefore a finding of lack of … Read More

Supreme Court Agrees to Hear Penalty Issue in Woods

The Court this morning granted the government’s petition for certiorari in United States v. Woods, No. 12-562.  As we recently reported, the issue presented in the petition concerns the applicability of the valuation overstatement penalty — specifically, whether tax underpayments are “attributable to” overstatements of basis when the inflated basis claim has been disallowed based on a finding that the underlying transactions lacked economic substance.

The Court also added a second question for the parties to brief — “Whether the district court had jurisdiction in this case under 26 U.S.C. section 6226 to consider the substantial valuation misstatement … Read More

Supreme Court Poised to Consider Penalty Issue in Woods

The government has asked the Supreme Court to resolve a longstanding conflict in the circuits on the applicability of the penalty for valuation misstatements in United States v. Woods, No. 12-562.

The Code contains a variety of civil penalty provisions for conduct connected with underreporting of tax.  The basic penalty is found in section 6662, which imposes an accuracy-related penalty for underpayments of tax “attributable to” different kinds of conduct, including negligence, substantial understatements of tax, and substantial overvaluations.  The penalty is 20% of the portion of the underpayment “attributable to” the misconduct.  I.R.C. § 6662(a), (b).  Section 6662(e) … Read More

Briefing Complete in Bergmann

The Bergmanns participated in a listed transaction promoted by KPMG, known as the Short Option Strategy.  When the Bergmanns filed their amended return in March 2004, the IRS had already served KPMG with summonses targeted at KMPG’s promotion of the Short Option Strategy.  As discussed in an earlier post, the Tax Court held that the Bergmanns failed to timely file a qualified amended return and thus were subject to the 20-percent accuracy related penalty.  Under the regulations in effect when the taxpayers filed their return, the time for filing a qualified amended return terminated when “any person described in … Read More

Ninth Circuit to Rule on Timing for Filing a Qualified Amended Return for an Undisclosed Listed Transaction

The taxpayers in Bergmann v. Commissioner are appealing an adverse Tax Court decision, 137 T.C. No. 10, holding that they failed to timely file a qualified amended return for 2001 and thus are liable for the 20-percent accuracy related penalty.   The taxpayers participated in a listed transaction promoted by KPMG, known as the Short Option Strategy.  In 2004, two years after the IRS issued a summons to KPMG specifically identifying the Short Option Strategy transaction, the Bergmanns filed an amended return disclaiming the tax benefits of the transaction.  The case concerns the interpretation of Treas. Reg. § 1.6664-2(c)(3)(ii) (2004), which … Read More

NPR Oral Argument

On December 7th, oral argument was held in the Fifth Circuit in the NPR case before Judges Dennis, Clement, and Owen.  You can find a detailed explanation of the issues here but in summary the questions involve whether, in the context of a Son of BOSS case: the gross valuation penalty applies when the basis producing transaction is not invalidated solely due to a bad valuation; whether other penalties apply; how the TEFRA jurisdictional rules function as to those penalties; and whether an FPAA issued after a non-TEFRA partnership no-change letter falls afoul of the no-second-FPAA rule. 

Although both parties … Read More

NPR Calendared for Argument

The NPR case (involving penalty application and TEFRA issues in the context of a Son of BOSS transaction: see latest substantive discussion here) has been calendared for argument in New Orleans on December 7th in the East Courtroom.… Read More

Briefing Complete in NPR

As we mentioned in our last post, the only brief remaining to be filed in NPR was the taxpayer’s reply brief.  That brief has now been filed and with it a DOJ motion to strike part of that reply as an inappropriate sur-reply.  The motion concerns a section in the reply in which the taxpayer takes on DOJ for arguing (in its previously filed reply brief ) that the only relevant factor in determining the incidence of the valuation misstatement penalty (between partnership and partner) is whether there are partnership items involved and not where the specific misstatement results … Read More

NPR Update

It has been a while since we published an update on NPR (please no comments on Supreme Court Justices, schoolchildren, and bloggers taking summers off).  Since our last post discussing the government’s opening brief, the taxpayer filed its brief responding to the government and opening the briefing on their cross-appeal.  The government also filed its response/reply.  All that remains now is the taxpayer’s reply brief on its cross-appeal, currently due on August 15.  There are a slew of technical TEFRA issues that are raised by the parties.  The taxpayer is appealing the district court’s rulings regarding whether a no … Read More

NPR Still Dragging Itself Out of the Minefield

The Government has filed its brief in its Fifth Circuit appeal from the denial of penalties in the NPR Investments case (for prior discussion go here).  There are no surprises.  The Government takes the position that the district court’s reliance on Heasley v. Commissioner, 902 F.2d 380 (5th Cir. 1990) (likely abrogated by Treas. Reg. § 1.6662-5(g) and certainly weakened on these facts by Weiner v. United States, 389 F.3d 152 (5th Cir. 2004)) is misplaced.  Thus, the government argues that the mere fact that the taxpayer’s entire transaction (and not just a valuation or basis item) … Read More

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