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Petitioners point out that the IRS did not appraise the
accounting software. They challenge respondent's position that
it was worth zero. They argue that because Century is no longer
in business, it is impossible to determine that the product was
overvalued. Petitioners bear the burden of proving that they did
not overvalue the Century software. Rule 142(a).
Century valued the software at $375,000, of which
petitioners' one-fourth share was $93,750. The $375,000 amount
bears no relation to the fair market value of the software.
Petitioners received a $60 return (purportedly based on sales of
32 units) on their $4,850 investment. There is no credible
evidence that petitioners could expect 2,570 sales, the number
needed for petitioners to recover their cash investment.
When an underpayment results from disallowed depreciation
deductions or investment credits due to lack of economic
substance, section 6659 applies because the correct basis is zero
and any basis in excess of that is a valuation overstatement.
Gilman v. Commissioner, 933 F.2d at 151; Massengill v.
Commissioner, 876 F.2d 616, 619-620 (8th Cir. 1989), affg. T.C.
Memo. 1988-427; Rybak v. Commissioner, 91 T.C. 524, 566-567
(1988); Clayden v. Commissioner, 90 T.C. 656, 677-678 (1988).
We concluded above that petitioners' interest in Century
lacked economic substance. Petitioners conceded that they were
not entitled to an investment credit for their investment. The
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