Carl J.D. Bauman and Margaret A. Bauman - Page 31

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          transaction.  Sec. 6621(c)(3)(A)(v).  Additionally, section                 
          6621(c)(3)(B) authorizes the Secretary to specify by regulation             
          additional types of transactions which will be treated as                   
          tax-motivated transactions.  Section 301.6621-2T, Q&A-4,                    
          Temporary Proced. & Admin. Regs., 49 Fed. Reg. 50392 (Dec. 28,              
          1984), provides that deductions disallowed for any period in the            
          case of an activity not engaged in for profit within the meaning            
          of section 183 are considered to be attributable to a                       
          tax-motivated transaction.                                                  
               Petitioners contend that section 6621(c) cannot be properly            
          applied to them because the “any sham or fraudulent transaction”            
          clause of section 6621(c)(3)(A)(v) was not added to the Internal            
          Revenue Code until 1984, which was after the years presently at             
          issue.  This argument must fail.  The statute, as so amended,               
          applies to interest accrued after December 31, 1984, even though            
          the transaction was entered into prior to that date.  See                   
          Solowiejczyk v. Commissioner, 85 T.C. 552 (1985), affd. per                 
          curiam without published opinion 795 F.2d 1005 (2d Cir. 1986);              
          Kozlowski v. Commissioner, T.C. Memo. 1993-430, affd. without               
          published opinion 70 F.3d 1279 (9th Cir. 1995).                             
               The section 6621(c) increased rate of interest does not                
          apply to deductions disallowed on separate and independent                  
          grounds which do not fall within the specified categories of                
          tax-motivated transactions.  McCrary v. Commissioner, 92 T.C.               
          827, 858-860 (1989).  Here, we have sustained the disallowance of           

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