Albert R. and Phyllis F. Dworkin - Page 22

                                                 - 22 -                                                    
            Sentinel EPE recycler.  Petitioners concede that the fair market                               
            value of each recycler was not in excess of $50,000.  Therefore,                               
            if disallowance of petitioners' claimed credits is attributable                                
            to the valuation overstatement, petitioners are liable for the                                 
            section 6659 addition to tax at the rate of 30 percent of the                                  
            underpayment of tax attributable to the credits claimed with                                   
            respect to Northeast.                                                                          
                  Section 6659 does not apply to underpayments of tax that are                             
            not "attributable to" valuation overstatements.  See McCrary v.                                
            Commissioner, 92 T.C. 827 (1989); Todd v. Commissioner, 89 T.C.                                
            912 (1987), affd. 862 F.2d 540 (5th Cir. 1988).  To the extent                                 
            taxpayers claim tax benefits that are disallowed on grounds                                    
            separate and independent from alleged valuation overstatements,                                
            the resulting underpayments of tax are not regarded as                                         
            attributable to valuation overstatements.  Krause v.                                           
            Commissioner, 99 T.C. 132, 178 (1992), affd. sub nom. Hildebrand                               
            v. Commissioner, 28 F.3d 1024 (10th Cir. 1994), citing Todd v.                                 
            Commissioner, supra.  However, when valuation is an integral                                   
            factor in disallowing deductions and credits, section 6659 is                                  
            applicable.  See Illes v. Commissioner, 982 F.2d 163, 167 (6th                                 
            Cir. 1992), affg. T.C. Memo. 1991-449; Masters v. Commissioner,                                
            T.C. Memo. 1994-197; Harness v. Commissioner, T.C. Memo. 1991-                                 
            321; see Gilman v. Commissioner, 933 F.2d 143, 151 (2d Cir.                                    
            1991), affg. T.C. Memo. 1989-684.                                                              






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