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2. Concession of the Deficiency
Farrell argues that his concession of the deficiency
precludes imposition of the section 6659 addition to tax.
Farrell contends that his concession renders any inquiry into the
grounds for such deficiency moot. Absent such inquiry, Farrell
argues that it cannot be known if the underpayments were
attributable to a valuation overstatement or other discrepancy.
According to Farrell, "once the taxpayer concedes the underlying
adjustment, there is no basis upon which the necessary
correlation between understatement in tax and overvaluation can
be established." In support of this line of reasoning, Farrell
relies heavily upon Heasley v. Commissioner, supra, and McCrary
v. Commissioner, supra. Although Spears did not expressly make
this argument, we include the Spears case in our discussion
because he similarly conceded disallowance of the tax benefits
claimed by him and his wife.
27(...continued)
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), affg.
T.C. Memo. 1989-684: "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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