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respondent. Murphy's filing of an erroneous K-1 in 1989 does not
alter the ownership interests in Lone Star.
D. Increased Interest, Additions to Tax, and Penalty
1. Increased Interest Pursuant to Section 6621
Respondent determined that petitioners are liable for
increased interest under section 6621 with respect to the
underpayments for Sands' taxable years 1984, 1985 and 1986, and
for Heller's and Murphy's taxable year 1989. Section 6621
provides for an increase in the interest rate to 120 percent of
the statutory rate on the underpayments of tax if a substantial
understatement is due to a tax-motivated transaction. Respondent
argues that the underpayments are due to a tax-motivated
transaction, because Lone Star's purchase of the chlor-alkali
system was not a transaction entered into for profit. See
Clayden v. Commissioner, 90 T.C. 656, 677 (1988).
As for Heller and Murphy, the increased rate of interest
under section 6621(c) is inapplicable. Section 6621(c) was
repealed by sec. 7721(b) of the Omnibus Budget Reconciliation Act
of 1989 (OBRA 89), Pub. L. 101-239, 103 Stat. 2106, 2399,
effective for tax returns due after December 31, 1989. OBRA 89
sec. 7721(d), 103 Stat. 2400. Murphy's tax return and Heller's
tax return for the taxable year 1989 were due after that date.
Sec. 6072(a). As for Sands, Murphy served as legal counsel for
Micro-Bio when Micro-Bio executives traveled to Arizona to see
one of Eltech's chlor-alkali systems in operation. Before Lone
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