- 58 -
efforts to justify the overvaluation, was the dominant factor
that led us to hold that the Clearwater transaction lacked
economic substance. Likewise, overvaluation of the Sentinel EPE
recyclers in these cases is the ground for our holding herein
that the Partnership transactions lacked economic substance.
Moreover, a virtually identical argument was recently
rejected in Gilman v. Commissioner, supra, by the Court of
Appeals for the Second Circuit. In the Gilman case, the
taxpayers engaged in a computer equipment sale and leaseback
transaction that this Court held was a sham transaction lacking
economic substance. The taxpayers therein, citing Todd v.
Commissioner, supra, and Heasley v. Commissioner, supra, argued
that their underpayment of taxes derived from nonrecognition of
the transaction for lack of economic substance, independent of
any overvaluation. The Court of Appeals for the Second Circuit
sustained imposition of the section 6659 addition to tax because
overvaluation of the computer equipment contributed directly to
this Court's earlier conclusion that the transaction lacked
economic substance and was a sham. Gilman v. Commissioner, supra
at 151. In addition, the Court of Appeals for the Second Circuit
agreed with this Court and with the Court of Appeals for the
Eighth Circuit that "'when an underpayment stems from disallowed
* * * investment credits due to lack of economic substance, the
deficiency is * * * subject to the penalty under section 6659.'"
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