- 58 -
disallowing deductions and credits, section 6659 is applicable.
See Illes v. Commissioner, 982 F.2d 163, 167 (6th Cir. 1992),
affg. T.C. Memo. 1991-449; Gilman v. Commissioner, 933 F.2d 143,
151 (2d Cir. 1991) (the 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. 1989-684; Masters v.
Commissioner, T.C. Memo. 1994-197, affd. without published
opinion 70 F.3d 1262 (4th Cir. 1995); Harness v. Commissioner,
T.C. Memo. 1991-321.
Petitioners argue that the disallowance of the claimed tax
benefits was not "attributable to" a valuation overstatement.
According to petitioners, the tax benefits were disallowed
because the Partnership transactions are sham transactions
lacking economic substance, not because of any valuation
overstatements. It follows, petitioners reason, that because the
"attributable to" language of section 6659 requires a direct
causative relationship between a valuation overstatement and an
underpayment in tax, section 6659 cannot apply to their
deficiencies. Petitioners cite the following cases to support
this argument: Heasley v. Commissioner, 902 F.2d 380 (5th Cir.
1990), revg. T.C. Memo. 1988-408; Gainer v. Commissioner, 893
F.2d 225 (9th Cir. 1990), affg. T.C. Memo. 1988-416; McCrary v.
Commissioner, supra; and Todd v. Commissioner, supra.
Petitioners' argument rests on the mistaken premise that our
holding herein that the Partnership transactions lacked economic
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