- 44 -
(9th Cir. 1990), affg. T.C. Memo. 1988-416; McCrary v.
Commissioner, supra; Todd v. Commissioner, supra.
Petitioners' argument rests on the mistaken premise that our
holding herein that the Plymouth transaction lacked economic
substance was separate and independent from the overvaluation of
the Sentinel EPE recyclers. To the contrary, in holding that the
Plymouth transaction lacked economic substance, we relied heavily
upon the overvaluation of the recyclers. Overvaluation of the
recyclers was an integral factor in regard to: (1) The
disallowed tax credits and operating loss; (2) the underpayment
of tax; and (3) our finding that the Plymouth transaction lacked
economic substance.
Petitioners argue that in Provizer v. Commissioner, T.C.
Memo. 1992-177, we found that the Clearwater transaction lacked
economic substance for reasons independent of the valuation
reported in that case. According to petitioners, the purported
value of the recyclers in the Clearwater transaction was
predicated upon a projected stream of royalty income, and this
Court merely rejected the taxpayer's valuation method.
Petitioners misread and distort our Provizer opinion. In the
Provizer case, overvaluation of the Sentinel EPE recyclers,
irrespective of the technique employed by the taxpayers in their
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
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