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underpayment of taxes was directly related to the overvaluation
of the Sentinel EPE recyclers; and (5) held that losses and
credits claimed with respect to the Clearwater Group were
attributable to tax-motivated transactions within the meaning of
section 6621(c). In reaching the conclusion that the transaction
lacked business purpose, this Court relied heavily upon the
overvaluation of the Sentinel EPE recyclers.
In the notice of deficiency, respondent disallowed all of
the claimed deductions and credits relating to petitioners’
Clearwater investment. Respondent’s determination is
presumptively correct, and petitioners bear the burden of proving
otherwise. See Rule 142(a); INDOPCO, Inc. v. Commissioner, 503
U.S. 79, 84 (1992); New Colonial Ice Co. v. Helvering, 292 U.S.
435, 440 (1934).
Issue 1. The Underlying Deficiency
Respondent determined that the integrated series of
transactions involved in the Plastics Recycling Program, of which
Clearwater was a part, was an economic sham. Petitioners must
therefore prove otherwise in order to prevail.
There is a complete failure by petitioners to prove that the
Plastics Recycling Program in which Clearwater participated was
not an economic sham. As in Provizer v. Commissioner, supra, we
rely heavily on the fact that the Sentinel EPE machines were
highly overvalued, an issue with respect to which petitioners
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