The U.S. Court of Appeals for the Eleventh Circuit upheld the imposition of 40 percent gross valuation misstatement penalties against an individual with almost 30 years of business experience

Circuit Judge Frank Hull said that although a tax shelter can be legitimate, William Gustashaw Jr. participated in one that was not, and Gustashaw's level of tax-related sophistication was particularly relevant “because Gustashaw was presented with the incredible opportunity, for a fee of only $800,000, to claim a loss of $9,938,324, which offset the entirety of the tax liability generated by his exercise in 2000 of his remaining Merck Medco stock options.”

Taking into account Gustashaw's personal experience and characteristics that included the years of experience, business education courses—which included courses in accounting—and history of handling his own finances and preparing his own tax returns; the Tax Court did not clearly err in finding that, under the particular combination of factual circumstances, Gustashaw did not have reasonable cause for his underpayment of tax or act in good faith with respect to it.

Source

Gustashaw v. Commissioner, 11th Cir., No. 11-15406, 9/28/12