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Issue 2: Sec. 6659 Valuation Overstatement
Respondent determined that petitioners are liable for the
section 6659 addition to tax on the portion of their 1981
underpayment attributable to valuation overstatement. In
respondent's notice of deficiency, the addition to tax under
section 6659 was applied to the entire amount of the disallowed
loss and credits, resulting in a section 6659 addition to tax in
the amount of $21,296. Respondent subsequently reduced the
section 6659 addition to tax to apply only to the underpayment
attributable to the disallowed credits. Respondent asserted in
her reply brief a reduced section 6659 addition to petitioners'
tax for 1981 in the amount of $19,083. We consider the addition
to tax under section 6659 for 1981 reduced to correspond to the
amount in dispute as set forth in respondent's reply brief.
A graduated addition to tax is imposed when an individual
has an underpayment of tax that equals or exceeds $1,000 and "is
attributable to" a valuation overstatement. Sec. 6659(a), (d).
A valuation overstatement exists if the fair market value (or
adjusted basis) of property claimed on a return equals or exceeds
150 percent of the amount determined to be the correct amount.
Sec. 6659(c). If the claimed valuation exceeds 250 percent of
the correct value, the addition is equal to 30 percent of the
underpayment. Sec. 6659(b).
Petitioners claimed an investment tax credit and a business
energy credit based on purported values of $1,162,666 for each
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