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we think it is more likely than not that petitioner invested in
Clearwater in an effort to generate tax benefits, rather than to
make a profit.
Upon consideration of the entire record, we hold that
petitioners are liable for the additions to tax for negligence
under section 6653(a)(1) and (2). Respondent is therefore
sustained on this issue.
Issue 3. Section 6621(c) Additional Interest
Respondent determined that petitioners are liable for
additional interest with respect to the underpayment attributable
to the Clearwater investment.
Section 6621(c), formerly section 6621(d), provides for an
increased rate of interest if the underpayment of tax exceeds
$1,000 and is attributable to a tax-motivated transaction as
defined in section 6621(c)(3). The increased rate of interest is
effective only with respect to interest accruing after December
31, 1984, notwithstanding that the transaction was entered into
before that date. See Solowiejczyk v. Commissioner, 85 T.C. 552
(1985), affd. per curiam without published opinion 795 F.2d 1005
(2d Cir. 1986); Provizer v. Commissioner, T.C. Memo. 1992-177.
A tax-motivated transaction includes any valuation
overstatement within the meaning of section 6659(c). See sec.
6621(c)(3)(A)(i). Petitioners have conceded that there was such
a valuation overstatement in the present case. In addition, we
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