On December 3, 2013, the Supreme Court issued its decision in U.S. v. Woods. The question in this case was twofold: (1) Whether a section of the Internal Revenue Code that imposes a penalty for underpayment of federal income tax where the underpayment results from an overstatement of cost basis applies when the IRS disallows losses claimed on the transfer of a partnership interest, for lack of economic substance; and (2) whether the lower courts had jurisdiction in this case to consider this valuation misstatement penalty. Here, the lower courts, including the US Court of Appeals for the Fifth Circuit, agreed that the partnership transfers were properly disregarded as shams but held that the valuation-misstatement penalty did not apply. -- The Supreme Court unanimously reversed the judgment of the Fifth Circuit. In an opinion authored by Justice Scalia, the Court confirmed that the lower courts had jurisdiction to consider the penalty issue and held that the penalty did apply to what were essentially underpayments resulting from participation in a tax shelter. -- To discuss the case, we have Andy Grewal, who is an associate professor of law at the University of Iowa College of Law.