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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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