Supreme Court Hears Oral Arguments in Woods: TEFRA Penalties and Outside Basis

The Supreme Court recently heard oral arguments in the Woods case.  The issue involved is whether the government can invoke TEFRA jurisdiction in a TEFRA proceeding at the partnership level to determine valuation overstatement penalties related to a partner's outside overstatement of basis in circumstances in which the partnership entity is found to have been a sham.  The issue turns on whether a penalty can be imposed on items such as outside basis, which are not partnership items in a TEFRA proceeding, leaving the taxpayer to present a reasonable cause and good faith defense to the penalty after the TEFRA proceeding is completed and the tax and penalty are paid, in a refund case.

The audio of the oral agruments before the Supreme Court in the Woods case can be found on the SCOTUS web sit.

Supreme Court Web Site