U.S. Supreme Court
Tax — valuation-misstatement penalties
The valuation-misstatement penalty applies when a partnership lacks any economic substance.
A penalty applies to the portion of any underpayment that is “attributable to” a “substantial” or “gross” “valuation misstatement,” which exists where “the value of any property (or the adjusted basis of any property) claimed on any return of tax” exceeds by a specified percentage “the amount determined to be the correct amount of such valuation or adjusted basis (as the case may be).” §§6662(a), (b)(3), (e)(1)(A), (h). The penalty’s plain language makes it applicable here. Once the partnerships were deemed not to exist for tax purposes, no partner could legitimately claim a basis in his partnership interest greater than zero. Any underpayment resulting from use of a non-zero basis would therefore be “attributable to” the partner’s having claimed an “adjusted basis” in the partnerships that exceeded “the correct amount of such . . . adjusted basis.” §6662(e)(1)(A). And under the relevant Treasury Regulation, when an asset’s adjusted basis is zero, a valuation misstatement is automatically deemed gross.
471 Fed. Appx. 320, reversed.