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factor in disallowing deductions and credits, section 6659 is
applicable. See Illes v. Commissioner, 982 F.2d 163, 167 (6th
Cir. 1992) (section 6659 addition to tax applies if a finding of
lack of economic substance is "due in part" to a valuation
overstatement), affg. T.C. Memo. 1991-449.
Petitioners concede they are not entitled to any losses or
credits arising from their investment in MSA. The record in this
case and the test case of Charlton v. Commissioner, supra,
clearly shows that the overvaluation of the tapes was integral to
and was the core of our holding that the underlying transaction
herein was a sham and lacked economic substance. When a
transaction lacks economic substance, section 6659 will apply
because the correct basis is zero and any basis claimed in excess
of that is a valuation overstatement. Gilman v. Commissioner,
933 F.2d 143, 151 (2d Cir. 1991), affg. T.C. Memo. 1989-684;
Rybak v. Commissioner, 91 T.C. 524, 566-567 (1988). Accordingly,
we conclude that the deficiency caused by the disallowance of the
claimed loss and credits was attributable to the overvaluation of
the tapes.
Petitioners contend that respondent abused her discretion in
failing to waive the section 6659 additions to tax pursuant to
section 6659(e). Section 6659(e) authorizes respondent to waive
all or part of the addition to tax for valuation overstatements
if taxpayers establish that there was a reasonable basis for the
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