http://www.supremecourt.gov/opinions/13pdf/12-562_k5fl.pdf (PDF)
United States v. Woods[1] (December 3, 2013) involved an appeal from the Court of Appeals for the Fifth Circuit over the imposition of misrepresentation penalties at the level of a partnership that was determined to have no economic substance, i.e., a sham:
Woods, as the tax-matters partner for both partnerships, sought judicial review of the FPAAs pursuant to §6226(a). The District Court held that the partner- ships were properly disregarded as shams but that the valuation-misstatement penalty did not apply. The Government appealed the decision on the penalty to the Court of Appeals for the Fifth Circuit. While the appeal was pending, the Fifth Circuit held in a similar case that, under Circuit precedent, the valuation-misstatement penalty does not apply when the relevant transaction is disregarded for lacking economic substance.
Bemont Invs., LLC v. United States, 679 F. 3d 339, 347–348 (2012). In a concurrence joined by the other members of the panel, Judge Prado acknowledged that this rule was binding Circuit law but suggested that it was mistaken. See id., at 351–355. A different panel subsequently affirmed the District Court’s decision in this case in a one-paragraph opinion, declaring the issue “well settled.” 471 Fed. Appx. 320 (per curiam), reh’g denied (2012). 1
We granted certiorari to resolve a Circuit split over whether the valuation-misstatement penalty is applicable in these circumstances. 569 U. S. ___ (2013). See Bemont, supra, at 354–355 (Prado, J., concurring) (recognizing “near-unanimous opposition” to the Fifth Circuit’s rule). Because two Courts of Appeals have held that District Courts lacked jurisdiction to consider the valuation-misstatement penalty in similar circumstances, see
Jade Trading, LLC v. United States, 598 F. 3d 1372, 1380 (CA Fed. 2010);
Petaluma FX Partners, LLC v. Commissioner, 591 F. 3d 649, 655–656 (CADC 2010), we ordered briefing on that question as well.
The Supreme Court in a unanimous decision authored by Justice Scalia reversed the decision of the Fifth Circuit and found that the Federal Court had been correct in holding that penalties could be provisionally applied at the level of the sham partnership:
Applying the foregoing principles to this case, we conclude that the District Court had jurisdiction to determine the applicability of the valuation-misstatement penalty—to determine, that is, whether the partnerships’ lack of economic substance (which all agree was properly decided at the partnership level) could justify imposing a valuation-misstatement penalty on the partners. When making that determination, the District Court was obliged to consider Woods’ arguments that the economic-substance determination was categorically incapable of triggering the penalty. Deferring consideration of those arguments until partner-level proceedings would replicate the precise evil that TEFRA sets out to remedy: duplicative proceedings, potentially leading to inconsistent results, on a question that applies equally to all of the partners.
To be sure, the District Court could not make a formal adjustment of any partner’s outside basis in this partnership-level proceeding. See Petaluma, 591 F. 3d, at 655. But it nonetheless could determine whether the adjustments it did make, including the economic-substance determination, had the potential to trigger a penalty; and in doing so, it was not required to shut its eyes to the legal impossibility of any partner’s possessing an outside basis greater than zero in a partnership that, for tax purposes, did not exist. Each partner’s outside basis still must be adjusted at the partner level before the penalty can be imposed, but that poses no obstacle to a partnership-level court’s provisional consideration of whether the economic-substance determination is legally capable of triggering the penalty.
For a more detailed analysis of this decision from Scotusblog see:
http://www.scotusblog.com/2013/12/opinion-analysis-tough-day-for-the-fifth-circuit/ 
[1]571 U.S. ___ (2013).