- 45 -
contribute to an underpayment of taxes. In the Todd and Gainer
cases, the underpayments were due exclusively to the fact that
the property in each case had not been placed in service. In the
McCrary case, the underpayments were deemed to result from a
concession that the agreement at issue was a license and not a
lease. Although property was overvalued in each of those cases,
the overvaluations were not the ground on which the taxpayers'
liability was sustained. In contrast, "a different situation
exists where a valuation overstatement * * * is an integral part
of or is inseparable from the ground found for disallowance of an
item." McCrary v. Commissioner, supra at 859. Petitioner's case
presents just such a "different situation": overvaluation of the
recyclers was integral to and inseparable from petitioner's
claimed tax benefits and our holding that the Partnership
transactions lacked economic substance.11
Moreover, an argument similar to petitioner's was recently
rejected in Gilman v. Commissioner, supra, by the Court of
11 To the extent that Heasley v. Commissioner, 902 F.2d 380
(5th Cir. 1990), revg. T.C. Memo. 1988-408, merely represents an
application of Todd v. Commissioner, 89 T.C. 912 (1987), affd.
862 F.2d 540 (5th Cir. 1988), we consider it distinguishable. To
the extent that the reversal in the Heasley case is based on a
concept that where an underpayment derives from the disallowance
of a transaction for lack of economic substance, the underpayment
cannot be attributable to an overvaluation, this Court and the
Court of Appeals for the Second Circuit have disagreed. See
Gilman v. Commissioner, 933 F.2d 143, 151 (2d Cir. 1991) ("The
lack of economic substance was due in part to the overvaluation,
and thus the underpayment was attributable to the valuation
overstatement"), affg. T.C. Memo. 1989-684.
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