IRS will not let investors off the hook in overvaluing assets

Individuals should exercise prudence in evaluating transactions designed to generate paper losses on federal income tax returns—so-called tax shelters.  Taxpayers should focus on the value of the underlying asset reported on the return and ask whether that valuation makes sense. In an unusual move, the U.S. Tax Court recently overturned its precedent to side with the IRS and hold that an investor is not off the hook for steep penalties if valuation is wrong.