The petitioner was a CPA with a Big Four firm. The firm spun-off its consulting business to a new corporation while retaining an equity stake in the new corporation's shares. Those shares were allocated among the firm's partners with the petitioner receiving shares and taking a zero income tax basis in the shares. The petitioner resided in the U.K. and had been recently divorced. Based on his fear that his ex-wife would attempt to get the shares because he received them during their marriage, the petitioner gave the shares to his second wife who was a U.K. resident (non-resident alien). Ultimately, the stock is sold for a large gain without anything reported as taxable gain for either gift or income tax purposes. The second wife ultimately receives U.S. residency and the petitioner files a Form 1040 and Form 709 three years late. The petitioner then filed a Form 1040-X claiming the gift to the second wife was taxable in accordance with I.R.C. Sec. 1041(a) because she was a non-resident alien at the time of the gift (gifts to non-resident aliens are taxed as transfers at fair market value and the second wife would also have an income tax basis in the shares). However, the court pointed out that I.R.C. Sec. 102(a) excludes the value of gifted property from the donee's gross income, and I.R.C. Sec. 1015(a) pegs the donee's basis at the lesser of the donor's basis or, for unrecognized losses, the property's fair market value for loss purposes. In addition, the donor paid no gift tax that would have provided basis in the hands of the donee second wife. The court upheld the imposition of a 40 percent penalty for a gross valuation misstatement because the petitioner's good faith arguments failed - he never sought review by the experts in the firm, and relied on the wrong tax treaty. Hughes v. Comr., T.C. Memo. 2015-89.