- 64 -
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. Each of these
consolidated cases presents 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.5
2. Concession of the Deficiency
Petitioners argue that their concessions of the deficiencies
preclude imposition of the section 6659 additions to tax.
Petitioners contend that their concessions render any inquiry
into the grounds for such deficiencies moot. Absent such
inquiry, petitioners argue that it cannot be known whether their
underpayments were attributable to a valuation overstatement or
5 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, and other Courts 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.")
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