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Section 6659 does not apply to underpayments of tax that are
not “attributable to” valuation overstatements. Todd v.
Commissioner, supra; McCrary v. Commissioner, supra. “To the
extent taxpayers claim tax benefits that are disallowed on
grounds separate and independent from alleged valuation
overstatements, the resulting underpayments of tax are not
regarded as attributable to valuation overstatements.” Krause v.
Commissioner, 99 T.C. 132, 178 (1992) (citing Todd v.
Commissioner, supra). However, when valuation is an integral
factor in disallowing deductions and credits, section 6659 is
applicable. See Merino v. Commissioner, 196 F.3d 147 (3d Cir.
1999), affg. T.C. Memo. 1997-385; Zfass v. Commissioner, 118 F.3d
184 (4th Cir. 1997), affg. T.C. Memo. 1996-167; Illes v.
Commissioner, 982 F.2d 163 (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; Massengill v. Commissioner, 876
F.2d 616 (8th Cir. 1989), affg. T.C. Memo. 1988-427.
Petitioners’ reliance on Gainer v. Commissioner, supra, and
Todd v. Commissioner, supra, ignores that this Court as well as
the Court of Appeals for the Eighth Circuit, the court to which
appeals in these cases would lie, has held that “when an
underpayment stems from disallowed depreciation deductions or
investment credits due to lack of economic substance, the
deficiency is attributable to overstatement of value, and subject
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