The Supreme Court on October 9 heard oral arguments in United States v. Woods, Sup. Ct. Dkt. No. 12-562 (2013), and weighed whether a district court had jurisdiction under the 1982 Tax Equity and Fiscal Responsibility Act in a partnership-level proceeding to consider whether substantial valuation misstatement penalties apply to loss claims involving sham transactions. The IRS has asked the high court to reverse a Fifth Circuit decision holding that section 6662 overstatement penalties are not applicable in situations in which the IRS disallows a transaction because of the absence of economic substance. The Ninth Circuit has also followed the Fifth Circuit's approach.
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