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value, the addition to tax is equal to 30 percent of the
underpayment. Sec. 6659(b). Petitioner bears the burden of
proving that respondent’s determination of the section 6659
addition to tax is erroneous. Rule 142(a); Luman v.
Commissioner, 79 T.C. at 860-861.
Petitioner claimed an investment tax credit based on a
purported basis in the recyclers of $577,500, petitioner’s
allocable share of Madison’s purported $7 million basis in the
recyclers. In the FPAA, however, respondent determined that
Madison’s actual basis in the recyclers was zero, in part
because Madison was a sham and lacked economic substance.
Respondent adjusted petitioner’s return in accordance with
Madison’s examination results, reducing both his basis of
$577,500 in the recyclers to zero and his Madison-related
credits to zero. If the disallowance of petitioner’s claimed
tax benefits is attributable to the valuation overstatement of
his basis in the recyclers, he is liable for the section 6659
addition to tax at the rate of 30 percent of the underpayment of
tax attributable to the tax benefits claimed with respect to
Madison unless he establishes that he is entitled to a waiver of
the penalty under section 6659(e). E.g., Thornsjo v.
Commissioner, T.C. Memo. 2001-129.
Petitioner contends that section 6659 does not apply in
this case because (1) respondent’s disallowance of the claimed
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