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In this report, I argue that the valuation misstatement penalty has been misinterpreted by the IRS to apply to tax shelter transactions that have nothing to do with valuation. The penalty applies to taxpayers who claim deductions from inflated basis only when the basis was inflated as a result of an overvaluation. Properly understood, the penalty provision rarely raises the issue for which the government successfully sought certiorari in United States v. Woods.


Taxation, Internal Revenue Code section 6662(h), section 6659, statutory interpretation, valuation, basis, overvaluation, penalties, tax shelters without economic substance

Publication Title

Tax Notes

Publication Citation

Tax Notes, Vol. 139, No. 11, Pg. 1283, June 10, 2013.