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respondent bears the burden of proof on these issues. Rule
142(a); Vecchio v. Commissioner, 103 T.C. 170, 196 (1994).
A graduated addition to tax is imposed when an individual
has an underpayment of tax that equals or exceeds $1,000 and "is
attributable to" a valuation overstatement. Sec. 6659(a), (d).
A valuation overstatement exists if the fair market value (or
adjusted basis) of property claimed on a return equals or exceeds
150 percent of the amount determined to be the correct amount.
Sec. 6659(c). If the claimed valuation exceeds 250 percent of
the correct value, the addition is equal to 30 percent of the
underpayment. Sec. 6659(b).
Petitioners claimed tax benefits, including investment tax
credits, based on purported values of $1,162,666 for each
Sentinel EPE recycler. Petitioners each concede that during 1981
the fair market value of a Sentinel EPE recycler was not in
excess of $50,000. Therefore, if disallowance of petitioners'
claimed tax benefits is attributable to the valuation
overstatement, petitioners are liable for the section 6659
additions to tax at the rate of 30 percent of the underpayments
of tax attributable to the tax benefits claimed with respect to
Empire.
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
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