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the Heasleys and Merinos, Heasley did not provide “an analytical
umbrella for the Merinos”. Id. at 158. Because of petitioner’s
education and experience, as well as his repeated arguments that
he was qualified to analyze the Madison investment and did so,
petitioner is also “not the Heasleys”, and section 6659 is
properly imposed if petitioner’s claimed tax benefits were
disallowed because they were an integral part of a transaction
lacking economic substance.
In this case, respondent reduced petitioner’s reported
basis in his investment property, the recyclers, from $577,500
to zero so that the corresponding credits he had claimed were
also reduced to zero. Petitioner’s basis was reduced to zero in
accordance with respondent’s determination at the partnership
level that Madison’s basis in the recyclers was zero because
Madison had not incurred the benefits and burdens of ownership
of the recyclers, it had not made a true economic investment in
the recyclers, the liabilities to which the recyclers were
subject lacked economic substance and could not be considered a
cost of the equipment, and the recycler leasing activities were
shams without economic substance. The underpayment in this case
thus flows from respondent’s determination at the partnership
level that Madison did not have an economic investment in the
recyclers, a determination petitioner may not challenge here.
N.C.F. Energy Partners v. Commissioner, 89 T.C. 741, 745 (1987)
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