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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 such
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 Northeast.
Petitioners contend that respondent erroneously failed to
waive the section 6659 addition to tax. Section 6659(e)
authorizes respondent to waive all or part of the addition to tax
for valuation overstatement if taxpayers establish that there was
a reasonable basis for the adjusted bases or valuations claimed
on the returns and that such claims were made in good faith.
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