                       T.C. Memo. 1996-558



                     UNITED STATES TAX COURT



                  MARK FRIEDMAN, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent

           DAVID AND DEBORAH B. ALTER, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 24753-88, 6302-89.    Filed December 26, 1996.



     Stuart A. Smith and David H. Schnabel, for petitioners in

docket Nos. 24753-88 and 6302-89.

     Jennifer J. Kohler, Elizabeth A. Maresca, and Frances

Ferrito Regan, for respondent in docket No. 24753-88.

     Donald A. Glasel, Mitchell Hausman, Jennifer J. Kohler, and

Frances Ferrito Regan, for respondent in docket No. 6302-89.
                               - 2 -

                             CONTENTS

                                                            Page
MEMORANDUM FINDINGS OF FACT AND OPINION....................... 2
OPINION OF THE SPECIAL TRIAL JUDGE............................ 3
FINDINGS OF FACT.............................................. 6
  A. The Plastics Recycling Transactions...................... 6
  B. The Partnerships......................................... 8
  C. Petitioners and Their Introduction to the Partnership
     Transactions.............................................10
     1.   Mark Friedman.......................................10
     2.   David and Deborah B. Alter..........................14
OPINION.......................................................21
  A. Section 6653(a)--Negligence..............................24
     1.   The Private Offering Memoranda......................26
     2.   The So-Called Oil Crisis............................31
     3.   Petitioners' Purported Reliance on Advisers.........35
     4.   Miscellaneous.......................................50
     5.   Conclusion as to Negligence.........................57
  B. Section 6659--Valuation Overstatement....................58
     1.   The Grounds for Petitioners' Underpayments..........59
     2.   Concession of the Deficiencies......................64
     3.   Section 6659(e).....................................68
  C. Petitioners' Motions For Leave To File Motion For
     Decision Ordering Relief From the Negligence Penalty and
     the Penalty Rate of Interest and To File Supporting
     Memoranda of Law.........................................73

             MEMORANDUM FINDINGS OF FACT AND OPINION

     DAWSON, Judge:   These cases were assigned to Special Trial

Judge Norman H. Wolfe pursuant to the provisions of section

7443A(b)(4) and Rules 180, 181, and 183.   They were tried and

briefed separately but consolidated for purposes of opinion.     All

section references are to the Internal Revenue Code in effect for

the tax year in issue, unless otherwise indicated.   All Rule

references are to the Tax Court Rules of Practice and Procedure.

The Court agrees with and adopts the opinion of the Special Trial

Judge, which is set forth below.
                               - 3 -

                 OPINION OF THE SPECIAL TRIAL JUDGE

     WOLFE, Special Trial Judge:     These cases are part of the

Plastics Recycling group of cases.     For a detailed discussion of

the transactions involved in the Plastics Recycling cases, see

Provizer v. Commissioner, T.C. Memo. 1992-177, affd. without

published opinion 996 F.2d 1216 (6th Cir. 1993).      The facts of

the underlying transactions and the Sentinel recyclers in these

cases are substantially identical to those considered in the

Provizer case.

     In a notice of deficiency dated July 7, 1988, respondent

determined a deficiency in petitioner Friedman's 1981 Federal

income tax in the amount of $14,275, plus additions to tax in the

amount of $4,283 under section 6659 for valuation overstatement,

in the amount of $714 under section 6653(a)(1) for negligence,

and under section 6653(a)(2) in the amount of 50 percent of the

interest payable with respect to the portion of the underpayment

attributable to negligence.   Respondent also determined that

interest on the deficiency accruing after December 31, 1984,

would be calculated at 120 percent of the statutory rate under

section 6621(c).

     In a notice of deficiency dated January 19, 1989, respondent

determined a deficiency with respect to the joint Federal income

tax return filed by David and Deborah B. Alter (petitioners

Alter) for 1981 in the amount of $27,575, plus additions to tax

in the amount of $8,272.50 under section 6659 for valuation
                               - 4 -

overstatement, in the amount of $1,378.75 under section

6653(a)(1) for negligence, and under section 6653(a)(2) in the

amount of 50 percent of the interest payable with respect to the

portion of the underpayment attributable to negligence.

Respondent also determined that interest on the deficiency

accruing after December 31, 1984, would be calculated at 120

percent of the statutory rate under section 6621(c).   In a

stipulation of settled issues filed August 8, 1990, petitioners

Alter conceded the disallowance of a real estate office rent

deduction claimed on their 1981 return in the amount of $3,320.

     The parties in each of these consolidated cases filed

Stipulations of Settled Issues concerning the adjustments

relating to petitioners' participation in the Plastics Recycling

Program.   The stipulations provide:

     1. Petitioners are not entitled to any deductions,
     losses, investment credits, business energy investment
     credits or any other tax benefits claimed on their tax
     returns as a result of their participation in the
     Plastics Recycling Program.

     2. The underpayments in income tax attributable to
     petitioners' participation in the Plastics Recycling
     Program are substantial underpayments attributable to
     tax-motivated transactions, subject to the increased
     rate of interest established under I.R.C. §6621(c),
     formerly §6621(d).

     3. This stipulation resolves all issues that relate to
     the items claimed on petitioners' tax returns resulting
     from their participation in the Plastics Recycling
     Program, with the exception of petitioners' potential
     liability for additions to the tax for valuation
     overstatements under I.R.C. §6659 and for negligence
     under the applicable provisions of §6653(a).
                               - 5 -

     Long after the trials of these cases, petitioners each filed

a Motion For Leave To File Motion For Decision Ordering Relief

From the Negligence Penalty and the Penalty Rate of Interest and

To File Supporting Memorandum of Law under Rule 50.   These

motions were filed with attached exhibits on October 20, 1995, in

the Friedman case, and on November 13, 1995, in the Alter case.

On those same dates, petitioners each also lodged with the Court

a motion for decision ordering relief from the additions to tax

for negligence and the increased rate of interest, with

attachments, and a memorandum in support of the motion.

Subsequently, respondent filed objections, with attachments, and

memoranda in support thereof, and petitioners thereafter filed

reply memoranda.   For reasons discussed in more detail at the end

of this opinion, and also in Farrell v. Commissioner, T.C. Memo.

1996-295, these motions shall be denied.   See also Gollin v.

Commissioner, T.C. Memo. 1996-454; Grelsamer v. Commissioner,

T.C. Memo. 1996-399; Zenkel v. Commissioner, T.C. Memo. 1996-398.

     The issues remaining in these consolidated cases are:    (1)

Whether petitioners are liable for the additions to tax for

negligence under section 6653(a)(1) and (2); and (2) whether

petitioners are liable for additions to tax under section 6659

for underpayments of tax attributable to valuation

overstatements.
                                 - 6 -

                          FINDINGS OF FACT

     Some of the facts have been stipulated in each case and are

so found.    The stipulated facts and attached exhibits are

incorporated in the respective cases by this reference.

A.   The Plastics Recycling Transactions

     These cases concern petitioners' investments in two limited

partnerships that leased Sentinel expanded polyethylene (EPE)

recyclers:    Clearwater Group (Clearwater) and Poly Reclamation

Associates (Poly Reclamation).    Petitioner Friedman is a limited

partner in Clearwater, and petitioners Alter are limited partners

in Poly Reclamation.    For convenience, we refer to these

partnerships collectively as the Partnerships.

     The Clearwater partnership, and the transactions involving

the Sentinel EPE Recyclers leased by Clearwater, were considered

in Provizer v. Commissioner, supra.      The transactions involving

the Sentinel EPE recyclers leased by Poly Reclamation are

substantially identical to the Clearwater transactions.

Petitioners have stipulated substantially the same facts

concerning the underlying transactions as we found in the

Provizer case.

     In the Provizer case, Packaging Industries, Inc. (PI),

manufactured and sold six Sentinel EPE recyclers to ECI Corp. for

$981,000 each.    ECI Corp., in turn, resold the recyclers to F & G
                                - 7 -

Corp. for $1,162,666 each.   F & G Corp. then leased the recyclers

to Clearwater, which licensed the recyclers to FMEC Corp., which

sublicensed them back to PI.   The sales of the recyclers from PI

to ECI Corp. were financed with nonrecourse notes.    Approximately

7 percent of the sales price of the recyclers sold by ECI Corp.

to F & G Corp. was paid in cash with the remainder financed

through notes.   These notes provided that 10 percent of the notes

were recourse but that the recourse portion of the notes was only

due after the nonrecourse portion, 90 percent, was paid in full.

     All of the monthly payments required among the entities in

the above transactions offset each other.    These transactions

were done simultaneously.    Although the recyclers were sold and

leased for the above amounts under the structure of simultaneous

transactions, the fair market value of a Sentinel EPE recycler in

1981 was not in excess of $50,000.

     PI allegedly sublicensed the recyclers to entities that

would use them to recycle plastic scrap.    The sublicense

agreements provided that the end-users would transfer to PI 100

percent of the recycled scrap in exchange for a payment from FMEC

Corp. based on the quality and amount of recycled scrap.

     Like Clearwater, Poly Reclamation leased Sentinel EPE

recyclers from F & G Corp. and licensed those recyclers to FMEC

Corp.   Apart from the entity that leased the machines from F & G
                                 - 8 -

Corp. and licensed them to FMEC Corp., the transactions of the

Partnerships do not differ in any substantive respects.

     For convenience, we refer to the series of transactions

among PI, ECI Corp., F & G Corp., each of the Partnerships, FMEC

Corp., and PI as the Partnership transactions.    In addition to

the Partnership transactions, a number of other limited

partnerships entered into transactions similar to the Partnership

transactions, also involving Sentinel EPE recyclers and Sentinel

expanded polystyrene (EPS) recyclers.    We refer to these

collectively as the Plastics Recycling transactions.

B.   The Partnerships

     Clearwater and Poly Reclamation are New York limited

partnerships.   Poly Reclamation and Clearwater each closed during

the latter few months of 1981.    Samuel L. Winer (Winer) is the

general partner of both Clearwater and Poly Reclamation.

     With respect to each of the Partnerships, a private

placement memorandum was distributed to potential limited

partners.   Reports by F & G Corp.'s evaluators, Dr. Stanley M.

Ulanoff (Ulanoff), a marketing consultant, and Dr. Samuel Z.

Burstein (Burstein), a mathematics professor, were appended to

the offering memoranda.   Ulanoff owns a 1.27-percent interest in

Plymouth Equipment Associates and a 4.37-percent interest in

Taylor Recycling Associates, partnerships that leased Sentinel
                               - 9 -

recyclers.   Burstein owns a 2.605-percent interest in Empire

Associates and a 5.82-percent interest in Jefferson Recycling

Associates, also partnerships that leased Sentinel recyclers.

Burstein also was a client and business associate of Elliot I.

Miller (Miller), the corporate counsel to PI.

     Each of the offering memoranda for Clearwater and Poly

Reclamation states that the general partner will receive fees

from the partnership in the amount of $60,000.    In addition, each

of the offering memoranda provides that the general partner "may

retain as additional compensation all amounts not paid as sales

commissions or offeree representative fees".    According to the

offering memoranda, 10 percent of the proceeds from each offering

were allocated to the payment of sales commissions and offeree

representative fees.

     The offering memoranda list significant business and tax

risk factors associated with investments in the Partnerships.

Specifically, the offering memoranda state:    (1) There is a

substantial likelihood of audit by the Internal Revenue Service

(IRS) and the purchase price paid by F & G Corp. to ECI Corp.

probably will be challenged as being in excess of fair market

value; (2) the Partnerships have no prior operating history; (3)

the general partner has no prior experience in marketing

recycling or similar equipment; (4) the limited partners have no
                             - 10 -

control over the conduct of the Partnerships' business; (5) there

is no established market for the Sentinel EPE recyclers; (6)

there are no assurances that market prices for virgin resin will

remain at their current costs per pound or that the recycled

pellets will be as marketable as virgin pellets; and (7) certain

potential conflicts of interest exist.

C. Petitioners and Their Introduction to the Partnership
Transactions

     1.   Mark Friedman

     Petitioner Mark Friedman (Friedman) resided in New York, New

York, when his petition was filed.    Friedman was a member of Phi

Betta Kappa and graduated magna cum laude from the University of

Pennsylvania in 1970 with a B.A. degree in history.   He then

attended the University of Pennsylvania Law School and became the

articles editor of its law review.    After his graduation from law

school in 1973, Friedman became employed by the law firm of

Simpson, Thatcher & Bartlett in New York City.   Four years later

he became employed by the law firm of Shea & Gould, also in New

York City, and became a partner of that firm on January 1, 1982.

Friedman specializes in corporate and Federal securities law.     He

has represented issuers and underwriters in both public and

private offerings of securities.   One of his primary functions

has been drafting prospectuses and offering circulars.
                              - 11 -

     By 1981 Friedman was very familiar with the typical content

of a prospectus or private offering memorandum.   In addition to

his professional experience, Friedman has been an active investor

since 1973.   From 1973 to 1981 Friedman invested in a "great

number" of publicly traded stocks and private placements.     His

approach to those investments was thorough and methodical:

Friedman read the prospectus or private offering memorandum,

spoke to an expert in the pertinent industry, investigated the

risk factors described in the offering materials, consulted

industry reports, and spoke to other active investors or lawyers.

Friedman is "sophisticated enough to know that in any tax

investment the underlying economics have to be legitimate."

     In 1981 Friedman acquired a 1.547-percent1 interest in

Clearwater for $12,500.   As a result of his investment in

Clearwater, on his 1981 Federal income tax return Friedman

claimed an operating loss in the amount of $10,002.   Of a total

of $21,584 in investment tax and business energy credits,




1
     The parties stipulated that Friedman owned 25 percent of the
profits, losses, and capital of Clearwater during taxable year
1981. However, Friedman's 1981 Schedule K-1, Partner's Share of
Income, Credits, Deductions, etc., attached to Clearwater's 1981
partnership return, reports that he owned a 1.547-percent
interest in Clearwater.
                              - 12 -

Friedman used $9,290 on his 1981 return.2   Respondent disallowed

Friedman's claimed operating loss and investment credit flowing

from Clearwater.3

     Friedman was told about the Plastics Recycling transactions

by several partners at Shea & Gould.   Approximately eight

partners contemplated investing in a Plastics Recycling

transaction.   Friedman understood that Stuart Hirshfield

(Hirshfield), a bankruptcy specialist at Shea & Gould, previously

had done business with Winer and thought well of him.   Hirshfield

and two other partners, Dan Carroll (Carroll) and Lonn Trost

(Trost), each made inquiries about some aspects of the Plastics

Recycling transactions.   Friedman also understood that Trost and

Hirshfield visited PI at least once and viewed some Sentinel EPE

recyclers.   Alan Parker (Parker), a tax partner, reviewed the tax



2
     Friedman's basis in the Clearwater Sentinel EPE recyclers
was $107,918. He had a basis in other property qualifying for
the investment tax credit in the amount of $3,211. Friedman's
tentative investment tax and business energy credits flowing from
Clearwater each totaled $10,792. However, Friedman's business
energy credit was subject to a limitation in the amount of zero,
and his regular investment credit was subject to a limitation in
the amount of $9,611. Of the total investment credit claimed in
1981 by Friedman, $9,290 was from Clearwater and $321 was from
other qualifying property. The record in docket No. 24753-89
does not disclose whether Friedman carried forward or back his
unused credits.
3
     Respondent allowed $321 in investment tax credits related to
other property not at issue herein.
                               - 13 -

benefits and indicated that they were supportable, provided "that

from a business point of view this was a good economic

investment".    Friedman decided to invest in Clearwater after

reading the offering memorandum and discussing the investment

with his colleagues at Shea & Gould.    He also provided a copy of

the offering memorandum to his accountant.    The accountant had no

experience in plastics or plastics recycling, and did not

independently investigate the plastics industry or the Sentinel

EPE recycler.

     Friedman does not have any education or experience in

engineering, plastics materials, or plastics recycling.    He

understood that Carroll had a background in engineering and that

another partner, Joseph Ferraro (Ferraro), may have had some

experience in his past with plastics.    Friedman did not see a

Sentinel EPE recycler, investigate the uniqueness of the machine,

investigate whether the value placed on the recycler was bona

fide, or investigate whether there were any other machines that

were designed to recycle low density polyethylene.    He did not do

any type of cash flow analysis or check any of the figures in the

offering memorandum.    Friedman did not personally investigate PI.

He did not ask whether the technology for the Sentinel EPE

recycler was patented or inquire whether there were any suitable

end-users for the recyclers.    He did not review any periodicals
                               - 14 -

relating to resin prices.    He never made a profit in any year

from his investment in Clearwater.

2.   David and Deborah B. Alter

     Petitioners David and Deborah B. Alter resided in New York,

New York, at the time their petition was filed.      David Alter

(Alter) graduated from the Harvard Law School and has been

practicing law since 1950.    Alter has been a member of several

law firms since 1954:   From 1954 to 1966 he was a partner at the

law firm of Squadron, Alter & Weinrib; from 1966 to 1979 he was a

partner of the law firm of Alter, LeFevre, Raphael & Lowry

(Alter, LeFevre);4 and from 1979 to 1989 he was a partner at the

law firm of Shea & Gould.    Alter is a general practitioner with a

concentration in entertainment and labor law.      Among the services

he provided to his clients were the preparation and review of

contracts, general tax advice, estate planning, and administering

and maintaining financial records.      On occasion, Alter's

entertainment clients asked him to review offering materials for

investment opportunities that they had learned of elsewhere.       In




4
     Alter, LeFevre underwent several name changes during Alter's
tenure as a partner. Apparently, Alter, LeFevre, Raphael & Lowry
was the name of the firm by 1978. For convenience, references to
"Alter, LeFevre" include its predecessor names while Alter was a
partner.
                              - 15 -

the course of his practice, Alter advised his clients whether to

consider such investments.

     Alter acquired a 1.547-percent interest in Poly Reclamation

for $12,500 in 1981.   As a result of his investment in Poly

Reclamation, on their joint 1981 Federal income tax return Alter

and his wife Deborah claimed an operating loss in the amount of

$9,976, and investment tax and business energy credits totaling

$21,584.5   Respondent disallowed the Alters' claimed operating

loss and investment tax and business energy credits flowing from

Poly Reclamation.

     Alter learned of the Plastics Recycling transactions from

Hirshfield, who in turn had been introduced to the transactions

by Winer.   Alter understood that Hirshfield previously had done

business with Winer and thought well of him.   Alter read the Poly

Reclamation offering memorandum and attended some meetings with

other Shea & Gould partners who were considering an investment in

the Plastics Recycling transactions, including Hirshfield,

Carroll, Ferraro, Trost, and Parker.   He understood that Carroll

had a background in engineering, and that Ferraro, who at the

time represented British Petroleum, had worked at a plastics



5
     Alter and his wife claimed an additional $1,046 in regular
investment credits from other qualifying property on their 1981
return.
                               - 16 -

company for one or more summers during and prior to law school.

Martin Feinstein (Feinstein), an associate at Shea & Gould, also

reviewed the Plastics Recycling transactions for Alter and some

of Alter's clients.

     Feinstein has a B.A. in economics from Brooklyn College and

graduated cum laude from the New York University School of Law.

He is a member of the New York State bar and during 1981 he also

was a certified public accountant (C.P.A.).     Feinstein earned the

credits that enabled him to sit for the C.P.A. exam from New York

University.   During law school, and for a time afterward,

Feinstein worked at an accounting firm.     He then joined a

business management company, Vincent Andrews, Inc. (VAI).      VAI

managed the finances of people primarily in the entertainment and

theatrical industry.   Feinstein specialized in tax matters and

budgeting at VAI.    He and Alter met in 1969 through a VAI client,

Bill Cullen, who at the time also was represented by Alter in a

tax matter.   Feinstein subsequently joined Alter, LeFevre

sometime in 1969.6

     Feinstein continued to advise persons regarding financial

and tax matters at Alter, LeFevre.      The firm provided a variety


6
     At trial, Feinstein recalled that at the time he joined
Alter, LeFevre, the name of the firm was Pross, Halpern, Smith.
Alter's posttrial brief indicates that the firm's name at that
time was Pross, Smith, Halpern & LeFevre.
                              - 17 -

of financial services to its clients.   For some clients, it

maintained checking accounts, paid bills, and prepared weekly

statements showing the client's opening balance, deposits,

withdrawals, and expenditures.   On January 1, 1979, Alter,

LeFevre merged with another law firm, Aranow & Brodsky, but the

resulting firm ceased operations by Labor Day of that year, and

that same month Alter and Feinstein joined Shea & Gould.

     In the fall of 1981, Alter asked Feinstein to review the

Plastics Recycling transactions as a potential investment for

Alter and some of his clients.   Feinstein received a copy of the

Poly Reclamation offering memorandum from Winer.   He spent

approximately 4 to 6 hours reviewing it, including the financial

projections and the tax opinion.   Feinstein understood that

Hirshfield and Ferraro had spoken to members of the law firm that

drafted the tax opinion, and that they and Trost were satisfied

with the opinion.   He also understood that "someone asked one of

the tax partners to look at the thing in general", but he did not

know "how much detail * * * [Shea & Gould] did."   Although Alter

claimed that he asked Feinstein "to check with the tax partner in

the firm, Alan Parker", Feinstein did not speak with Parker.

     Feinstein relied on the offering memorandum for the value of

the Sentinel EPE recycler.   He understood that the purported

value of the Sentinel EPE recycler was based upon a projected
                                - 18 -

stream of future income.    Feinstein did not verify the

manufacturing cost of a Sentinel EPE recycler beyond speaking

with a friend and associate,7 "about pricing and how things are

priced in that industry."    He understood from his friend that the

stream-of-income method of valuation was not an unusual means of

pricing equipment.    Feinstein reviewed the stream of income

projections in the offering memorandum, but did not verify any of

the assumptions upon which they were based.     He did not research

or investigate the market for plastics recyclers or recycled

resin pellets.

     Feinstein spoke to a friend, Jerry Lauren (Lauren), who was

a manufacturer's representative in the plastics packaging

industry.   He understood from Lauren that PI was a privately

owned company that made specialized machinery for companies

involved in the packaging industry.      Feinstein did not formally

hire or pay Lauren.    He did not provide Lauren with a copy of the

Poly Reclamation offering memorandum.     Lauren did not prepare a

written report for Feinstein.    Feinstein "never asked * * *

[Lauren] anything about the partnership".     He only asked Lauren

what he knew about PI.    Feinstein did not ask Lauren, or anyone




7
     Feinstein did not state who this friend and associate was or
what his or her credentials were.
                              - 19 -

else, whether any plastics recycling machines comparable to the

Sentinel machines already were available on the market.

     Feinstein has no education or experience in plastics

materials or plastics recycling, and he was not under the

impression that Hirshfield, Trost, or Ferraro had any education

or experience in the plastics industry.   He did not visit PI and

there is no indication in the record in docket No. 6302-89 that

Feinstein ever saw a Sentinel EPE recycler.   Feinstein did not

review any marketing plans or research the market for plastics

recyclers or recycled ground resin pellets.   He was unaware that

the Sentinel EPE recycler was incapable of recycling expanded

polyethylene by itself, and had to be used in connection with

grinders, extruders, and pelletizers.   Feinstein did not know how

many other partnerships would be leasing Sentinel recyclers.

     Feinstein told Alter about Lauren and his comments about PI.

Alter knew that Lauren and Feinstein had not visited PI, or

investigated whether competitive machines existed, or made a

judgment as to the value of a Sentinel EPE recycler.   He also

knew that neither Feinstein nor Lauren personally invested in a

Plastics Recycling transaction.   Alter accepted the fair market

value of the Sentinel EPE recycler as set out in the offering

memorandum.   He had "no competence to" confirm the value of the

machines or "to do any comparison", and he did not hire anyone to
                                - 20 -

value the machine.    Like Feinstein, Alter did not know that the

Sentinel EPE recycler did not recycle plastic by itself but had

to be used in connection with other machines.     Alter did not

review any plastics industry trade journals for competing

recyclers or otherwise inquire as to whether there were any

comparable machines already on the market.

     Alter told at least four of his clients that he was

investing in a Plastics Recycling transaction and that the

investment was open to them as well.     He told them that he and

other members of Shea & Gould thought that the investment seemed

sound.    Feinstein and Alter met with these clients and explained

the details of the investment.    Alter did not advise his clients

to read the offering memorandum, but it was available for them to

read.    He did not suggest that they consult with any plastics

experts.    At least four of Alter's clients, as well as Alter,

invested in a plastics Recycling transaction in 1981.     Alter and

those same four clients invested in another Plastics Recycling

transaction in 1982.

     Alter and his wife Deborah have no education or work

experience in plastics materials or plastics recycling.     Prior to

investing in the Plastics Recycling transactions, Alter did not

know anything about the business of PI and had not seen a

Sentinel EPE or EPS recycler.    His knowledge of PI was limited to
                               - 21 -

the information in the offering materials and what Feinstein told

him.    The warnings and caveats in the offering memorandum did not

concern him.    Alter never asked whether there were any comparable

machines already on the market, and he was unaware of any

companies that would be suitable end-users for the recyclers.      He

knew that Feinstein did not have any expertise in plastics

materials or plastics recycling.    Alter and his wife Deborah

never made a profit from their participation in Poly Reclamation.

                               OPINION

       We have decided a large number of the Plastics Recycling

group of cases.8   The majority of these cases, like the present


8
     Provizer v. Commissioner, T.C. Memo. 1992-177, affd. without
published opinion 996 F.2d 1216 (6th Cir. 1993), concerned the
substance of the partnership transaction and also the additions
to tax.
     The following cases concerned the addition to tax for
negligence, inter alia: Becker v. Commissioner, T.C. Memo. 1996-
538; Jaroff v. Commissioner, T.C. Memo. 1996-527; Gollin v.
Commissioner, T.C. Memo. 1996-454; Grelsamer v. Commissioner,
T.C. Memo. 1996-399; Zenkel v. Commissioner, T.C. Memo. 1996-398;
Estate of Busch v. Commissioner, T.C. Memo. 1996-342; Spears v.
Commissioner, T.C. Memo. 1996-341; Stone v. Commissioner, T.C.
Memo. 1996-230; Reimann v. Commissioner, T.C. Memo. 1996-84;
Bennett v. Commissioner, T.C. Memo. 1996-14; Atkind v.
Commissioner, T.C. Memo. 1995-582; Triemstra v. Commissioner,
T.C. Memo. 1995-581; Pace v. Commissioner, T.C. Memo. 1995-580;
Dworkin v. Commissioner, T.C. Memo. 1995-533; Wilson v
Commissioner, T.C. Memo. 1995-525; Avellini v. Commissioner, T.C.
Memo. 1995-489; Paulson v. Commissioner, T.C. Memo. 1995-387;
Zidanich v. Commissioner, T.C. Memo. 1995-382; Ramesh v.
Commissioner, T.C. Memo. 1995-346; Reister v. Commissioner, T.C.
Memo. 1995-305; Fralich v. Commissioner, T.C. Memo. 1995-257;
                                                   (continued...)
                               - 22 -

cases, raised issues regarding additions to tax for negligence

and valuation overstatement.   We have found the taxpayers liable

for the additions to tax in all but one of the opinions to date

on these issues, although procedural rulings have involved many

more favorable results for taxpayers.9



8
 (...continued)
Shapiro v. Commissioner, T.C. Memo. 1995-224; Pierce v.
Commissioner, T.C. Memo. 1995-223; Fine v. Commissioner, T.C.
Memo. 1995-222; Pearlman v. Commissioner, T.C. Memo. 1995-182;
Kott v. Commissioner, T.C. Memo. 1995-181; Eisenberg v.
Commissioner, T.C. Memo. 1995-180.
     Greene v. Commissioner, 88 T.C. 376 (1987), concerned the
applicability of the safe-harbor leasing provisions of sec.
168(f)(8). Trost v. Commissioner, 95 T.C. 560 (1990), concerned
a jurisdictional issue.
     Farrell v. Commissioner, T.C. Memo. 1996-295; Baratelli v.
Commissioner, T.C. Memo. 1994-484; Estate of Satin v.
Commissioner, T.C. Memo. 1994-435; Fisher v. Commissioner, T.C.
Memo. 1994-434; Foam Recycling Associates v. Commissioner, T.C.
Memo. 1992-645; Madison Recycling Associates v. Commissioner,
T.C. Memo. 1992-605, concerned other issues.
9
     In Zidanich v. Commissioner, T.C. Memo. 1995-382, we held
the taxpayers liable for the sec. 6659 addition to tax, but not
liable for the negligence additions to tax under sec. 6653(a).
As indicated in our opinion, the Zidanich case, and the Steinberg
case consolidated with it for opinion, involved exceptional
circumstances.
     In Estate of Satin v. Commissioner, supra, and Fisher v.
Commissioner, supra, after the decision in Provizer v.
Commissioner, supra, the taxpayers were allowed to elect to
accept a beneficial settlement because of exceptional
circumstances. In Farrell v. Commissioner, supra, we rejected
the taxpayers' claim to a similar belated settlement arrangement
since the circumstances were different and the taxpayers
previously had rejected settlement and elected to litigate the
case. See also Zenkel v. Commissioner, supra; Baratelli v.
Commissioner, supra.
                              - 23 -

     In Provizer v. Commissioner, T.C. Memo. 1992-177, a test

case for the Plastics Recycling group of cases, this Court (1)

found that each Sentinel EPE recycler had a fair market value not

in excess of $50,000, (2) held that the Clearwater transaction

was a sham because it lacked economic substance and a business

purpose, (3) upheld the section 6659 addition to tax for

valuation overstatement since the underpayment of taxes was

directly related to the overstatement of the value of the

Sentinel EPE recyclers, and (4) held that losses and credits

claimed with respect to Clearwater were attributable to tax-

motivated transactions within the meaning of section 6621(c).    In

reaching the conclusion that the transaction lacked economic

substance and a business purpose, this Court relied heavily upon

the overvaluation of the Sentinel EPE recyclers.

     Although petitioners have not agreed to be bound by the

Provizer opinion, the Clearwater transaction was considered in

Provizer v. Commissioner, supra, and the Alters stipulated that

the Poly Reclamation transaction is substantially identical to

the Clearwater transaction.   The underlying transactions in these

cases, and the Sentinel EPE recyclers purportedly leased by the

Partnerships, are the same type of transaction and same type of

machines considered in Provizer v. Commissioner, supra.
                              - 24 -

     Based on the entire records in these cases, including the

extensive stipulations, testimony of respondent's experts, and

petitioners' testimony, we hold that each of the Partnership

transactions herein was a sham and lacked economic substance.       In

reaching this conclusion, we rely heavily upon the overvaluation

of the Sentinel EPE recyclers.     Respondent is sustained on the

question of the underlying deficiencies.     We note that

petitioners have explicitly conceded this issue in the

stipulations of settled issues filed shortly before trial.     The

records plainly support respondent's determinations regardless of

such concessions.   For a detailed discussion of the facts and the

applicable law in a substantially identical case that also

involved Clearwater, see Provizer v. Commissioner, supra.

A.   Section 6653(a)--Negligence

     In notices of deficiency, respondent determined that each of

petitioners was liable for the additions to tax for negligence

under section 6653(a)(1) and (2) for 1981.     Petitioners have the

burden of proving that respondent's determinations of these

additions to tax are erroneous.     Rule 142(a); Luman v.

Commissioner, 79 T.C. 846, 860-861 (1982).

     Section 6653(a)(1) imposes an addition to tax equal to 5

percent of the underpayment if any part of an underpayment of tax

is due to negligence or intentional disregard of rules or
                              - 25 -

regulations.   Section 6653(a)(2) imposes an addition to tax equal

to 50 percent of the interest payable with respect to the portion

of the underpayment attributable to negligence or intentional

disregard of rules or regulations.

     Negligence is defined as the failure to exercise the due

care that a reasonable and ordinarily prudent person would employ

under the circumstances.   Neely v. Commissioner, 85 T.C. 934, 947

(1985).   The question is whether a particular taxpayer's actions

in connection with the transactions were reasonable in light of

his experience and the nature of the investment or business.    See

Henry Schwartz Corp. v. Commissioner, 60 T.C. 728, 740 (1973).

When considering the negligence addition to tax, we evaluate the

particular facts of each case, judging the relative

sophistication of the taxpayers, as well as the manner in which

they approached their investment.    McPike v. Commissioner, T.C.

Memo. 1996-46.   Compare Spears v. Commissioner, T.C. Memo. 1996-

341 with Zidanich v. Commissioner, T.C. Memo. 1995-382.

     Petitioners argue that they were reasonable in claiming

deductions and credits with respect to the Partnerships.    They

maintain that they carefully read the respective offering

memoranda, expected an economic profit in light of the so-called

oil crisis in the United States in 1981, and that they reasonably
                              - 26 -

relied upon their colleagues at Shea & Gould as qualified

advisers on this matter.

     1.   The Private Offering Memoranda

     Friedman and Alter each testified that they read the

respective offering memoranda.    Their testimony and actions,

however, indicate that they did not give due consideration to all

of the information set out in the offering memoranda, and that

they ultimately did not place a great deal of reliance, if any,

on the representations therein.

     The offering memoranda raised numerous caveats and warnings

with respect to the Partnerships, including:    (1) The

Partnerships had no operating history; (2) management of the

Partnerships' business was dependent upon the general partner,

who had no experience in marketing recycling equipment and who

was required to devote only such time to the Partnerships as he

deemed necessary; (3) the limited partners had no right to take

part in, or interfere in any manner with, the management or

conduct of the business of the Partnerships; (4) there was no

established market for the Sentinel recyclers; and (5) although

competitors purportedly were not marketing comparable equipment,

and the Sentinel recyclers purportedly involved "carefully

guarded trade secrets," PI did "not intend to apply for a patent

for protection against appropriation and use by others."
                               - 27 -

     Friedman testified that he was an active investor from 1973

to 1981, and that it was his established practice to read the

accompanying prospectus or offering memorandum and investigate

the risks that were described therein.    With respect to

Clearwater, however, Friedman did not investigate the risks

described in the offering memorandum or even seek to verify the

purported value or uniqueness of a Sentinel EPE recycler.    Alter

testified that he was not concerned by the risk factors described

in the Poly Reclamation offering memorandum, and commented that

he had "seen similar disclaimers in other red herrings or

offering memoranda."   Asked what he did to confirm the value of

the machine, Alter testified "I had no competence to do that, to

do any comparison."    Alter did not hire an expert to value the

Sentinel EPE recycler, and he knew that Feinstein and Lauren had

not made a judgment as to the value of the machine.    The records

in these cases do not reflect a careful and studied consideration

of the offering memoranda by either petitioner.

     The projected tax benefits in the Clearwater and Poly

Reclamation offering memoranda exceeded petitioners' investments.

According to the Clearwater and Poly Reclamation offering

memoranda, for each $50,000 investor, the projected first-year

tax benefits were investment tax credits in the amount of $86,328

for each partnership, plus deductions in the amounts of $39,399
                              - 28 -

and $39,162, respectively.   For his $12,500 investment in

Clearwater, Friedman claimed an operating loss in the amount of

$10,002, and investment tax and business energy credits in the

amount of $9,29010 on his 1981 return.   As a result of Alter's

$12,500 investment in Poly Reclamation, on their 1981 return he

and his wife Deborah claimed an operating loss in the amount of

$9,976 and investment tax and business energy credits totaling

$21,584.

     The investment tax and business energy credits generated by

the Partnerships and available to petitioners equaled 173 percent

of their cash investments.   Therefore, after adjustments of

withholding, estimated tax, or final payment, and possible

carryback or carryover in Friedman's case, like the taxpayers in

Provizer v. Commissioner, T.C. Memo. 1992-177, "except for a few

weeks at the beginning, petitioners never had any money in the *

* * [Partnership transactions]."   In view of the

disproportionately large tax benefits claimed on petitioners'

Federal income tax returns, relative to the dollar amounts

invested, further investigation of the Partnership transactions

clearly was required.   A careful consideration of the materials



10
     As noted, the total amount of investment tax and business
energy credits flowing from Clearwater to Friedman in 1981--
$21,584--was subject to limitation.
                              - 29 -

in the offering memoranda in these cases, especially the

discussions of high writeoffs and risk of audit, should have

alerted a prudent and reasonable investor to the questionable

nature of the promised deductions and credits.   See Collins v.

Commissioner, 857 F.2d 1383, 1386 (9th Cir. 1988), affg. Dister

v. Commissioner, T.C. Memo. 1987-217; Sacks v. Commissioner, T.C.

Memo. 1994-217, affd. 82 F.3d 918 (9th Cir. 1996).

     Petitioners' reliance upon the Court of Appeals for the

Ninth Circuit's partial reversal of our decision in Osterhout v.

Commissioner, T.C. Memo. 1993-251, affd. in part and revd. in

part without published opinion sub nom. Balboa Energy Fund 1981

v. Commissioner, 85 F.3d 634 (9th Cir. 1996), is misplaced.     In

Osterhout, we found that certain oil and gas partnerships were

not engaged in a trade or business and sustained the

Commissioner's imposition of the negligence additions to tax with

respect to one of the partners therein.11   The Court of Appeals

for the Ninth Circuit reversed our imposition of the negligence



11
     Osterhout v. Commissioner, T.C. Memo. 1993-251, affd. in
part and revd. in part without published opinion sub nom. Balboa
Energy Fund 1981 v. Commissioner, 85 F.3d 634 (9th Cir. 1996),
involved a group of consolidated cases. The parties therein
agreed to be bound by the Court's opinion regarding the
application of the additions to tax under sec. 6653(a), inter
alia. Accordingly, although the Court's analysis focused on one
taxpayer, the additions to tax were sustained with respect to all
of the taxpayers.
                              - 30 -

additions to tax.   Petitioners point out that the taxpayer in

that case relied in part upon a tax opinion contained in the

offering materials.

     In the consolidated cases before us, however, petitioners'

purported reliance on the tax opinion letter is undermined by

their indifference to the numerous caveats and warnings

highlighted throughout the offering materials.   Moreover, the

offering memoranda for the Partnerships herein warned prospective

investors that the accompanying tax opinion letters were not in

final form and were prepared for the general partner, and that

prospective investors should consult their own professional

advisers with respect to the tax benefits and tax risks

associated with the Partnerships.   The tax opinion letters

accompanying the Clearwater and Poly Reclamation offering

memoranda were addressed solely to the general partner and began

with the following opening disclaimer:

     This opinion is provided to you for your individual
     guidance. We expect that prospective investors will
     rely upon their own professional advisors with respect
     to all tax issues arising in connection with their
     investment in the Partnership and the operations
     thereof. We recognize that you intend to include this
     letter with your offering materials and we have
     consented to that with the understanding that the
     purpose in distributing it is to assist your offerees'
     tax advisors in making their own analysis and not to
     permit any prospective investor to rely upon our advice
     in this matter. [Emphasis added.]
                              - 31 -

Accordingly, the tax opinion letters expressly indicate that

prospective investors such as petitioners were not to rely upon

the tax opinion letter.   See Collins v. Commissioner, supra.    The

limited, technical opinion of tax counsel expressed in these

letters was not designed as advice upon which taxpayers might

rely, and the opinion of counsel itself so states.   As

sophisticated attorneys and investors, Friedman and Alter knew or

should have known that the opinion letter had a limited function,

that the caveats and warnings in the letter were to be taken

seriously, and certainly that they could not rely upon the

opinion letter without full investigation of the economic and

other factual assumptions upon which it explicitly was based.

     2.   The So-Called Oil Crisis

     Petitioners each testified that they reasonably expected to

make an economic profit from the Partnership transactions because

plastic is an oil derivative and the United States was

experiencing a so-called oil crisis during the year 1981.    Based

upon our review of the records, we find petitioners' claims

unconvincing, regardless of the so-called oil crisis.     Moreover,

testimony by one of respondent's experts establishes that the oil

pricing changes during the late 1970's and early 1980's did not

justify petitioners' claiming excessive investment credits and
                              - 32 -

purported losses based on vastly exaggerated valuations of

recycling machinery.

     Petitioners did not seriously educate themselves in, or

personally investigate, the plastics recycling transactions, nor

did they consult any plastics materials or plastics recycling

experts regarding the business prospects for such a venture.

Alter stipulated that prior to investing in Clearwater:   He knew

nothing about the business of PI; he did not inquire as to

whether there were any other competing machines; he was unaware

of any suitable end-users; and he knew nothing about resin

prices.   Friedman stipulated that prior to investing in Poly

Reclamation:   He did not investigate whether there were any other

competing machines; he did not investigate how the Sentinel EPE

recycler functioned; he did not investigate the uniqueness of the

machine or whether its purported value was bona fide; and he did

not investigate whether there were any suitable end-users for the

recyclers.   Petitioners did not attempt to resolve the numerous

business-related caveats and warnings in the offering memoranda.

We are not convinced that petitioners gave sufficient

consideration to the business aspects of the Partnerships to show

that they intended and reasonably expected to make an economic

profit from the transactions, regardless of the so-called oil

crisis.
                              - 33 -

     Moreover, petitioners did not adequately explain how the so-

called oil crisis provided a reasonable basis for them to invest

in the Partnerships and claim the associated tax deductions and

credits.   The offering materials warned that there could be no

assurances that prices for new resin pellets would remain at

their then current level.   One of respondent's experts, Steven

Grossman, explained that the price of plastics materials is not

directly proportional to the price of oil.    In his report, he

stated that less than 10 percent of crude oil is utilized for

making plastics materials and that studies have shown that "a

300% increase in crude oil prices results in only a 30 to 40%

increase in the cost of plastics products."    Furthermore, during

1980 and 1981, in addition to the media coverage of the so-called

oil crisis, there was "extensive continuing press coverage of

questionable tax shelter plans."    Zmuda v. Commissioner, 731 F.2d

1417, 1422 (9th Cir. 1984), affg. 79 T.C. 714 (1982).

     Petitioners' reliance on Krause v. Commissioner, 99 T.C. 132

(1992), affd. sub nom. Hildebrand v. Commissioner, 28 F.3d 1024

(10th Cir. 1994), is misplaced.    The facts in Krause v.

Commissioner, supra, are distinctly different from the facts of

these cases.   In Krause v. Commissioner, supra, the taxpayers

invested in limited partnerships whose investment objectives

concerned enhanced oil recovery (EOR) technology.    The Krause
                              - 34 -

opinion states that during the late 1970's and early 1980's, the

Federal Government adopted specific programs to aid research and

development of EOR technology.   Id. at 135-136.   In holding that

the taxpayers in Krause v. Commissioner, supra, were not liable

for the negligence additions to tax, this Court noted that one of

the Government's expert witnesses acknowledged that "investors

may have been significantly and reasonably influenced by the

energy price hysteria that existed in the late 1970's and early

1980's to invest in EOR technology."   Id. at 177.   In the present

cases, however, as explained by respondent's expert Steven

Grossman, the price of plastics materials was not directly

proportional to the price of oil, and there is no persuasive

evidence that the so-called oil crisis had a substantial bearing

on petitioners' decisions to invest.   While EOR was, according to

our Krause opinion, in the forefront of national policy and the

media during the late 1970's and 1980's, there is no showing in

these records that the so-called energy crisis would provide a

reasonable basis for petitioners' investing in recycling of

polyethylene, particularly in the machinery here in question.

     In addition, the taxpayers in the Krause case were

experienced in or investigated the oil industry and EOR

technology specifically.   One of the taxpayers in Krause v.

Commissioner, supra, undertook significant investigation of the
                                  - 35 -

proposed investment including researching EOR technology.        The

other taxpayer was a geological and mining engineer whose work

included research of oil recovery methods and who hired an

independent geologic engineer to review the offering materials.

Id. at 166.      In the present cases, petitioners were not

experienced or educated in plastics recycling, and they did not

independently investigate the Sentinel recyclers or hire an

expert in plastics to evaluate the Partnership transactions.        We

consider petitioners' arguments with respect to the Krause case

inapplicable.

       3.    Petitioners' Purported Reliance on Advisers

       Petitioners claim that they reasonably relied upon the

advice of qualified advisers, specifically several partners at

Shea & Gould.       Alter claims that he relied on Feinstein as well.

None of the Shea & Gould partners purportedly relied upon by

petitioners testified in the trials of these cases.        Feinstein

testified in the Alter case.

       The concept of negligence and the argument of reliance on an

expert are highly fact intensive.      Petitioners in these cases are

very well-educated and sophisticated attorneys who at the time of

these investments were members of a leading New York City law

firm.       Friedman specialized in corporate and Federal securities

law.    Alter specialized in entertainment and labor law and also
                              - 36 -

consulted on various tax and financial issues for his clients.

These sophisticated attorneys ultimately relied upon other

attorneys to investigate the tax law and the underlying business

circumstances of a proposed investment, the success of which

depended upon a purportedly technologically unique machine.

Neither the attorneys allegedly relied upon by petitioners nor an

accountant who reviewed the Clearwater offering memorandum was

expert in plastics materials or plastics recycling.

     A taxpayer may avoid liability for the additions to tax

under section 6653(a)(1) and (2) if he or she reasonably relied

on competent professional advice.   United States v. Boyle, 469

U.S. 241, 250-251 (1985); Freytag v. Commissioner, 89 T.C. 849,

888 (1987), affd. 904 F.2d 1011 (5th Cir. 1990), affd. 501 U.S.

868 (1991).   Reliance on professional advice, standing alone, is

not an absolute defense to negligence, but rather a factor to be

considered.   Freytag v. Commissioner, supra.   For reliance on

professional advice to excuse a taxpayer from the negligence

additions to tax, the taxpayer must show that the professional

had the expertise and knowledge of the pertinent facts to provide

informed advice on the subject matter.   David v. Commissioner, 43

F.3d 788, 789-790 (2d Cir. 1995), affg. T.C. Memo. 1993-621;

Goldman v. Commissioner, 39 F.3d 402 (2d Cir. 1994), affg. T.C.

Memo. 1993-480; Freytag v. Commissioner, supra; Sacks v.
                              - 37 -

Commissioner, T.C. Memo. 1994-217; Kozlowski v. Commissioner,

T.C. Memo. 1993-430, affd. without published opinion 70 F.3d 1279

(9th Cir. 1995); see also Gollin v. Commissioner, T.C. Memo.

1996-454; Stone v. Commissioner, T.C. Memo. 1996-230; Reimann v.

Commissioner, T.C. Memo. 1996-84.

     Reliance on representations by insiders, promoters, or

offering materials has been held an inadequate defense to

negligence.   Goldman v. Commissioner, supra; Pasternak v.

Commissioner, 990 F.2d 893 (6th Cir. 1993), affg. Donahue v.

Commissioner, T.C. Memo. 1991-181; LaVerne v. Commissioner, 94

T.C. 637, 652-653 (1990), affd. without published opinion 956

F.2d 274 (9th Cir. 1992), affd. without published opinion sub

nom. Cowles v. Commissioner, 949 F.2d 401 (10th Cir. 1991);

Marine v. Commissioner, 92 T.C. 958, 992-993 (1989), affd.

without published opinion 921 F.2d 280 (9th Cir. 1991); McCrary

v. Commissioner, 92 T.C. 827, 850 (1989); Rybak v. Commissioner,

91 T.C. 524, 565 (1988).   Pleas of reliance have been rejected

when neither the taxpayer nor the advisers purportedly relied

upon by the taxpayer knew anything about the nontax business

aspects of the contemplated venture.   David v. Commissioner,

supra; Goldman v. Commissioner, supra; Freytag v. Commissioner,

supra; Beck v. Commissioner, 85 T.C. 557 (1985); Lax v.

Commissioner, T.C. Memo. 1994-329, affd. without published
                              - 38 -

opinion 72 F.3d 123 (3d Cir. 1995); Sacks v. Commissioner, supra;

Steerman v. Commissioner, T.C. Memo. 1993-447; Rogers v.

Commissioner, T.C. Memo. 1990-619; see also the Plastics

Recycling cases cited supra note 8.

     In addition to his professional experience as a corporate

and Federal securities lawyer, by 1981 Friedman had made a "great

number" of personal investments.   His approach to these

investments was rigorous and methodical:    he read the prospectus

or private offering memorandum, spoke to an expert in the

pertinent industry, investigated the risk factors described in

the offering materials, consulted industry reports, and spoke to

other active investors or lawyers.     With respect to Clearwater,

however, Friedman's investigation was wanting.    Friedman did not

speak to a plastics materials or plastics recycling expert, or

investigate the risk factors described in the offering

memorandum, or consult plastics industry trade journals or

reports.   His investigation of Clearwater entailed nothing more

than reading the offering memorandum and discussing the

investment with other attorneys at Shea & Gould.    Friedman

testified that he also provided a copy of the offering memorandum

to his accountant and that his accountant did not advise against

the investment.   The accountant, however, had no experience in

plastics or plastics recycling, and did not independently
                              - 39 -

investigate the plastics industry or the Sentinel EPE recycler.

Moreover, the accountant did not testify at the trial of

Friedman's case, and the substance of his advice, if any, is not

clear from Friedman's testimony.    See Howard v. Commissioner, 931

F.2d 578, 582 (9th Cir. 1991), affg. T.C. Memo. 1988-531; Patin

v. Commissioner, 88 T.C. 1086, 1131 (1987), affd. without

published opinion 865 F.2d 1264 (5th Cir. 1989), affd. without

published opinion sub nom. Hatheway v. Commissioner, 856 F.2d 186

(4th Cir. 1988), affd. sub nom. Skeen v. Commissioner, 864 F.2d

93 (9th Cir. 1989), affd. sub nom. Gomberg v. Commissioner, 868

F.2d 865 (6th Cir. 1989), rejecting claims to reliance on an

accountant under analogous circumstances.

     Friedman recalled that approximately eight other partners at

Shea & Gould either invested in, or to some extent reviewed, the

Plastics Recycling transactions.    Of these, three were litigators

(Carroll, Ferraro, and Leon Gold), one specialized in bankruptcy

law (Hirshfield), two specialized in corporate and/or Federal

securities law (Arnold Jacobs and Thomas Constance), and one

specialized in taxation (Parker).   Friedman did not indicate the

area of practice of the other partner he mentioned, Trost.   Asked

if any of these partners were experts in the plastics industry,

Friedman replied:   "I don't believe any of them were, although I

believe that * * * Dan Carroll had an engineering background and
                              - 40 -

I think Joe Ferraro may have had some experience in his past with

plastics, * * * But I am not sure of that at this point."

     Friedman had a vague recollection of the investigation

conducted by the other partners at Shea & Gould.   He recalled

that Hirshfield and Trost visited PI, and that Carroll made

inquiries of people in the plastics business.   Friedman did not

indicate what, if anything, Ferraro did.   He tentatively recalled

receiving reports, perhaps written, that the partners

investigating the Plastics Recycling transactions "had gotten

information that there was a substantial market" for the recycled

pellets.   He also testified that certain "members of * * * [Shea

& Gould spoke] to plastics experts who told * * * [them] that

there was a substantial market for the product of these

machines."   Friedman could not recall, however, which partners

spoke to these purported experts, or whether the experts

consulted were independent of PI.   He testified that the partners

who visited PI (Hirshfield and Trost) "reported to us that they

weren't aware of any other machines that did precisely what this

machine did".   In fact, the Sentinel EPE recycler was not unique.

Instead, several machines capable of densifying low density

materials were already on the market.   Other plastics recycling

machines available during 1981 ranged in price from $20,000 to

$200,000, including the Foremost Densilator, Nelmor/Weiss
                               - 41 -

Densification System (Regenolux), Buss-Condux Plastcompactor, and

Cumberland Granulator.12   See Provizer v. Commissioner, T.C.

Memo. 1992-177.   Friedman did not explain what Hirshfield and

Trost did, if anything, to become aware of competing plastics

recyclers, aside from their visit to PI.

     Friedman acknowledged that he is "sophisticated enough to

know that in any tax investment the underlying economics have to

be legitimate", and he stipulated to the effect that he

understood that the purported value of the Sentinel EPE recycler

generated the tax benefits he claimed on his return.   He also

understood from Parker, the partner "primarily responsible" for

reviewing the tax aspects of the Plastics Recycling transactions,

that the tax benefits were supportable provided "that from a

business point of view this was a good economic investment".

Nonetheless, Friedman stipulated that he never saw a Sentinel EPE

recycler, or investigated the uniqueness of the machine, or

investigated whether the value placed on the recycler was bona

fide, or investigated whether there were any other machines that

were designed to recycle low density polyethylene.   Friedman's

testimony about his modest investigation prior to investing in


12
     Petitioners Alter and Friedman each stipulated to the
availability of the Foremost Densilator, Nelmor/Weiss
Densification System (Regenolux), Buss-Condux Plastcompactor, and
Cumberland Granulator during 1981.
                               - 42 -

the plastics recycling transaction was generally vague,

qualified, and unconvincing.

     Friedman sought to establish that he monitored his

investment in Clearwater.   He testified that he spoke to

Hirshfield and Trost on a number of occasions "about the progress

of the partnership".   Friedman stated:   "I believe that within

the first year or so, I received favorable reports that it was

doing well and the machines were doing well."    In Provizer v.

Commissioner, supra, this Court found:

          At no time were all six of the Sentinel EPE
     Recyclers * * * leased by Clearwater placed with end-
     users. * * * the recyclers were used infrequently and
     they often were not in use at all. PI failed promptly
     to pick up either the scrap or machines rejected by
     prospective end-users, and at times did not pay the
     end-user for the scrap that PI did pick up.

Friedman submitted into the record several updates regarding the

placement of the recyclers and the performance of Clearwater.      A

May 19, 1982, update indicated that end-users had been found for

four recyclers.   Financial statements for the years ended 1981

and 1982 showed that Clearwater was operating at a loss.    In a

preface to the financial statements, the accounting firm that

prepared them, H. W. Freedman & Co., stated as follows:

     The financial statements have been prepared on a basis
     of accounting other than generally accepted accounting
     principles * * *. The compilation is limited to
     presenting in the form of financial statements
     information that is the representation of the
                              - 43 -

     Partnership. We have not audited or reviewed the
     accompanying financial statements and, accordingly, do
     not express an opinion on them.

     We are not independent with respect to Clearwater
     Group.

H. W. Freedman & Co. prepared the partnership returns for ECI

Corp. and F & G Corp.   The named partner of H. W. Freedman & Co.,

Harris W. Freedman, was the president and chairman of the board

of F & G Corp., and owned 94 percent of a Sentinel EPE recycler.

A June 13, 1983, update submitted into the record by Friedman

contained an April 9, 1983, sales summary showing a first quarter

gross profit of $14.43.

     Like Friedman's perfunctory investigation of Clearwater,

Alter's investigation of Poly Reclamation was limited to reading

the offering memorandum and discussing the investment with others

at Shea & Gould.   The colleagues he spoke to included Hirshfield,

Carroll, Parker, and Ferraro, in addition to Feinstein, in whom

Alter claims he reposed "particular confidence" based upon their

long professional association.   Alter recalled the investigation

by his colleagues at Shea & Gould in general terms, and portions

of his testimony were inconsistent with Feinstein's recollection

of events.   For example, Alter testified that he asked Feinstein

to speak with Parker, but Feinstein testified that Parker "didn't

speak to me."   Alter was under the impression that "Feinstein's
                              - 44 -

friend" (Lauren) had read the offering memorandum, but Feinstein

was explicit that Lauren had not seen an offering memorandum.

     Feinstein's investigation of Poly Reclamation and the

Plastics Recycling transactions was very limited.   He spoke with

Lauren, who may have had some insight into plastics materials,

but Feinstein only asked Lauren about PI's reputation.   Feinstein

did not provide Lauren with a copy of the offering memorandum, or

ask him about the prospects for a Sentinel EPE recycler, or

inquire as to whether there were any competing machines already

on the market.   He accepted the purported value of the Sentinel

EPE recycler after speaking with a friend and associate "about

pricing and how things are priced in * * * [the plastics]

industry."   The friend and associate--unidentified by Feinstein--

only allegedly confirmed that the stream-of-income method of

valuation was used in the industry.    Feinstein did not verify any

of the underlying assumptions upon which the income projections

in the offering memorandum were based.   Neither Feinstein nor

Lauren visited PI to see a Sentinel EPE recycler, or investigated

whether competitive machines existed.    Feinstein testified that

he had telephone conversations with Winer, but he did not explain

whether they discussed Poly Reclamation or the Plastics Recycling

transactions, or the nature of Winer's advice, if any.   See

Howard v. Commissioner, 931 F.2d at 582; Patin v. Commissioner,
                              - 45 -

88 T.C. at 1131, rejecting claims to reliance on an adviser where

there is no showing that relevant advice was given.

     Alter also recalled speaking to Winer.   He thought he

remembered that Winer had indicated that end-users had been

scheduled for the machines, but that Winer did not name the end-

users.   Alter did not mention having any other conversations with

Winer.   Also like Feinstein, Alter accepted at face value all of

the representations made in the offering memorandum.   At trial,

he was asked what made the Sentinel EPE recycler unique.      He

replied:

     I believe the representation was that they had a
     special fluid cooling process that was not available
     elsewhere. They made the representations that it had a
     dual set of blades, I believe, rotary blades, exterior
     rotary blade[s] as well as the interior blades, that
     would crush the plastic material more effectively.

In Provizer v. Commissioner, T.C. Memo. 1992-177, we found that

PI's vice president of manufacturing and a developer of PI's

prototype recycler, William Strlzelewicz,

     explained that the coolant used in the process was
     plain water and not some "trade secret" chemical
     compound. End-users stated that a usual method by
     which the water might be "injected" was for a factory
     worker to dump it on the heated material. * * *

Among the recycler's component parts were replaceable rotating

and stationary cutting blades.
                                - 46 -

     Like Friedman, Alter submitted several documents into the

record as evidence that he monitored his investment in Poly

Reclamation.   Of a total of six documents submitted, only one

dealt with Poly Reclamation.    That one, dated September 30, 1982,

indicated that three of Poly Reclamation's Sentinel EPE recyclers

had been placed and were running.    The other five documents dealt

with partnerships that owned Sentinel EPS recyclers.    An August

29, 1985, letter discussed "the impossible pricing situation that

continues in the polystyrene market."    The remaining documents

were two financial statements for Stevens Recycling Associates

(Stevens Recycling) for the years ended 1982, 1983, and 1984, and

two reports regarding the placement of the Sentinel EPS recyclers

owned by Stevens Recycling.

     Alter was not sufficiently confident of Poly Reclamation and

the Plastics Recycling transactions to recommend them expressly

to his clients.   On direct examination, he was asked if, "in

connection with the making of this investment yourself, and in

recommending" the investment to his clients, he earned a

commission.    Alter replied:   "No, I did not, and I would like to

correct your use of the word 'recommend.'    I told them I was

going into it and it seemed sound, and if they were interested

they could participate as well."    Alter reiterated this point on

cross-examination in the following exchange:
                                - 47 -

     Q Did you suggest that your clients consult with
     others who were plastics experts?

     A No. I told them that I was investing and that it
     seemed like a sound investment to me, and if they were
     interested they could participate as well.

     Q    Did you recommend the investment?

     A    To the extent that I just stated.

Feinstein was asked what his recollection was regarding the

nature "of the recommendation and how it was presented by Mr.

Alter".    He replied:   "It is my recollection and based on how I

was and he was with clients, that it was a possible investment.

He thought it would work for them and would work as an investment

with no--no pressure at all.     * * *   Most certainly not

pressure."

     Just as Alter mentioned but did not "recommend" the Plastics

Recycling transactions to his clients, there is no showing in

docket No. 6302-89 that any of the Shea & Gould partners

recommended or advised that Alter invest in Poly Reclamation.

Feinstein claimed that he came to a positive conclusion with

respect to the soundness of the Plastics Recycling transactions

and that he communicated this conclusion to Alter.      Yet, as Alter

well knew, Feinstein did not personally invest in a Plastics

Recycling transaction, nor did his friend Lauren.
                              - 48 -

     We hold that petitioners' purported reliance on the other

partners at Shea & Gould, and in Alter's case Feinstein as well,

was not reasonable, not in good faith, nor based upon full

disclosure.   Petitioners' testimony in these cases was self-

serving, and at times vague and elusive and this Court is not

required to accept it as true.   Wood v. Commissioner, 338 F.2d

602, 605 (9th Cir. 1964), affg. 41 T.C. 593 (1964); Niedringhaus

v. Commissioner, 99 T.C. 202, 212 (1992); Tokarski v.

Commissioner, 87 T.C. 74, 77 (1986); Snyder v. Commissioner, T.C.

Memo. 1995-285; Sacks v. Commissioner, T.C. Memo. 1994-217.

Moreover, petitioners' failure to call any of the Shea & Gould

partners to testify gives rise to the inference that their

testimony would not have been favorable to petitioners.   Mecom v.

Commissioner, 101 T.C. 374, 386 (1993), affd. without published

opinion 40 F.3d 385 (5th Cir. 1994); Pollack v. Commissioner, 47

T.C. 92, 108 (1966), affd. 392 F.2d 409 (5th Cir. 1968); Wichita

Terminal Elevator Co. v. Commissioner, 6 T.C. 1158, 1165 (1946),

affd. 162 F.2d 513 (10th Cir. 1947); Sacks v. Commissioner,

supra.

     The purported value of the Sentinel EPE recycler generated

the deductions and credits in these cases, and that circumstance

was reflected in the offering memoranda.   Certainly Parker and

Feinstein recognized the nature of the tax benefits and, given
                                - 49 -

their education and professional experiences, petitioners should

have recognized it as well.   Friedman acknowledged that he

recognized the nature of the tax benefits, and undoubtedly they

were made clear to Alter by Feinstein.    Yet, neither Friedman,

Alter, nor their colleagues at Shea & Gould confirmed the value

of the Sentinel EPE recycler.    The records in these cases show

that in the end, petitioners and their colleagues relied on PI

personnel for the value of the Sentinel EPE recyclers and the

economic viability of the Partnership transactions.    See Vojticek

v. Commissioner, T.C. Memo. 1995-444, to the effect that advice

from such persons "is better classified as sales promotion."

     Neither Feinstein nor the participating partners at Shea &

Gould had any expertise in plastics materials or plastics

recycling.   Although Ferraro apparently worked many years ago for

one or more summers at a plastics company, and Carroll had an

engineering background, they did not testify in these cases, and

the records fail to establish that Ferraro's summer job

experience, or Carroll's engineering background, adequately

enabled them to assess the Plastics Recycling transactions.    A

taxpayer may rely upon his advisers' expertise, but it is not

reasonable or prudent to rely upon an adviser regarding matters

outside of his field of expertise or with respect to facts that

he does not verify.   See David v. Commissioner, 43 F.3d at 789-
                                 - 50 -

790; Goldman v. Commissioner, 39 F.3d at 408; Skeen v.

Commissioner, 864 F.2d 93 (9th Cir. 1989), affg. Patin v.

Commissioner, 88 T.C. 1086 (1987); Lax v. Commissioner, T.C.

Memo. 1994-329; Sacks v. Commissioner, supra; Rogers v.

Commissioner, T.C. Memo. 1990-619.

     4.   Miscellaneous

     The parties in these consolidated cases stipulated that the

fair market value of a Sentinel EPE recycler in 1981 was not in

excess of $50,000.   Regardless of this concession, petitioners

contend that they were reasonable in claiming credits on their

Federal income tax returns based upon each recycler's having a

value of $1,162,666.      In support of this position, petitioners

rely upon preliminary reports prepared for respondent by Ernest

D. Carmagnola (Carmagnola), the president of Professional Plastic

Associates.   Carmagnola had been retained by the IRS in 1984 to

evaluate the Sentinel EPE and EPS recyclers in light of what he

described as "the fantastic values placed on the * * *

[recyclers] by the owners."      Based on limited information

available to him at that time, Carmagnola preliminarily estimated

that the value of the Sentinel EPE recycler was $250,000.

However, after additional information became available to him,

Carmagnola concluded in a signed affidavit, dated March 16, 1993,
                              - 51 -

that the machines actually had a fair market value of not more

than $50,000 each in the fall of 1981.13

     We accord no weight to the Carmagnola reports submitted by

petitioners.   The projected valuations therein were based on

inadequate information, research, and investigation, and were

subsequently rejected and discredited by their author.    In one

preliminary report, Carmagnola states that he has "a serious

concern of actual profit" of a Sentinel EPE recycler and that to

determine whether the machines actually could be profitable, he

required additional information from PI.   Carmagnola also

indicates that in preparing the report, he did not have

information available concerning research and development costs

of the machines and that he estimated those costs in his

valuations of the machines.

     Respondent rejected the Carmagnola reports and considered

them unsatisfactory for any purpose, and there is no indication

in the records that respondent used them as a basis for any

determinations in the notices of deficiency.   Even so, counsel



13
  The parties stipulated as to the authenticity of the
Carmagnola reports, but respondent objected on grounds of
relevance, materiality and hearsay. Since these reports have
been included in the record in many other plastics recycling
cases, we admitted them into evidence with the caveat that if Mr.
Carmagnola was not called to testify, we expected to give minimal
weight to the reports.
                              - 52 -

for petitioners obtained copies of these reports and urge that

they support the reasonableness of the values reported on

petitioners' returns.   Not surprisingly, counsel in these cases

did not call Carmagnola to testify, but preferred instead to rely

solely upon his preliminary ill-founded valuation estimates.

Carmagnola has not been called to testify in any of the Plastics

Recycling cases before us.   The Carmagnola reports were a part of

the record considered by this Court and reviewed by the Court of

Appeals for the Sixth Circuit in the Provizer case, where we held

the taxpayers negligent.   Consistent therewith, we find in these

cases, as we have found previously, that the reports prepared by

Carmagnola are unreliable and of no consequence.   Petitioners are

not relieved of the negligence additions to tax based on the

preliminary reports prepared by Carmagnola.

     Petitioners cite a number of cases in support of their

positions, but primarily rely on Durrett v. Commissioner, 71 F.3d

515 (5th Cir. 1996), affg. in part and revg. in part T.C. Memo.

1994-179; Chamberlain v. Commissioner, 6 F.3d 729 (5th Cir.

1995), affg. in part and revg. in part T.C. Memo. 1994-228;

Mollen v. United States, 72 AFTR 2d 93-6443, 93-2 USTC par.

50,585 (D. Ariz. 1993); Reile v. Commissioner, T.C. Memo. 1992-

488; and Davis v. Commissioner, T.C. Memo. 1989-607.
                              - 53 -

     This Court declined to sustain the negligence additions to

tax in the Reile and Davis cases for reasons inapposite to the

facts herein.   In the Davis case, the taxpayers reasonably relied

upon a "trusted and long-term adviser" who was independent of the

investment venture, and the offering materials reviewed by the

taxpayers did not reflect that the principals in the venture

lacked experience in the pertinent line of business.   In the

Reile case, the taxpayers, a married couple, had only 1 year of

college between them and characterized themselves as financial

"dummies."   In contrast to those cases, petitioners herein are

well-educated and experienced professionals.   Friedman is a

corporate and Federal securities lawyer intimately familiar with

public and private placements, while Alter is an entertainment

and labor lawyer who also assists a number of his clients in

financial matters.   Feinstein and the participating partners at

Shea & Gould were colleagues contemplating a similar investment,

not long-term advisers to petitioners.   In addition, the offering

memoranda warned that the Partnerships had no prior operating

history and that the general partner had no prior experience in

marketing recycling or similar equipment.   Accordingly,

petitioners' reliance on the Reile and Davis cases is misplaced.

     In Mollen v. United States, supra, the taxpayer was a

medical doctor who specialized in diabetes and who, on behalf of
                              - 54 -

the Arizona Medical Association, led a continuing medical

education (CME) accreditation program for local hospitals.     The

underlying tax matter involved the taxpayer's investment in

Diabetics CME Group, Ltd., a limited partnership that invested in

the production, marketing, and distribution of medical

educational video tapes.   The District Court found that the

taxpayer's personal expertise and insight in the underlying

investment gave him reason to believe it would be economically

profitable.   Although the taxpayer was not experienced in

business or tax matters, he did consult with an accountant and a

tax lawyer regarding those matters.    Moreover, the District Court

noted that the propriety of the taxpayer's disallowed deduction

therein was "reasonably debatable."    Id. at 93-6447, 93-2 USTC

par. 50,585, at 89,895; see Zfass v. Commissioner, T.C. Memo.

1996-167.

     In contrast, there is no showing in these cases that

petitioners or their colleagues had any personal insight or

industry know-how in plastics recycling that would reasonably

lead them to believe that the Plastics Recycling transactions

would be economically profitable.14    Feinstein spoke to Lauren,


14
     Ferraro apparently worked for one or more summers at a
plastics company, and Carroll had an engineering background, but
neither Ferraro nor Carroll testified in these cases, and the
                                                   (continued...)
                                - 55 -

but their discussion was limited to Lauren's impression of PI.

Lauren did not read the Poly Reclamation offering memorandum, see

a Sentinel EPE recycler, or do any type of investigation into the

plastics recycling market.   Petitioners and their colleagues did

not hire any independent experts in the field of plastic

materials or plastics recycling.    They relied upon

representations by insiders to the Plastics Recycling

transactions.   Accordingly, we consider petitioners' arguments

with respect to the Mollen case inapplicable under the

circumstances of these cases.

     Petitioners' reliance on the Durrett and Chamberlain cases

is also misplaced.   In those cases, the Court of Appeals for the

Fifth Circuit reversed this Court's imposition of the negligence

additions to tax in two nonplastics recycling cases.    The

taxpayers in the Durrett and Chamberlain cases were among

thousands who invested in the First Western tax shelter program

involving alleged straddle transactions of forward contracts.     In

the Durrett and Chamberlain cases, the Court of Appeals for the

Fifth Circuit concluded that the taxpayers reasonably relied upon

professional advice concerning tax matters.    In other First



14
 (...continued)
records fail to establish that they were qualified to analyze the
Sentinel EPE recycler or the Plastics Recycling transactions.
                              - 56 -

Western cases, however, the Courts of Appeals have affirmed

decisions of the Tax Court imposing negligence additions to tax.

See Foulds v. Commissioner, T.C. Memo. 1994-489 (the well-

educated taxpayer failed to establish the substance of advice,

and the purported adviser lacked tax expertise), affd. without

published opinion 94 F.3d 651 (9th Cir. 1996); Chakales v.

Commissioner, T.C. Memo. 1994-408 (reliance on a long-term

adviser, who was a tax attorney and accountant, and who in turn

relied on a promoter of the venture, held unreasonable), affd. 79

F.3d 726 (8th Cir. 1996); Kozlowski v. Commissioner, T.C. Memo.

1993-430 (reliance on adviser held unreasonable absent a showing

that the adviser understood the transaction and was qualified to

give an opinion whether it was bona fide), affd. without

published opinion 70 F.3d 1279 (9th Cir. 1995); Freytag v.

Commissioner, 89 T.C. at 849 (reliance on tax advice given by

attorneys and C.P.A.'s held unreasonable absent a showing that

the taxpayers consulted any experts regarding the bona fides of

the transactions).   Here we have found that none of petitioners'

colleagues at Shea & Gould, including Ferraro, Carroll, and

Feinstein, possessed sufficient knowledge of the plastics or

recycling industries to render a competent opinion.   This fact

has been deemed relevant by the Court of Appeals for the Second

Circuit, the court to which appeal in these cases lies.    See
                              - 57 -

David v. Commissioner, 43 F.3d at 789-790 (taxpayers' reliance on

expert advice not reasonable where expert lacks knowledge of

business in which taxpayers invested); Goldman v. Commissioner,

39 F.3d at 408 (same).   Accordingly, petitioners shall not be

relieved of the negligence additions to tax based upon the

decisions in the Durrett and Chamberlain cases by the Court of

Appeals for the Fifth Circuit.15

     5.   Conclusion as to Negligence

     Under the circumstances of these consolidated cases,

petitioners failed to exercise due care in claiming large

deductions and tax credits with respect to the Partnerships on

their Federal income tax returns.    We hold that petitioners did

not reasonably rely upon the offering memoranda and their

colleagues at Shea & Gould.   Friedman knew that the tax benefits

were contingent upon the purported value of the Sentinel EPE

recycler, and certainly Alter understood this circumstance or

learned as much from Feinstein.    Yet, neither petitioners nor

their purported advisers in good faith investigated the fair



15
     Other cases cited by petitioners are inapplicable and
distinguishable for the following general, nonexclusive reasons:
(1) They involve far less sophisticated, if not unsophisticated,
taxpayers; (2) the reasonableness of the respective taxpayers'
reliance on expert advice was established in those cases on
grounds that do not exist here; and (3) the advice given was
within the adviser's area of expertise.
                              - 58 -

market value of a Sentinel EPE recycler, or the underlying

viability, financial structure, and economics of the Partnership

transactions.   These sophisticated, able, and successful

taxpayers knew or should have known better.     We hold, upon

consideration of the entire records, that petitioners are liable

for the negligence additions to tax under section 6653(a)(1) and

(2) for the taxable year at issue.     Respondent is sustained on

this issue.

B.   Section 6659--Valuation Overstatement

      In notices of deficiency, respondent determined that

petitioners were liable for the section 6659 addition to tax on

the portion of their respective underpayments attributable to

valuation overstatement.   Petitioners have the burden of proving

that respondent's determinations of the section 6659 additions to

tax in their cases are erroneous.    Rule 142(a); Luman v.

Commissioner, 79 T.C. at 860-861.

      A graduated addition to tax is imposed when an individual

has an underpayment of tax that equals or exceeds $1,000 and "is

attributable to" a valuation overstatement.     Sec. 6659(a), (d).

A valuation overstatement exists if the fair market value (or

adjusted basis) of property claimed on a return equals or exceeds

150 percent of the amount determined to be the correct amount.

Sec. 6659(c).   If the claimed valuation exceeds 250 percent of
                                - 59 -

the correct value, the addition is equal to 30 percent of the

underpayment.   Sec. 6659(b).

     Petitioners claimed tax benefits, including an investment

tax credit and a business energy credit, based on purported

values of $1,162,666 for each Sentinel EPE recycler.       Petitioners

concede that the fair market value of a Sentinel EPE recycler in

1981 was not in excess of $50,000.       Therefore, if disallowance of

petitioners' claimed tax benefits is attributable to such

valuation overstatements, petitioners are liable for the section

6659 additions to tax at the rate of 30 percent of the

underpayments of tax attributable to the tax benefits claimed

with respect to the Partnerships.

     Petitioners contend that section 6659 does not apply in

their cases for the following three reasons:       (1) Disallowance of

the claimed tax benefits was attributable to other than a

valuation overstatement; (2) petitioners' concessions of the

claimed tax benefits preclude imposition of the section 6659

additions to tax; and (3) respondent erroneously failed to waive

the section 6659 additions to tax.       We reject each of these

arguments for reasons set forth below.

     1.   The Grounds for Petitioners' Underpayments

     Section 6659 does not apply to underpayments of tax that are

not "attributable to" valuation overstatements.      See McCrary v.
                              - 60 -

Commissioner, 92 T.C. at 827; Todd v. Commissioner, 89 T.C. 912

(1987), affd. 862 F.2d 540 (5th Cir. 1988).    To the extent

taxpayers claim tax benefits that are disallowed on grounds

separate and independent from alleged valuation overstatements,

the resulting underpayments of tax are not regarded as

attributable to valuation overstatements.     Krause v.

Commissioner, 99 T.C. at 178 (citing Todd v. Commissioner,

supra).   However, when valuation is an integral factor in

disallowing deductions and credits, section 6659 is applicable.

See Illes v. Commissioner, 982 F.2d 163, 167 (6th Cir. 1992),

affg. T.C. Memo. 1991-449; Gilman v. Commissioner, 933 F.2d 143,

151 (2d Cir. 1991) (the section 6659 addition to tax applies if a

finding of lack of economic substance is "due in part" to a

valuation overstatement), affg. T.C. Memo. 1989-684; Masters v.

Commissioner, T.C. Memo. 1994-197, affd. without published

opinion 70 F.3d 1262 (4th Cir. 1995); Harness v. Commissioner,

T.C. Memo. 1991-321.

     Petitioners argue that the disallowance of the claimed tax

benefits was not "attributable to" a valuation overstatement.

According to petitioners, the tax benefits were disallowed

because the Partnership transactions lacked economic substance,

not because of any valuation overstatements.    It follows,

petitioners reason, that because the "attributable to" language
                               - 61 -

of section 6659 requires a direct causative relationship between

a valuation overstatement and an underpayment in tax, section

6659 cannot apply to their deficiencies.    Petitioners cite the

following cases to support this argument:    Heasley v.

Commissioner, 902 F.2d 380 (5th Cir. 1990), revg. T.C. Memo.

1988-408, Gainer v. Commissioner, 893 F.2d 225 (9th Cir. 1990),

affg. T.C. Memo. 1988-416, McCrary v. Commissioner, supra, and

Todd v. Commissioner, supra.

     Petitioners' argument rests on the mistaken premise that our

holding herein that the Partnership transactions lacked economic

substance was separate and independent from the overvaluation of

the Sentinel EPE recyclers.    To the contrary, in holding that the

Partnership transactions lacked economic substance, we relied

heavily upon the overvaluation of the recyclers.    Overvaluation

of the recyclers was an integral factor in regard to:     (1) The

disallowed tax credits and other benefits in these cases; (2) the

underpayments of tax; and (3) our finding that the Partnership

transactions lacked economic substance.

     Petitioners argue that in Provizer v. Commissioner, T.C.

Memo. 1992-177, we found that the Clearwater transaction lacked

economic substance for reasons independent of the valuation

reported in that case.   According to petitioners, the purported

value of the recyclers in the Clearwater transaction was
                              - 62 -

predicated upon a projected stream of royalty income, and this

Court merely rejected the taxpayers' valuation method.

Petitioners misread and distort our Provizer opinion.    In the

Provizer case, overvaluation of the Sentinel EPE recyclers,

irrespective of the technique employed by the taxpayers in their

efforts to justify the overvaluation, was the dominant factor

that led us to hold that the Clearwater transaction lacked

economic substance.   Likewise, overvaluation of the Sentinel EPE

recyclers in these cases is the ground for our holding herein

that the Partnership transactions lacked economic substance.

     Moreover, a virtually identical argument was recently

rejected in Gilman v. Commissioner, supra, by the Court of

Appeals for the Second Circuit, the court to which appeal in

these cases lies.   See Golsen v. Commissioner, 54 T.C. 742, 756-

758 (1970), affd. 445 F.2d 985 (10th Cir. 1971).   In the Gilman

case, the taxpayers engaged in a computer equipment sale and

leaseback transaction that this Court held was a sham transaction

lacking economic substance.   The taxpayers therein, citing Todd

v. Commissioner, supra, and Heasley v. Commissioner, supra,

argued that their underpayment of taxes derived from

nonrecognition of the transaction for lack of economic substance,

independent of any overvaluation.   The Court of Appeals for the

Second Circuit sustained imposition of the section 6659 addition
                                - 63 -

to tax because overvaluation of the computer equipment

contributed directly to this Court's earlier conclusion that the

transaction lacked economic substance and was a sham.     Gilman v.

Commissioner, supra at 151.     In addition, the Court of Appeals

for the Second Circuit agreed with this Court and with the Court

of Appeals for the Eighth Circuit that "'when an underpayment

stems from disallowed * * * investment credits due to lack of

economic substance, the deficiency is * * * subject to the

penalty under section 6659.'"     Gilman v. Commissioner, supra at

151 (quoting Massengill v. Commissioner, 876 F.2d 616, 619-620

(8th Cir. 1989), affg. T.C. Memo. 1988-427); see also Rybak v.

Commissioner, 91 T.C. at 566-567; Zirker v. Commissioner, 87 T.C.

970, 978-979 (1986); Donahue v. Commissioner, T.C. Memo. 1991-

181, affd. without published opinion 959 F.2d 234 (6th Cir.

1992), affd. sub nom. Pasternak v. Commissioner, 990 F.2d 893

(6th Cir. 1993).

     Petitioners' reliance on Gainer v. Commissioner, supra, Todd

v. Commissioner, supra, and McCrary v. Commissioner, 92 T.C. at

827, is misplaced.   In those cases, in contrast to the

consolidated cases herein, it was found that a valuation

overstatement did not contribute to an underpayment of taxes.       In

the Todd and Gainer cases, the underpayments were due exclusively

to the fact that the property in each case had not been placed in
                                - 64 -

service.     In the McCrary case, the underpayments were deemed to

result from a concession that the agreement at issue was a

license and not a lease.     Although property was overvalued in

each of those cases, the overvaluations were not the grounds on

which the taxpayers' liability was 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.    Petitioners' cases present just such a "different

situation":     overvaluation of the recyclers was integral to and

inseparable from petitioners' claimed tax benefits and our

holding that the Partnership transactions lacked economic

substance.16

       2.   Concession of the Deficiencies




16
     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, 89 T.C. 912 (1987), affd.
862 F.2d 540 (5th Cir. 1988), we consider it distinguishable. To
the extent that the reversal in the Heasley case 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 and the
Court of Appeals for the Second Circuit have disagreed. See
Gilman v. Commissioner, 933 F.2d 143, 151 (2d Cir. 1991) ("The
lack of economic substance was due in part to the overvaluation,
and thus the underpayment was attributable to the valuation
overstatement"), affg. T.C. Memo. 1989-684.
                              - 65 -

     Petitioners argue that their concessions of the deficiencies

preclude imposition of the section 6659 additions to tax.

Petitioners contend that their concessions render any inquiry

into the grounds for such deficiencies moot.   Absent such

inquiry, petitioners argue that it cannot be known whether their

underpayments were attributable to a valuation overstatement or

another discrepancy.   Without a finding that a valuation

overstatement contributed to an underpayment, according to

petitioners, section 6659 cannot apply.   In support of this line

of reasoning, petitioners rely heavily upon Heasley v.

Commissioner, 902 F.2d 380 (5th Cir. 1990) and McCrary v.

Commissioner, supra.

     Petitioners' open-ended concessions do not obviate our

finding that the Partnership transactions lacked economic

substance due to overvaluation of the recyclers.   This is not a

situation where we have "to decide difficult valuation questions

for no reason other than the application of penalties."     See

McCrary v. Commissioner, supra at 854 n.14.    The value of the

Sentinel EPE recycler was established in Provizer v.

Commissioner, T.C. Memo. 1992-177, and stipulated by the parties.

As a consequence of the inflated value assigned to the recyclers

by the Partnerships, petitioners claimed deductions and credits

that resulted in underpayments of tax, and we held that the
                              - 66 -

Partnership transactions lacked economic substance.   Regardless

of petitioners' concessions, in these cases the underpayments of

tax were attributable to the valuation overstatements.

     Moreover, concession of the investment tax credit in and of

itself does not relieve taxpayers of liability for the section

6659 addition to tax.   See Dybsand v. Commissioner, T.C. Memo.

1994-56; Chiechi v. Commissioner, T.C. Memo. 1993-630.    Instead,

the ground upon which the investment tax credit is disallowed or

conceded is significant.   Dybsand v. Commissioner, supra.   Even

in situations in which there are arguably two grounds to support

a deficiency and one supports a section 6659 addition to tax and

the other does not, the taxpayer may still be liable for the

addition to tax.   Gainer v. Commissioner, 893 F.2d at 228; Irom

v. Commissioner, 866 F.2d 545, 547 (2d Cir. 1989), vacating in

part T.C. Memo. 1988-211; Harness v. Commissioner, T.C. Memo.

1991-321.

     In the present cases, no argument was made and no evidence

was presented to the Court to prove that disallowance and

concession of the claimed investment tax credits and other tax

benefits related to anything other than a valuation

overstatement.   To the contrary, petitioners each stipulated

substantially the same facts concerning the Partnership

transactions as we found in Provizer v. Commissioner, supra.      In
                              - 67 -

the Provizer case, we held that the taxpayers were liable for the

section 6659 addition to tax because the underpayment of taxes

was directly related to the overvaluation of the Sentinel EPE

recyclers.   The overvaluation of the recyclers, exceeding 2,325

percent, was an integral part of our findings in Provizer that

the transaction was a sham and lacked economic substance.

Similarly, the records in these cases plainly show that the

overvaluation of the recyclers is integral to and is the core of

our holding that the underlying transactions here were shams and

lacked economic substance.

     Petitioners' reliance on McCrary v. Commissioner, supra, is

misplaced.   In that case, the taxpayers conceded disentitlement

to their claimed tax benefits, and the section 6659 addition to

tax was held inapplicable.   However, the taxpayers' concession of

the claimed tax benefits, in and of itself, did not preclude

imposition of the section 6659 addition to tax.   In McCrary v.

Commissioner, supra, the section 6659 addition to tax was

disallowed because the agreement at issue was conceded to be a

license and not a lease.   In contrast, the records in

petitioners' cases plainly show that petitioners' underpayments

were attributable to overvaluation of the Sentinel EPE recyclers.
                               - 68 -

Petitioners' reliance on McCrary v. Commissioner, supra, is

rejected.17

     We held in Provizer v. Commissioner, supra, that each

Sentinel EPE recycler had a fair market value not in excess of

$50,000.    Our finding in the Provizer case that the Sentinel EPE

recyclers had been overvalued was integral to and inseparable

from our holding of a lack of economic substance.   The Clearwater

transaction was considered in the Provizer case, and Alter

stipulated that the Poly Reclamation transaction is substantially

identical to the Clearwater transaction.   In addition,

petitioners each stipulated that the fair market value of a

Sentinel EPE recycler in 1981 was not in excess of $50,000.

Given those concessions, and the fact that the records here

plainly show that the overvaluations of the recyclers were the

only reason for the disallowance of the claimed tax benefits, we

conclude that the deficiencies were attributable to overvaluation

of the Sentinel EPE recyclers.

     3.    Section 6659(e)



17
     Petitioners' citation of Heasley v. Commissioner, supra, in
support of the concession argument is also rejected. That case
was not decided by the Court of Appeals for the Fifth Circuit on
the basis of a concession. Moreover, see supra note 15 to the
effect that the Court of Appeals for the Second Circuit and this
Court have not followed the Heasley opinion with respect to the
application of sec. 6659.
                                - 69 -

     Petitioners argue that respondent erroneously failed to

waive the section 6659 additions to tax.    Section 6659(e)

authorizes the Commissioner to waive all or part of the addition

to tax for valuation overstatement if taxpayers establish that

there was a reasonable basis for the adjusted bases or valuations

claimed on the returns and that such claims were made in good

faith.   The Commissioner's refusal to waive a section 6659

addition to tax is reviewable by this Court for abuse of

discretion.   Krause v. Commissioner, 99 T.C. at 179.   Abuse of

discretion has been found in situations where the Commissioner's

refusal to exercise her discretion is arbitrary, capricious, or

unreasonable.    See Mailman v. Commissioner, 91 T.C. 1079 (1988);

Estate of Gardner v. Commissioner, 82 T.C. 989 (1984); Haught v.

Commissioner, T.C. Memo. 1993-58.

     We note initially that petitioners did not request

respondent to waive the section 6659 additions to tax until well

after the trials of these cases.    Petitioners each made their

requests approximately 4 months after the trials of their cases.

We are reluctant to find that respondent abused her discretion in

these cases when she was not timely requested to exercise it and

there is no direct evidence of any abuse of administrative

discretion.     Haught v. Commissioner, supra; cf. Wynn v.
                              - 70 -

Commissioner, T.C. Memo. 1995-609; Klieger v. Commissioner, T.C.

Memo. 1992-734.

     However, we do not decide this issue solely on petitioners'

failure timely to request waivers, but instead, we have

considered the issue on its merits.    Petitioners urge that they

relied on the respective offering materials and their colleagues

at Shea & Gould in deciding on the valuation claimed on their tax

returns.   Petitioners contend that such reliance was reasonable

and, therefore, that respondent should have waived the section

6659 additions to tax.   However, as we explained above in finding

petitioners liable for the negligence additions to tax,

petitioners' purported reliance on the offering materials and

their colleagues was not reasonable.

     Each petitioner read the offering memoranda for the

Partnerships, which contained numerous warnings and caveats,

including the likelihood that the value placed on the recyclers

would be challenged by the IRS as being in excess of fair market

value.   Friedman recognized that the purported value of the

Sentinel EPE recycler was intrinsic to the tax benefits, and

Alter undoubtedly learned as much on his own or from one of his

colleagues.   Even so, there is no showing in the records in these

cases that petitioners or the persons they purportedly relied

upon--including Ferraro and Carroll--were qualified to assess or
                               - 71 -

analyze the technical aspects of the Plastics Recycling

transactions.   Nor do the records show that petitioners or their

colleagues ever hired any plastics engineering or technical

experts with respect to the Plastics Recycling transactions.

Feinstein spoke with Lauren, who may have had some knowledge of

the plastics industry, but their discussion was limited to PI's

reputation; Feinstein refrained from asking Lauren anything about

plastics recycling, competitive machines, or these particular

Plastics Recycling transactions.   In the end, petitioners and

their colleagues relied exclusively on PI, its personnel, and the

offering materials as to the value and purported uniqueness of

the machines.

     In support of their contention that they acted reasonably,

petitioners cite Mauerman v. Commissioner, 22 F.3d 1001 (10th

Cir. 1994), revg. T.C. Memo. 1993-23.   However, the facts in the

Mauerman case are distinctly different from the facts of these

cases.   In Mauerman, the Court of Appeals for the Tenth Circuit

held that the Commissioner had abused her discretion for not

waiving a section 6661 addition to tax.   Like the section 6659

addition to tax, a section 6661 addition to tax may be waived by

the Commissioner if the taxpayer demonstrates that there was

reasonable cause for his underpayment and that he acted in good

faith.   Sec. 6661(c).   The taxpayer in Mauerman relied upon
                               - 72 -

independent attorneys and accountants for advice as to whether

payments were properly deductible or capitalized.   The advice

relied upon by the taxpayer in Mauerman was within the scope of

the advisers' expertise, the interpretation of the tax laws as

applied to undisputed facts.   In these cases, particularly with

respect to valuation, petitioners relied upon advice that was

outside the scope of expertise and experience of their purported

advisers.   Consequently, petitioners' reliance on the Mauerman

case is rejected.

     We hold that petitioners did not have a reasonable basis for

the adjusted bases or valuations claimed on their tax returns

with respect to their investments in the Partnerships.   In these

cases, respondent could find that petitioners' respective

reliance on the offering materials and their colleagues was

unreasonable.   The records in these cases do not establish an

abuse of discretion on the part of respondent but support

respondent's position.   We hold that respondent's refusal to

waive the section 6659 additions to tax in these cases is not an

abuse of discretion.   Petitioners are liable for the respective

section 6659 additions to tax at the rate of 30 percent of the

underpayments of tax attributable to the disallowed tax benefits.

Respondent is sustained on this issue.
                              - 73 -

C. Petitioners' Motions For Leave To File Motion For Decision
Ordering Relief From the Negligence Penalty and the Penalty Rate
of Interest and To File Supporting Memoranda of Law

     Long after the trials of these cases, petitioners each filed

a Motion For Leave To File Motion For Decision Ordering Relief

From the Negligence Penalty and the Penalty Rate of Interest and

To File Supporting Memorandum of Law under Rule 50.   Petitioners

also lodged with the Court motions for decision ordering relief

from the additions to tax for negligence and from the increased

rate of interest, with attachments, and memoranda in support of

the motions.   Respondent filed objections, with attachments, and

memoranda in support thereof, and petitioners thereafter filed

reply memoranda.   Petitioners argue that they should be afforded

the same settlement that was reached between other taxpayers and

the IRS in docket Nos. 10382-86 and 10383-86, each of which was

styled Miller v. Commissioner.   See Farrell v. Commissioner, T.C.

Memo. 1996-295 (denying a motion similar to petitioners'

motions); see also Jaroff v. Commissioner, T.C. Memo. 1996-527;

Gollin v. Commissioner, T.C. Memo. 1996-454; Grelsamer v.

Commissioner, T.C. Memo. 1996-399; Zenkel v. Commissioner, T.C.

Memo. 1996-398.

     Counsel for petitioners seek to raise a new issue long after

the trials in these cases.   Resolution of such issue might well

require new trials.   Such further trials "would be contrary to
                                - 74 -

the established policy of this Court to try all issues raised in

a case in one proceeding and to avoid piecemeal and protracted

litigation."    Markwardt v. Commissioner, 64 T.C. 989, 998 (1975);

see also Haft Trust v. Commissioner, 62 T.C. 145, 147 (1974).

Consequently, under the circumstances here, at this late date in

the litigation proceedings, long after trial and briefing and

after the issuance of numerous opinions on issues and facts

closely analogous to those in these cases, petitioners' motions

for leave are not well founded.     Farrell v. Commissioner, supra.

     Even if petitioners' motions for leave were granted, the

arguments set forth in each of petitioners' motions for decision

and attached memoranda, lodged with this Court, are invalid, and

such motions would be denied.    Therefore, and for reasons set

forth in more detail below, petitioners' motions for leave shall

be denied.

     Some of our discussion of background and circumstances

underlying petitioners' motions is drawn from documents submitted

by the parties and findings of this Court in two earlier

decisions.     See Estate of Satin v. Commissioner, T.C. Memo. 1994-

435; Fisher v. Commissioner, T.C. Memo. 1994-434.    These matters

are not disputed by the parties.    We discuss the background

matters for the sake of completeness.    As we have noted, granting

petitioners' motions for leave would require further proceedings.
                              - 75 -

     The Estate of Satin and Fisher cases involved Stipulation of

Settlement agreements (piggyback agreements) made available to

taxpayers in the Plastics Recycling project, whereby taxpayers

could agree to be bound by the results of three test cases:

Provizer v. Commissioner, T.C. Memo. 1992-177, and the two Miller

cases.   We held in Estate of Satin and Fisher that the terms of

the piggyback agreement bound the parties to the results in all

three lead cases, not just the Provizer case.     Petitioners assert

that the piggyback agreement was extended to them, but they do

not claim to have accepted the offer timely, so they effectively

rejected it.18

     In or about February of 1988, a settlement offer (the

Plastics Recycling project settlement offer or the offer) was

made available by respondent in all docketed Plastics Recycling

cases, and subsequently in all nondocketed cases.     Baratelli v.

Commissioner, T.C. Memo. 1994-484.     Pursuant to the offer,

taxpayers had 30 days to accept the following terms:    (1)

Allowance of a deduction for 50 percent of the amount of the cash

investment in the venture in the year(s) of investment to the


18
     In each of their motions for decision, petitioners state,
"After the lead counsel for taxpayers and Respondent had agreed
upon the designation of the lead cases, Respondent's counsel
prepared piggyback agreements and offered them to counsel for the
taxpayers in this case and to other taxpayers." (Emphasis
added.)
                               - 76 -

extent of loss claimed; (2) Government concession of the

substantial understatement of tax penalties under section 6661

and the negligence additions to tax under section 6653(a)(1) and

(2); (3) taxpayer concession of the section 6659 addition to tax

for valuation overstatement and the increased rate of interest

under section 6621; and (4) execution of a closing agreement

(Form 906) stating the settlement and resolving the entire matter

for all years.19   Petitioners assert that the Plastics Recycling

project settlement offer was extended to them, but they do not

claim to have accepted the offer timely, so they effectively

rejected it.20

     In December 1988, the Miller cases were disposed of by

settlement agreement between the taxpayers and respondent.21


19
     Although the records do not include a settlement offer to
petitioners, petitioners have attached to their motions for
decision a copy of a settlement offer to another taxpayer with
respect to a plastics recycling case, and respondent has not
disputed the accuracy of the statement of the plastics recycling
settlement offer.
20
     In each of their motions for decision, petitioners state,
"Respondent formulated a standard settlement position which was
extended to all taxpayers having docketed or non-docketed cases
in the plastics recycling group, including Petitioner."
(Emphasis added.)

21
     Although it is not otherwise a part of the records in these
cases, respondent attached copies of the Miller closing agreement
and disclosure waiver to her objections to petitioners' motions
                                                   (continued...)
                               - 77 -

This Court entered decisions based upon those settlements on

December 22, 1988.   The settlement provided that the taxpayers in

the Miller cases were liable for the addition to tax under

section 6659 for valuation overstatement, but not for the

additions to tax under the provisions of section 6661 and section

6653(a).   The increased interest under section 6621(c), premised

solely upon Miller's interest in the recyclers for the taxable

years at issue, was not applicable because Miller made payments

prior to December 31, 1984, so no interest accrued after that

time.   Respondent did not notify petitioners or any other

taxpayers of the disposition of the Miller cases.   Estate of

Satin v. Commissioner, supra; Fisher v. Commissioner, supra.

     Petitioners argue that they are similarly situated to

Miller, the taxpayer in the Miller cases, and that pursuant to

the principle of "equality" they are therefore entitled to the

same settlement agreement executed by respondent and Miller in

those cases.   In effect, petitioners seek to resurrect the

piggyback agreement offer and/or the settlement offer they

previously failed to accept.




21
 (...continued)
for leave, and petitioners do not dispute the accuracy of the
document.
                               - 78 -

     Petitioners contend that under the principle of "equality,"

the Commissioner has a duty of consistency toward similarly

situated taxpayers and cannot tax one and not tax another without

some rational basis for the difference.    United States v. Kaiser,

363 U.S. 299, 308 (1960) (Frankfurter, J., concurring); see Baker

v. United States, 748 F.2d 1465 (11th Cir. 1984); Farmers' &

Merchants' Bank v. United States, 476 F.2d 406 (4th Cir. 1973).

According to petitioners, the principle of equality

precludes the Commissioner from making arbitrary distinctions

between like cases.   See Baker v. Commissioner, 787 F.2d 637, 643

(D.C. Cir. 1986), vacating 83 T.C. 822 (1984).

     The different tax treatment accorded petitioners and Miller

was not arbitrary or irrational.    While petitioners and Miller

both invested in the Plastics Recycling project, their actions

with respect to such investments provide a rational basis for

treating them differently.    Miller foreclosed any potential

liability for increased interest in his cases by making payments

prior to December 31, 1984.    No interest accrued after that date.

In contrast, petitioners made no such payment, and they conceded

that the increased rate of interest under section 6621(c) applies

in their cases.   Liability for the increased rate of interest is

the principal difference between the settlement in the Miller

cases, which petitioners declined when they-failed to accept the
                              - 79 -

piggyback agreement offer, and the settlement offer that

petitioners also failed to accept.

     Petitioners argue that section 6621(c) must have been an

issue in the Miller cases since each of the decisions in Miller

recites "That there is no increased interest due from the

petitioner[s] for the taxable years * * * [at issue] under the

provisions of IRC section 6621(c)."    According to petitioners,

"if the Millers were not otherwise subject to the penalty

interest provisions because of the particular timing of their tax

payments, there would have been no need for the Court to include

such a recital in its decisions."    This argument by petitioners

is entirely conjectural and is not supported by the documentation

on which counsel relies.   In fact, the recital that no increased

interest under section 6621(c) was due in the Miller cases was an

express term of the settlement documents in those cases and

apparently included in the decisions for completeness and

accuracy.   There is nothing on the record in the present cases,

or in the Court's opinions in Estate of Satin v. Commissioner,

T.C. Memo. 1994-435, or Fisher v. Commissioner, T.C. Memo. 1994-

434, or in any of the material submitted to us in these cases

that would indicate that the Millers were "otherwise subject to

the penalty interest provisions".    Petitioners' argument is based

on a false premise.
                               - 80 -

     We find that petitioners and Miller were treated equally to

the extent they were similarly situated and differently to the

extent they were not.   Miller foreclosed the applicability of the

section 6621(c) increased rate of interest in his cases, while

petitioners concede it applies in their cases.   Petitioners

failed to accept a piggyback settlement offer that would have

entitled them to the settlement reached in the Miller cases, and

they also rejected a settlement offer made to them prior to trial

of a test case.   In contrast, prior to trial Miller negotiated

for himself and accepted an offer that was essentially the same

as the Plastics Recycling project settlement offer that

petitioners failed to accept prior to trial.   Accordingly,

petitioners' motions are not supported by the principle of

equality on which they rely.   Cf. Baratelli v. Commissioner, T.C.

Memo. 1994-484.

     In order to reflect the foregoing,

                                    Appropriate orders will be

                               issued denying petitioners'

                               motions, and decisions will be

                               entered for respondent.
