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A graduated addition to tax is imposed when an individual
has an underpayment of tax that equals or exceeds $1,000 and "is
attributable to" a valuation overstatement. Sec. 6659(a), (d).
A valuation overstatement exists if the fair market value (or
adjusted basis) of property claimed on a return equals or exceeds
150 percent of the amount determined to be the correct amount.
Sec. 6659(c). If the claimed valuation exceeds 250 percent of
the correct value, the addition is equal to 30 percent of the
underpayment. Sec. 6659(b).
Petitioners claimed tax benefits, including investment tax
credits and business energy credits, based on a purported value
of $1,162,666 for each Sentinel EPE recycler. Petitioners
concede that the fair market value of a Sentinel EPE recycler in
1981 was not in excess of $50,000. Therefore, if disallowance of
petitioners' claimed tax benefits is attributable to that
valuation overstatement, petitioners are liable for the section
6659 addition to tax at the rate of 30 percent of the
underpayment of tax attributable to the tax benefits claimed with
respect to Resource.
Petitioners contend that section 6659 cannot apply in this
case because they conceded the claimed tax benefits relating to
Resource. In the alternative, petitioners contend that
respondent erroneously failed to waive the section 6659 addition
to tax. We reject both of these arguments for reasons set forth
below.
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