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Greenstein visited the plant and reported to petitioners Pace
that Hyannis was a legitimate business. Greenstein recommended
the investment for its front-end tax benefits and potential
residual values. At that time, petitioners Pace decided to go
ahead with the investment.
Petitioners Pace have no education or work experience in
plastics recycling or plastics materials. Petitioners Pace were
aware of Greenstein's background and knew that he was not an
expert in plastics recycling or plastics materials. There is
nothing in the record indicating that petitioners Pace ever saw a
Sentinel EPE recycler or visited any end-user locations.
OPINION
In Provizer v. Commissioner, T.C. Memo. 1992-177, a test
case involving the Clearwater transaction and another tier
partnership, this Court (1) found that each Sentinel EPE recycler
had a fair market value not in excess of $50,000, (2) held that
the Clearwater transaction was a sham because it lacked economic
substance and a business purpose, (3) upheld the section 6659
addition to tax for valuation overstatement since the
underpayment of taxes was directly related to the overstatement
of the value of the Sentinel EPE recyclers, and (4) held that
losses and credits claimed with respect to Clearwater were
attributable to tax-motivated transactions within the meaning of
section 6621(c). In reaching the conclusion that the Clearwater
transaction lacked economic substance and a business purpose,
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