Mark Friedman - Page 64

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          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 grounds 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.  Petitioners' cases present just such a "different                     
          situation":  overvaluation of the recyclers was integral to and             
          inseparable from petitioners' claimed tax benefits and our                  
          holding that the Partnership transactions lacked economic                   
          substance.16                                                                
               2.  Concession of the Deficiencies                                     




          16   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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