The Supreme Court held Tuesday that the 40 percent gross valuation misstatement penalty applies to overstated basis where partnerships were shams, so no partner could legitimately claim a basis in the partnership interest greater than zero.
Gary Woods and Billy Joe McCombs participated in an offsetting option tax shelter (Current Options Bring Reward Alternatives, or COBRA) to reduce their taxable income in 1999, according to the court. They purchased a series of currency option spreads from Deutsche Bank, consisting of a long option, for which they paid a premium, and a short option, which they sold to Deutsche Bank and for which they received a premium.
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