IRS Will Continue to Press for Gross Valuation Misstatement Penalty

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IRS Office of Chief Counsel announces in Action on Decision 2011-02 that it would continue to argue that the 40 percent gross valuation misstatement penalty applies “if an overvaluation is an integral part of a transaction, regardless of the grounds for disallowance of a related deduction or credit” consistent with a lopsided circuit split on the issue. The IRS said that it would not acquiesce in the ruling of Keller v. Commissioner, 556 F.3d 1056 (9th Cir. 2009), rev'g T.C. Memo. 2006-131 (2006), where the Ninth Circuit joined the Fifth Circuit in not applying the 40 percent penalty pursuant to Internal Revenue Code Section 6662(h) and instead applied a 20 percent penalty. IRS counsel should oppose concessions in U.S. Tax Court cases involving abusive tax shelter transactions if the application of the valuation misstatement penalty is at issue, the Office of Chief Counsel says in a notice.

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