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based on reasonable factual or legal assumptions. Sec. 1.6664-
4(c), Income Tax Regs.; see Collins v. Commissioner, 857 F.2d
1383, 1386 (9th Cir. 1988), affg. T.C. Memo. 1987-217.
Petitioner was negligent and/or disregarded rules or
regulations as to the portions of its underpayments attributable
to its claimed lease strip deal rental expense deductions. We
hold that petitioner is liable for the 20-percent section 6662(a)
penalties for its taxable years ended November 30, 1996 and 1997,
equal to 20 percent of those portions of its underpayments
attributable to its claimed lease strip deal rental expense
deductions.
The portions of petitioner’s underpayments attributable to
its claimed note disposition losses constitute gross valuation
misstatements under section 6662(h). As we have held, the second
lease strip deal lacked economic substance and the $4,056,220
Jenrich note was not a valid indebtedness; i.e., had no value.
Petitioner claimed an adjusted basis in the Jenrich note in an
amount exceeding $4 million, an amount that was immensely greater
than the correct adjusted basis of zero. See sec. 1.6662-5(g),
Income Tax Regs. We hold that petitioner is liable for the 40-
percent accuracy-related penalties under section 6662(h) for its
taxable years ended November 30, 1996 and 1997, on those portions
of its underpayments attributable to its claimed note disposition
losses. See Gilman v. Commissioner, 933 F.2d 143, 149-152 (2d
Cir. 1991), affg. T.C. Memo. 1989-684.
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