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Based on the entire record in this case, including the
extensive stipulations, testimony of respondent's experts, and
petitioner's testimony, we hold that the Resource transaction
herein was a sham and lacked economic substance. In reaching
this conclusion, we rely heavily upon the overvaluation of the
Sentinel EPE recyclers. Respondent is sustained on the question
of the underlying deficiency. We note that petitioners have
explicitly conceded this issue in the stipulation of settled
issues filed shortly before trial. The record plainly supports
respondent's determination regardless of that concession. For a
detailed discussion of the facts and the applicable law in a
substantially identical case, see Provizer v. Commissioner,
supra.
A. Section 6653(a)--Negligence
Respondent asserted the additions to tax for negligence
under section 6653(a)(1) and (2) for 1981 in the first amendment
to answer. Because these additions to tax were raised for the
first time in the amended answer, respondent has the burden of
proof. Rule 142(a); Vecchio v. Commissioner, 103 T.C. 170, 196
(1994); Bagby v. Commissioner, 102 T.C. 596, 612 (1994).
Section 6653(a)(1) imposes an addition to tax equal to 5
percent of the underpayment if any part of an underpayment of tax
is due to negligence or intentional disregard of rules or
regulations. Section 6653(a)(2) imposes an addition to tax equal
to 50 percent of the interest payable with respect to the portion
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