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concession that the agreement at issue was a license and not a
lease. Although property was overvalued in each of those cases,
the overvaluation was not the ground on which the taxpayers’
liabilities were sustained. In contrast, a “different situation
exists where a valuation overstatement * * * is an integral part
of or is inseparable from the ground found for disallowance of an
item.” McCrary v. Commissioner, supra at 859. In the present
cases, we find that the overvaluation of the recyclers was
integral to and inseparable from petitioners’ claimed tax
benefits and the determination that Hamilton lacked economic
substance.5
Petitioners’ argument that there exists an alternate ground
for the disallowance of the claimed benefits that is independent
of an overvaluation statement ignores the facts in their cases.
Contrary to petitioners’ argument, the FPAA’s do not indicate
that the disallowance of tax benefits was premised upon the
recyclers’ not being placed in service. Instead, in the FPAA’s
respondent determined that Hamilton was not entitled to the
5 To the extent that Heasley v. Commissioner, 902 F.2d 380
(5th Cir. 1990), revg. T.C. Memo. 1988-408, merely represents an
application of Todd v. Commissioner, 862 F.2d 540 (5th Cir.
1988), affg. 89 T.C. 912 (1987), we consider Heasley
distinguishable. To the extent that Heasley is based on a
concept that where an underpayment derives from the disallowance
of a transaction for lack of economic substance, the underpayment
cannot be attributable to an overvaluation, this Court, as well
as the Court of Appeals for the Eighth Circuit, has disagreed.
See Massengill v. Commissioner, 876 F.2d 616 (8th Cir. 1989),
affg. T.C. Memo. 1988-427.
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