-271-
valuations but included within that definition instances
involving inflated adjusted bases. See sec. 1.6662-5(h)(2),
Example, Income Tax Regs. (“Partnership P * * * claims a $40,000
basis in a depreciable asset which, in fact, has a basis of
$15,000. The determination that there is a substantial valuation
misstatement is made solely with reference to P by comparing the
$40,000 basis claimed by P with P’s correct basis of $15,000.”);
cf. Garrett v. Commissioner, T.C. Memo. 1997-231. On the basis
of the statutory definition, we cannot agree with petitioner that
an overvaluation is essential to the application of the section
6662(e) and (h) penalty.
Petitioner contends: “Outside of the Second Circuit, case
law covering the scope of the ‘valuation’ element of the
accuracy-related penalty has always emphasized that it is
applicable only to situations where the increased tax liability
is attributable to an actual misstatement of a valuation.”
Petitioner relies on Gainer v. Commissioner, 893 F.2d 225
(9th Cir. 1990), affg. T.C. Memo. 1988-416, and Todd v.
Commissioner, 862 F.2d 540 (5th Cir. 1988), affg. 89 T.C. 912
(1987). Gainer and Todd focused on the phrase “attributable to a
valuation overstatement” in former section 6659(a), the precursor
to section 6662(e) and (h).191 Pursuant to the holdings in those
191 In the Omnibus Reconciliation Act of 1989, Pub. L. 101-
239, sec. 7721, 103 Stat. 2395, Congress repealed former sec.
(continued...)
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