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overstatement. Sec. 6621(c)(3)(A)(i). In 1981, petitioners
claimed a value for the recyclers in excess of 150 percent of the
true value of the recyclers. Therefore, petitioners had a
valuation overstatement as defined in section 6659(c).
For section 6621(c) interest to apply, the underpayment of
taxes must be "attributable to" a tax-motivated transaction.
Where a valuation overstatement or other category of tax-
motivated transaction is an integral part of, or inseparable
from, the ground for disallowance of an item, section 6621(c)
increased interest applies. See McCrary v. Commissioner, 92 T.C.
at 859. Petitioners stipulated that the Hyannis transaction
lacked economic substance and conceded respondent's disallowance
of their claimed deductions and credits related to Hyannis. By
virtue of its lack of economic substance and the overvaluation of
the Sentinel EPE recyclers, the Hyannis transaction is by
definition a sham transaction. Moreover, we have already found
that the valuation overstatement of the recyclers was an integral
part of the ground for disallowance of the items related to
Hyannis. Accordingly, respondent's determination as to the
applicable interest rate for deficiencies attributable to tax-
motivated transactions is sustained, and the increased rate of
interest applies for the taxable year in issue.
To reflect concessions and our conclusions,
Decision will be entered
under Rule 155.
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