Eleventh Circuit affirms 40% penalty in tax shelter case 

September 28: The U.S. Court of Appeals for the Eleventh Circuit today affirmed the Tax Court, which concluded in a 2011 opinion that the taxpayer (an individual) was liable for the 40% gross valuation misstatement penalty with respect to his participation in a tax shelter for years 2000 through 2002. Gustashaw v. Commissioner, No. 11-15405 (11th Cir. September 28, 2012)

The Tax Court found that the taxpayer was liable for the 40% gross valuation misstatement penalty for 2000 through 2002, by concluding that his underpayments in tax for those years resulted from his claiming a basis in foreign currency on his 2000 return exceeding $11.7 million—rather than a basis of zero ($0) given the tax shelter transaction lacked economic substance.


The Eleventh Circuit found no clear error in the Tax Court’s determination that the taxpayer had failed to establish that he acted with reasonable cause and in good faith with respect to his underpayment of tax.


Text of the decision: Gustashaw [PDF 185 KB]



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©2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.


The KPMG logo and name are trademarks of KPMG International.


KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever.


The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.


Direct comments, including requests for subscriptions, to us-kpmgwnt@kpmg.com.
For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at:

+ 1 202 533 4366

1801 K Street NW
Washington, DC 20006.

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