D.C. Circuit: Penalty assessments against partners for tax shelter participation

D.C. Circuit: Penalty assessments against partners

The U.S. Court of Appeals for the District of Columbia Circuit today issued two decisions concerning penalty assessments made against individual taxpayers who underpaid their income taxes because of their participation in partnerships that were found to be tax shelters.


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The D.C. Circuit noted that the issues in these cases were effectively resolved when the U.S. Supreme Court issued a decision in United States v. Woods (2013) at a time when these appeals were pending. The Supreme Court decision resolved jurisdictional questions related to outside basis and penalties, according to the D.C. Circuit.

Both of today’s D.C. Circuit cases involved individual taxpayers who had participated, as partners, in partnerships that were determined to be tax shelters.


  • In Logan Trust v. Commissioner [PDF 44 KB] the D.C. Circuit affirmed the Tax Court’s holding that the gross valuation-misstatement penalty applies to the individual partners, but reversed the part of the holding that the partners had no outside basis in the partnership.
  • In Petaluma FX Partners, LLC v. Commissioner [PDF 147 KB], the D.C. Circuit concluded that final regulations appropriately confer jurisdiction on the Tax Court to impose penalties against individual partners for underreporting their taxable income during the partnership-level stage of the proceedings.

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