- 34 -
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 lie, has held that “When an underpayment
stems from disallowed depreciation deductions or investment
credit due to lack of economic substance, the deficiency is
attributable to overstatement of value, and subject to the
penalty under section 6659.” Massengill v. Commissioner, supra
at 619-620.
We also find that the facts in these cases are
distinguishable from the facts in Gainer v. Commissioner, supra,
Todd v. Commissioner, supra, and McCrary v. Commissioner, supra.
In Gainer and Todd, it was found that a valuation overstatement
did not contribute to an underpayment of taxes. In those cases,
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
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