- 588 -
1988-408. On brief, they maintain that "neither party introduced
any evidence" with respect to the GLS Associates' adjustment.
Respondent, on the other hand, contends that the Kanters
failed to establish that they are not liable for the addition to
tax under section 6659 with respect to the GLS Associates'
valuation overstatement.
The Kanters presented no evidence on this issue. They have
not shown that the underpayment was attributable to anything
other than a valuation overstatement.64 Consequently, we sustain
64
Sec. 6659 does not apply to underpayments of tax that are
not "attributable to" valuation overstatements. See McCrary v.
Commissioner, 92 T.C. 827 (1989); Todd v. Commissioner, 89 T.C.
912 (1987), affd. 862 F.2d 540 (5th Cir. 1988). To the extent
taxpayers claim tax benefits that are disallowed on grounds
separate and independent from valuation overstatements, the
resulting underpayments of tax are not regarded as attributable
to valuation overstatements. See Krause v. Commissioner, 99 T.C.
132, 178 (1992), affd. sub nom. Hildebrand v. Commissioner, 28
F.3d 1024 (10th Cir. 1994). However, when valuation is an
integral factor in disallowing deductions and credits, sec. 6659
is applicable. See Illes v. Commissioner, 982 F.2d 163, 167 (6th
Cir. 1992), affg. T.C. Memo. 1991-449; Gilman v. Commissioner,
933 F.2d 143, 151 (2d Cir. 1991), affg. T.C. Memo. 1989-684;
Masters v. Commissioner, T.C. Memo. 1994-197, affd. without
published opinion 70 F.3d 1262 (4th Cir. 1995). In Gainer v.
Commissioner, 893 F.2d 225 (9th Cir. 1990), affg. T.C. Memo.
1998-416; Todd v. Commissioner, supra; and McCrary v.
Commissioner, supra, it was found that a valuation overstatement
did not contribute to an underpayment of taxes. In Todd and
Gainer, the underpayments were due exclusively to the fact that
the property in each case had not been placed in service. In
McCrary, the underpayments were deemed to result from a
concession that the agreement at issue was a license and not a
lease. As this Court indicated in Becker v. Commissioner, T.C.
Memo. 1996-538, Heasley v. Commissioner, 902 F.2d 380 (5th Cir.
1990), revg. T.C. Memo. 1988-408, which petitioners herein cite,
may be interpreted to represent merely an application of Todd.
(continued...)
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