Valuation misstatement penalties require a value claimed on a return

Plain-English summary

Taxpayers overvalued property, but did not claim that property value on a return. The resulting underpayment instead arose from disallowed interest expense deductions. Chief Counsel advised that, under IRC § 6662(e)(1), neither the substantial valuation misstatement penalty nor the gross valuation misstatement penalty could apply in those circumstances.

Ruling snapshot

• Question: Could valuation misstatement penalties apply when the overvalued property's value was not claimed on a return?
• Outcome: Advice given, neither penalty applied
• Key authorities: IRC §§ 6662(e)(1) and 6662(h)(1)

Full text (IRS public release)

ID: CCA-120514-14
UILC: 6662.00-00

Number: 201504012
Release Date: 1/23/2015
From:
Sent: Monday, December 05, 2014 14:04
To: --------------------------
Cc: ------------------
Bcc:
Subject: Re: 6662(h)(1) penalty question

Where the value of the property the taxpayers overvalued was not claimed on a return,
neither the substantial valuation misstatement penalty nor the gross valuation
misstatement penalty may be applied to the underpayment resulting from the disallowed
interest expense deductions, pursuant to §6662(e)(1).

Please let me know if we can be of any further assistance.

Best,

------------------------------------------------

------------------------------------