- 45 -
recyclers in this case is the ground for our holding herein that
the Plymouth transaction lacked economic substance.
Moreover, a virtually identical argument was rejected in
Gilman v. Commissioner, supra. 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.'"
Gilman v. Commissioner, supra at 151 (quoting Massengill v.
Commissioner, 876 F.2d 616, 619-620 (8th Cir. 1989), affg. T.C.
Memo. 1988-427); see also Zfass v. Commissioner, supra; Rybak v.
Commissioner, 91 T.C. at 566-567; Zirker v. Commissioner, 87 T.C.
970, 978-979 (1986); Donahue v. Commissioner, T.C. Memo. 1991-
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