                        T.C. Memo. 1995-489



                      UNITED STATES TAX COURT



                ROBERT H. AVELLINI, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 19176-90.            Filed October 10, 1995.



     Lois C. Blaesing and Chauncey W. Tuttle, Jr., for

petitioner.

     Mary P. Hamilton, Paul Colleran, and William T. Hayes, for

respondent.



              MEMORANDUM FINDINGS OF FACT AND OPINION

     DAWSON, Judge:   This case was assigned to Special Trial

Judge Norman H. Wolfe pursuant to the provisions of section
                               - 2 -

7443A(b)(4) and Rules 180, 181, and 183.1    The Court agrees with

and adopts the opinion of the Special Trial Judge, which is set

forth below.

               OPINION OF THE SPECIAL TRIAL JUDGE

     WOLFE, Special Trial Judge:     This case is 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 transaction in this case are substantially

identical to those in the Provizer case.     Through a second tier

partnership, Efron Investors (EI), petitioner invested in the

Clearwater Group limited partnership (Clearwater), the same

partnership considered in the Provizer case.     Pursuant to

petitioner's request at trial, this Court took judicial notice of

our opinion in the Provizer case.

     In a notice of deficiency, respondent determined

deficiencies in petitioner's 1981 and 1982 Federal income taxes

in the respective amounts of $13,770 and $4,502, and an addition

to tax for 1981 in the amount of $2,848.33 under section 6659 for

valuation overstatement.   Respondent also determined that

interest on deficiencies in petitioner's 1981 and 1982 Federal

1
     All section references are to the Internal Revenue Code in
effect for the tax years in issue, unless otherwise stated. All
Rule references are to the Tax Court Rules of Practice and
Procedure.
                               - 3 -

income taxes accruing after December 31, 1984, would be

calculated at 120 percent of the statutory rate under section

6621(c).2   In addition to the above deficiencies and additions to

tax, in an amended answer, respondent asserted additions to tax

for 1981 in the amount of $689 under section 6653(a)(1) for

negligence and under section 6653(a)(2) in an amount equal to 50

percent of the interest due on the underpayment attributable to

negligence.

     The issues for decision are:   (1) Whether petitioner is

entitled to deductions claimed on his 1982 Federal income tax

return with respect to his interest in the partnership Efron

Investors II and whether petitioner is liable for increased

interest under section 6621(c) with respect to 1982; (2) whether

expert reports and testimony offered by respondent are admissible

into evidence; (3) whether petitioner is entitled to claimed

deductions and tax credits with respect to Clearwater as passed

through EI to petitioner; (4) whether petitioner is liable for

additions to tax under section 6653(a)(1) and (2) for 1981; (5)

whether petitioner is liable for the addition to tax under


2
     This section was repealed by sec. 7721(b) of the Omnibus
Budget Reconciliation Act of 1989 (OBRA 89), Pub. L. 101-239, 103
Stat. 2106, 2399, effective for tax returns due after Dec. 31,
1989, OBRA 89, sec. 7721(d), 103 Stat. 2400. The repeal does not
affect the instant case. The annual rate of interest under sec.
6621(c) for interest accruing after Dec. 31, 1984, equals 120
percent of the interest payable under sec. 6601 with respect to
any substantial underpayment attributable to tax-motivated
transactions.
                               - 4 -

section 6659 for underpayment of tax attributable to valuation

overstatement; and (6) whether petitioner is liable for increased

interest under section 6621(c) for 1981.

                          FINDINGS OF FACT

     Some of the facts have been stipulated and are so found.

The stipulated facts and attached exhibits are incorporated by

this reference.   Petitioner resided in Chicago, Illinois, when

his petition was filed.   He was a professional football player in

the National Football League and played quarterback for the

Chicago Bears from 1975 through 1984.

     Petitioner is a limited partner in EI, which is a limited

partner in the Clearwater limited partnership.   The Clearwater

limited partnership is the same recycling partnership that we

considered in Provizer v. Commissioner, supra.   The underlying

deficiency for 1981 in this case resulted from respondent's

disallowance of claimed losses and tax credits that were passed

through both Clearwater and EI to petitioner.

     Petitioner has stipulated substantially the same facts

concerning the underlying transactions as we found in Provizer v.

Commissioner, supra.3   Those facts may be summarized as follows.

In 1981, Packaging Industries, Inc. (PI), manufactured and sold

3
     The parties did not stipulate certain facts concerning the
Provizers, facts regarding the expert opinions, and other matters
that we consider of minimal significance. Although the parties
did not stipulate our findings regarding the expert opinions,
they stipulated our ultimate finding of fact concerning the fair
market value of the recyclers during 1981.
                               - 5 -

six Sentinel expanded polyethylene (EPE) recyclers to ECI Corp.

for $5,886,000 ($981,000 each).   ECI Corp., in turn, resold the

recyclers to F & G Corp. for $6,976,000 ($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.    All

of the monthly payments required among the entities in the above

transactions offset each other.   These transactions were done

simultaneously.   We refer to these transactions collectively as

the Clearwater transaction.   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

based on the quality and amount of recycled scrap.

     In 1981, petitioner acquired a 3.194-percent limited

partnership interest in EI, and EI acquired a 43.313-percent

limited partnership interest in Clearwater.   As a result of

passthrough from Clearwater and EI, on his 1981 Federal income

tax return petitioner deducted an operating loss in the amount of

$8,945 and claimed a business energy credit in the amount of

$9,651.4   Respondent disallowed petitioner's claimed operating

4
     On his 1981 Federal income tax return, petitioner did not
include the purported value of the Clearwater recyclers in his
claimed qualified investment for purposes of the investment tax
                                                   (continued...)
                                 - 6 -

loss and business energy credit related to EI's investment in

Clearwater for 1981.

     EI is an Indiana limited partnership that was formed in May

of 1981 by Morton L. Efron (Efron) as the general partner and

Real Estate Financial Corp. (REFC) as the initial limited

partner.   Fred Gordon (Gordon) is the president of REFC, which is

owned by members of Gordon's family.

     EI was formed to acquire limited partnership interests in an

office building in Buffalo, New York (the office building), and a

shopping center in Haslett, Michigan (the shopping center).    In

contemplation of these ventures, EI prepared a private placement

memorandum (the original offering memorandum) and distributed it

to potential limited partners.    At some time in late 1981, EI

abandoned the contemplated investment in the shopping center and

substituted limited partnership interests in Clearwater and a K-

Mart shopping center in Swansea, Massachusetts (the K-Mart

investment).   The revised investment objectives were presented in

a revised offering memorandum (the revised offering memorandum).

The revised offering memorandum indicated that EI intended to

invest in 100 percent of the limited partnership interests in the

office building (10 units), 43.75 percent of the limited

partnership interests in Clearwater (7 units), and 15.625 percent



4
 (...continued)
credit.
                                 - 7 -

of the limited partnership interests in the K-Mart investment (2-

1/2 units).

     MFA Corp. (MFA) is the ministerial agent for EI.     Efron owns

50 percent of the stock of MFA and REFC owns the remaining 50

percent.   The revised offering memorandum provides that Efron, as

general partner of EI, and MFA, as the ministerial agent for EI,

will receive substantial fees, compensation, and profits from EI.

The contemplated payments to MFA include:   (1) $100,000 for

supervisory management of the office building and ministerial

fees; (2) $100,000-$125,000 as loan commitment fees; (3) $25,000

for note collection guarantees; and (4) a maximum of $100,750 in

investment advisory fees.   In addition, MFA was also the

ministerial agent for the office building limited partnership

and, according to the revised offering memorandum, received

substantial payments in that capacity.

     Efron obtained financing for the EI investments through

local banks.   Like a number of limited partners in EI,

petitioner made a cash downpayment to EI and then signed an

installment promissory note for the remainder of the purchase

price.   Thereafter, Efron pledged any promissory notes received

from limited partners as security for loans to EI.   In addition

to lending funds directly to EI, the banks also offered loans to

individual limited partners for the downpayments needed with

respect to the EI investments.
                                - 8 -

     Petitioner subscribed to purchase one-half of a limited

partnership unit ($50,000) in EI.    Petitioner could not recall if

he had borrowed the funds to invest in EI.

     Through a teammate on the Chicago Bears professional

football team, petitioner met Efron at a cocktail party.     He

learned of EI and the Clearwater transaction from Efron.

     Efron was the general partner of EI.     In addition, Efron

owned limited partnership interests in EI through Efron and Efron

Real Estate, a partnership owned by Efron and his wife, and AMBI

Real Estate, a partnership owned by Efron and his sister.     EI was

the first partnership for which Efron served as a general

partner.   Efron organized EI so that he could earn legal fees and

fees for managing the partnership.      He received compensation and

fees as the general partner of EI and as a 50-percent shareholder

of MFA.    Efron learned of the Clearwater transaction from Gordon.

     In 1981 Gordon was counsel to EI, to Efron as the general

partner of EI, to Efron personally, and to MFA.     He and Efron

have known each other since meeting at the University of Michigan

in 1955.   In the early 1960's Efron and Gordon began investing

together in the stock market, real estate, business loans, and

other investments.   Gordon is an attorney who holds a master's

degree in business administration and at one time was employed by

the Internal Revenue Service.   Prior to the date of the

Clearwater private placement offering, Gordon had experience

involving the evaluation of tax shelters.     Gordon was paid a fee
                               - 9 -

in the amount of 10 percent of some investments he guided to

Clearwater; however, he did not receive a fee directly from

Clearwater for the EI investments.     Efron was aware that Gordon

received commissions from the sale of some units in recycling

ventures.5   Gordon recommended investing in the Clearwater

offering to the investors in EI, as well as to some of Gordon's

other clients.

     Petitioner attended the University of Maryland from 1971

through 1975, at which time he was drafted into the National

Football League by the Chicago Bears.     When he was drafted,

petitioner needed only 12 additional credit hours to earn his

bachelor of science degree in business management.     In 1991, he

returned to the University of Maryland and received his degree.

     Petitioner does not have any education or work experience in

plastics recycling or plastics materials.     He did not

5
     The Clearwater offering memorandum states that the
partnership will pay sales commissions and fees to offering
representatives in an amount equal to 10 percent of the price
paid by the investor represented by such person. The offering
memorandum further states that if such fees are not paid "they
will either be retained by the general partner as additional
compensation if permitted by applicable state law, or applied in
reduction of the subscription price." The Efron Investors'
Schedule K-1 for 1981 shows that EI paid full price, $350,000,
for its seven units of Clearwater, so the 10-percent commission
was not applied to reduce the subscription price. Gordon
specifically stated that in the case of EI he did not directly
receive the sales commission. Efron expressed doubt that he
individually had been an offeree representative in connection
with Clearwater or any other transaction. There are suggestions
that the commission might have been paid to MFA or offeree
representatives of individual investors, but the record on this
subject is inconclusive.
                              - 10 -

independently investigate the Sentinel recyclers or see a

Sentinel recycler or any other type of plastic recycler prior to

participating in the recycling ventures.

     At the conclusion of the trial in this case, respondent's

counsel stated that there was a "non-plastics issue in this case"

that would be resolved without trial.   Counsel requested that the

record remain open for submission of a stipulation of settled

issues, and the Court ordered that the record remain open only

for submission of such stipulation in the "other issue".

     The deficiency notice to petitioner for 1982 concerned

petitioner's investment in a partnership designated as Efron

Investors II (Efron II).   Efron II invested in a shopping center

and also in Dickinson Recycling Associates, a TEFRA partnership

(a partnership subject to sections 6221 through 6231, the TEFRA

provisions) that was involved in the Plastics Recycling

transactions.   Fred Gordon, as counsel for petitioner, and

Timothy Murphy of respondent's Detroit District Counsel's Office

negotiated the resolution of the shopping center issues and each

signed the following proposed stipulation of agreed adjustments

in this case:

          THE PARTIES HEREBY STIPULATE the following terms
     in settlement of the adjustments in Respondent's Notice
     of Deficiency pertaining to the petitioner's interest
     in Efron Investors II Partnership for 1982:

          1. The respondent in its Notice of Deficiency
     disallowed $10,248.00 of petitioner's claimed losses
     relative to Efron Investors II Partnership.
                                - 11 -

          2. The petitioner is allowed to deduct $2,166.00
     of the amount disallowed by the respondent. The
     petitioner concedes the remaining amount disallowed of
     $8,082.00.

          3. As a result of this stipulation, all issues
     pertaining to Efron Investors II Partnership for 1982
     have been resolved.

          The parties agree to this STIPULATION OF AGREED
     ADJUSTMENTS.

     Although Mr. Murphy signed the document on the space

provided for the representative of the acting Chief Counsel of

respondent, he did not submit the original to the Court but

forwarded it to respondent's counsel in charge of the plastics

recycling issues in this case so they could review and coordinate

the presentation of the case.    Respondent's supervising counsel

considered the language of the stipulation document to be subject

to misinterpretation and refused to offer it into evidence at

trial.   Instead, respondent's counsel requested that the record

be held open for submission of a stipulation of settled issues at

a later date.   Petitioner's counsel made no objection, and this

Court granted the request.

     On August 10, 1994, respondent's counsel forwarded to

petitioner's counsel a revised proposed stipulation of settled

issues clarifying that the stipulation resolved all non-TEFRA

issues pertaining to Efron II for 1982 and that the "TEFRA issues

pertaining to Efron Investors II as a tier of Dickinson Recycling

Associates, a TEFRA partnership, will be resolved in a separate

proceeding."    Petitioner's counsel never executed the revised
                              - 12 -

proposed stipulation of settled issues in this case although they

did execute such a revision at about the same time in another

case involving substantially similar circumstances.   See Reister

v. Commissioner, T.C. Memo. 1995-305.

     Dickinson Recycling Associates, Sam Winer, Tax Matters

Partner v. Commissioner, docket No. 13191-89 (Dickinson), was

calendared for trial at a special session of the Court in March

1994, in Detroit, Michigan, the same session at which the instant

case was tried.   The Dickinson partnership is a partnership

subject to the TEFRA provisions at sections 6221 through 6231.

Efron II, a limited partnership formed in June 1982, invested in

a limited partnership interest in Dickinson, and consequently, is

a second tier investor in a plastics recycling transaction.    The

Dickinson case was resolved without trial, and this Court's

decision was entered on February 23, 1994, and became final on

May 24, 1994.

     On June 9, 1995, petitioner filed a document which the Court

has designated as petitioner's motion to reopen record.   In such

motion, petitioner urges that the Court require respondent to

produce the proposed stipulation of agreed adjustments which

petitioner contends both parties executed prior to trial and that

we bind respondent to petitioner's interpretation of that

document not only as to the shopping center issues, but also as

to all other issues, including the treatment of petitioner's

interest in Dickinson through Efron II.
                             - 13 -

     On July 11, 1995, respondent filed respondent's response to

petitioner's motion to reopen record in which respondent argues

that this Court has no jurisdiction over TEFRA partnership items

in this case and, in any event, respondent did not enter into the

settlement sought by petitioner.

     On July 17, 1995, respondent filed a motion to dismiss for

lack of jurisdiction and to strike the claims relating to the

deficiency attributable to partnership items.    Petitioner filed

petitioner's response to respondent's motion on July 18, 1995,

and attached affidavits by petitioner's counsel Lois C. Blaesing

and petitioner's former counsel Fred Gordon.    Petitioner

submitted such response pursuant to Rule 50(c) in lieu of

attending the hearing on the pending motions and specifically

addressed respondent's motion to dismiss in such response.   On

July 19, 1995, at Washington, D.C., pursuant to notice, the Court

conducted a hearing with respect to the pending motions at which

respondent proved that respondent's docket attorney in Detroit,

Michigan, Timothy Murphy, had no authority to settle a plastics

recycling issue but only was authorized to settle the shopping

center issue for 1982 in this case.   At such hearing,

respondent's counsel conceded the 1982 shopping center issue, and

also the issue as to section 6621(c) consistently with the first

two paragraphs (and only those paragraphs) of the proposed

stipulation of agreed adjustments, as quoted above.
                              - 14 -

                              OPINION

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

case involving the Clearwater transaction and another tier

partnership, 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 Clearwater

transaction lacked economic substance and a business purpose,

this Court relied heavily upon the overvaluation of the Sentinel

EPE recyclers.

     Although petitioner has not agreed to be bound by the

Provizer opinion, he has stipulated that his investment in the

Sentinel EPE recyclers was similar to the investment described in

Provizer, and, pursuant to his request, we have taken judicial

notice of our opinion in the Provizer case.   Petitioner invested

in EI, a tier partnership that invested in Clearwater.   The

underlying transaction in this case (the Clearwater transaction),
                              - 15 -

and the Sentinel EPE recyclers considered in this case, are the

same transaction and machines considered in Provizer.

Issue 1. Resolution of Questions Concerning Petitioner's
Investment in Efron Investors II for 1982.

     In the notice of deficiency, respondent determined a

deficiency in petitioner's 1982 Federal income tax in the amount

of $4,502.   The deficiency for 1982 resulted from respondent's

examination results with respect to the 1982 partnership return

of Efron II and the consequent adjustment of petitioner's claimed

deductions from Efron II in the amount of $10,248.

     Prior to trial, the parties undertook to reach an agreement

as to a portion of the Efron II investment concerning a shopping

center.   Respondent's attorney in charge of that issue prepared a

proposed stipulation of agreed adjustments; petitioner's counsel

signed it; the attorney who prepared the document also signed it

and forwarded it to counsel for respondent in charge of the

plastics recycling issues for review and coordination.    That

counsel for respondent disapproved a portion of the proposed

stipulation as subject to misinterpretation and the original of

the proposed stipulation never was delivered to petitioner's

counsel or submitted to this Court.

     Petitioner has filed a motion, which the Court has

designated as petitioner's motion to reopen record, in which

petitioner urges that respondent be required to produce the

proposed stipulation of agreed adjustments and that the Court
                              - 16 -

enforce it in all respects.   Petitioner states that the record

has remained open for receipt of this stipulation.   We agree that

the record has been held open for receipt of a stipulation

relating to nonplastics issues.   Respondent has agreed to the

first two numbered paragraphs of the proposed stipulation of

agreed adjustments.   Those paragraphs state:

          1. The respondent in its Notice of Deficiency
     disallowed $10,248.00 of petitioner's claimed losses
     relative to Efron Investors II Partnership.

          2. The petitioner is allowed to deduct $2,166.00
     of the amount disallowed by the respondent. The
     petitioner concedes the remaining amount disallowed of
     $8,082.00.

     The parties are in agreement as to the introductory

paragraph of the proposed stipulation, as quoted in our findings

of fact, and also as to the first two paragraphs, quoted there

and above.   Accordingly, petitioner's motion is granted insofar

as it relates to such paragraphs only, and they are received into

the record as stipulated by the parties.   Additionally, we note

that respondent has conceded that section 6621(c) is inapplicable

to the deficiency for 1982.

     Petitioner urges that we also require that respondent

stipulate to a third paragraph of the proposed stipulation of

agreed adjustments as follows:

          3. As a result of this stipulation, all issues
     pertaining to Efron Investors II Partnership for 1982
     have been resolved.
                              - 17 -

     Petitioner interprets this paragraph as prohibiting any

adjustments to petitioner's tax for 1982 as a result of any

interest in a TEFRA partnership, specifically the Efron II

partnership interest in Dickinson.     Petitioner contends that the

attorney who drafted and signed the proposed stipulation for

respondent was authorized to represent respondent and that

respondent's failure to produce the document is impermissible.

Respondent's position is that this Court has no jurisdiction to

decide a TEFRA partnership issue at the partner level, that the

Detroit docket attorney had no authority to execute a stipulation

with respect to the plastics recycling issue in this case, and

that the paragraph in question, properly interpreted, relates

only to the shopping center or nonplastics issues in this case.

Respondent has filed a motion to dismiss for lack of jurisdiction

and to strike the portions of the pleadings relating to

Dickinson.   Respondent urges that we deny petitioner's motion to

reopen the record and grant respondent's motion to dismiss and to

strike.   We agree with respondent except as to the agreement of

the parties with respect to the shopping center adjustments and

respondent's concession as to section 6621(c) for 1982.

     During 1982, Efron II invested in Dickinson Recycling

Associates, a partnership that is subject to the provisions of

sections 6221 through 6231 (the TEFRA provisions) enacted by the

Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. 97-248,
                                - 18 -

sec. 402(a), 96 Stat. 648.     The TEFRA provisions apply generally

to partnerships for all taxable years beginning after September

3, 1982.   Sparks v. Commissioner, 87 T.C. 1279, 1284 (1986).

Under the TEFRA provisions, the tax treatment of partnership

items is decided at the partnership level in a unified

partnership proceeding rather than separate proceedings for each

partner, Boyd v. Commissioner, 101 T.C. 365, 369 (1993), and

"affected items", items affected by the treatment of partnership

items (e.g. certain additions to tax), can only be assessed

following the conclusion of the partnership proceeding.     See sec.

6225(a); Maxwell v. Commissioner, 87 T.C. 783, 791 n.6 (1986).

     The question whether we have jurisdiction to determine an

overpayment attributable to partnership items in a proceeding for

redetermination of deficiencies attributable to nonpartnership

items has been decided in a case involving a plastics recycling

partnership.   Trost v. Commissioner, 95 T.C. 560 (1990).    In a

case involving circumstances much like those in the present case,

this Court held that the portion of any deficiency attributable

to partnership items cannot be considered in the partner's

personal case.   Id. at 563.

     In the present case, respondent determined deficiencies in

petitioner's income taxes for 1981 and 1982.    Petitioner filed a

petition for review of respondent's deficiency determinations and

claimed therein that benefits flowed through to him from a TEFRA
                              - 19 -

partnership for 1982.   Petitioner further urges that he entered

into a stipulation of agreed adjustments with respect to 1982 and

that in such stipulation in petitioner's individual case,

petitioner and respondent resolved issues concerning partnership

items.   As this Court has stated in Maxwell v. Commissioner,

supra, and Trost v. Commissioner, supra, we do not have

jurisdiction to consider petitioner's claims with respect to

partnership items because this case only involves nonpartnership

items.

     This Court has limited jurisdiction and may only exercise

jurisdiction to the extent expressly permitted by statute.     Trost

v. Commissioner, supra at 565, Judge v. Commissioner, 88 T.C.

1175, 1180-1181 (1987).   Accordingly, contrary to petitioner's

arguments, we do not have jurisdiction over the TEFRA partnership

items for 1982 in these proceedings.   Those matters have been

considered at the partnership level in Dickinson, etc., and are

not subject to modification in these proceedings at the partner

level.

     We note also that, in these proceedings, respondent has

established that the Detroit docket attorney in charge of the

nonplastics issue here had no authority to enter into an

agreement with respect to plastics issues.   There is no evidence

in this case that he intended to go beyond his authority.    Nor is

there any convincing evidence that petitioner's counsel, an
                              - 20 -

experienced tax attorney, was misled in any way.   See Baratelli

v. Commissioner, T.C. Memo. 1994-484.

     Additionally, in our view the proposed stipulation of agreed

adjustments, considered in context, only states the agreement of

the parties with respect to nonplastics issues and has no

application to the partnership level adjustments over which we

lack jurisdiction.   Respondent's supervising attorney, exercising

proper caution, refused to deliver the document to opposing

counsel because of concern about possible misconstruction of the

terminology.   Accordingly, the parties have agreed as to all

aspects of the proposed stipulation except the final numbered

paragraph.   The construction sought by petitioner is erroneous;

respondent has not agreed to it; and we do not have jurisdiction

over the partnership level matters petitioner urges even if there

had been an agreement.

     Accordingly, respondent's motion to dismiss for lack of

jurisdiction and to strike will be granted.   Petitioner's motion,

designated as a motion to reopen record, will be denied except to

the extent of respondent's agreement to the first 2 paragraphs of

the proposed stipulation of agreed adjustments, as stated above.

     The Efron II issues concerning a shopping center (the non-

TEFRA issues) have been resolved by stipulation of the parties.

Issues concerning partnership items and affected items (TEFRA

items) related to Efron II's investment in Dickinson are for
                                - 21 -

resolution in a proceeding other than this proceeding.

Accordingly, all issues with respect to 1982, as set forth in the

pleadings and the notice of deficiency that form the basis for

our jurisdiction in this case, have been resolved.      The remaining

issues relate to petitioner's investment in Clearwater through

his investment in EI in 1981.

Issue 2.   Admissibility of Expert Reports and Testimony

     Before addressing the substantive issues in this case, we

resolve an evidentiary issue.    At trial, respondent offered in

evidence the expert opinions and testimony of Steven Grossman

(Grossman) and Richard Lindstrom (Lindstrom).      At trial and in

his reply brief, petitioner objects to the admissibility of the

testimony and reports.

     The expert reports and testimony of Grossman and Lindstrom

are identical to the testimony and reports in Fine v.

Commissioner, T.C. Memo. 1995-222.       In addition, petitioner's

arguments with respect to the admissibility of the expert

testimony and reports are identical to the arguments made in the

Fine case.   For discussions of the reports and testimony, see

Fine v. Commissioner, supra, and Provizer v. Commissioner, T.C.

Memo. 1992-177.   For a discussion of the testimony and

petitioner's arguments concerning the admissibility of the

testimony and reports, see Fine.
                              - 22 -

     For reasons set forth in Fine v. Commissioner, supra, we

hold that the reports and testimony of Grossman and Lindstrom are

relevant and admissible and that Grossman and Lindstrom are

experts in the fields of plastics, engineering, and technical

information.   We do not, however, accept Grossman or Lindstrom as

experts with respect to the ability of the average person, who

has not had extensive education in science and engineering, to

conduct technical research, and we have limited our consideration

of their reports and testimony to the areas of their expertise.

We also hold that Grossman's report meets the requirements of

Rule 143(f).

Issue 3. Deductions and Tax Credits With Respect to EI and
Clearwater

     The underlying transaction in this case is substantially

identical in all respects to the transaction in Provizer v.

Commissioner, supra.   The parties have stipulated the facts

concerning the deficiency essentially as set forth in our

Provizer opinion.   Based on this record, we hold that the

Clearwater transaction was a sham and lacked economic substance.

In reaching this conclusion, we rely heavily upon the

overvaluation of the Sentinel EPE recyclers.   Accordingly,

respondent is sustained on the issue with respect to the

underlying deficiency for 1981.   Moreover, we note that

petitioner has stated his concession of this issue on brief.    The

record plainly supports respondent's determination regardless of
                               - 23 -

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

applicable law, see Provizer v. Commissioner, supra.

Issue 4.   Sec. 6653(a) Negligence

     In her first amendment to answer, respondent asserted that

petitioner was liable for the negligence-related additions to tax

under section 6653(a)(1) and (2) for 1981.   Because these

additions to tax were raised for the first time in respondent's

amendment to answer, respondent bears the burden of proof on this

issue.    Rule 142(a); Vecchio v. Commissioner, 103 T.C. 170, 196

(1994).

     Section 6653(a)(1) provides for 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

regulations.   In cases involving negligence, an additional amount

is added to the tax under section 6653(a)(2); such amount is

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

portion of the underpayment attributable to negligence.

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).
                              - 24 -

     Petitioner contends that he was reasonable in claiming

deductions and a business energy credit with respect to EI's

investment in Clearwater.   To support his contention, petitioner

alleges the following:   (1) That claiming the deductions and

credits with respect to EI's investment in Clearwater was

reasonable in light of a so-called oil crisis in the United

States in 1981; (2) that in claiming the deductions and credits,

he specifically relied upon Efron; and (3) that he was a so-

called unsophisticated investor.

     Petitioner argues, in general terms, that an alleged oil

crisis in the United States in 1981 excuses him from the

negligence additions to tax with respect to his investment in

Clearwater through EI.   Petitioner failed to explain how the so-

called oil crisis provided a reasonable basis for him to invest

in Clearwater and claim the associated tax deductions and

credits.   We find petitioner's vague, general claims concerning

the so-called oil crisis to be without merit.

     Petitioner's 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 the Krause case are

distinctly different from the facts of this case.   In the Krause

case, the taxpayers invested in limited partnerships whose

investment objectives concerned enhanced oil recovery (EOR)

technology.   The Krause opinion notes that during the late 1970's
                              - 25 -

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 the Krause case

were not liable for the negligence-related 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 case, however, one of respondent's

experts, Grossman, noted that the price of plastics materials is

not directly proportional to the price of oil, 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

plastic products."   While EOR was, according to our Krause

opinion, in the forefront of national policy and the media during

the late 1970's and early 1980's, there is no showing in these

records that the so-called energy crisis would provide a

reasonable basis for petitioner's investing in recycling of

polyethylene.

     Moreover, the taxpayers in the Krause opinion were

experienced in or investigated the oil industry and EOR

technology specifically.   One of the taxpayers in the Krause case

undertook significant investigation of the proposed investment
                                   - 26 -

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 case, petitioner was not experienced or educated in

plastics recycling or plastics materials.           He did not

independently investigate the Sentinel recyclers, and he did not

hire an expert in plastics to evaluate the Clearwater

transaction.     We consider petitioner's arguments with respect to

the Krause case inapplicable and find his vague, general claims

concerning the so-called oil crisis to be without merit.

     On his 1981 Federal income tax return, petitioner claimed a

business energy credit related to Clearwater in the amount of

$9,651, while his investment in Clearwater through EI was less

than $11,500.6    Because petitioner did not claim an investment

tax credit with respect to the Clearwater recyclers, the credit

claimed on his 1981 Federal income tax return related to EI's

investment in Clearwater does not exceed the amount he invested

in Clearwater through EI.       In addition to the credit claimed on



6
     Calculated as follows:
     EI's Investment in Clearwater   Petitioner's Share of EI
                  $350,000         x         3.194%             = $11,179

     EI's Investment in Clearwater
                 $350,000          x Petitioner's Investment    = $11,290
          EI's Total Investment             $50,000
               $1,550,000
                                - 27 -

his 1981 return, however, petitioner claimed an operating loss in

the amount of $8,945.    Therefore, like the taxpayers in Provizer

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

the beginning, [petitioner] never had any money in the

[Clearwater] deal."     A reasonably prudent person would have asked

a qualified independent tax adviser if this windfall were not too

good to be true.   McCrary v. Commissioner, 92 T.C. 827, 850

(1989).

     In fact, petitioner argues that he consulted a qualified

adviser and relied upon him in claiming the disallowed losses and

tax credits.   Petitioner argues that his reliance on the advice

of Efron insulates him from the negligence additions to tax.

     Under some circumstances a taxpayer may avoid liability for

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

reasonable reliance on a competent professional adviser is shown.

Freytag v. Commissioner, 89 T.C. 849, 888 (1987), affd. 904 F.2d

1011 (5th Cir. 1990), affd. 501 U.S. 868 (1991).    Such

circumstances are not present in this case.    Moreover, reliance

on professional advice, standing alone, is not an absolute

defense to negligence, but rather a factor to be considered.     Id.

In order for reliance on professional advice to excuse a taxpayer

from the negligence additions to tax, the reliance must be

reasonable, in good faith, and based upon full disclosure.     Id.;

see Weis v. Commissioner, 94 T.C. 473, 487 (1990); Ewing v.
                              - 28 -

Commissioner, 91 T.C. 396, 423-424 (1988), affd. without

published opinion 940 F.2d 1534 (9th Cir. 1991); Pritchett v.

Commissioner, 63 T.C. 149, 174-175 (1974).

     We have rejected pleas of reliance when neither the taxpayer

nor the advisers purportedly relied upon by the taxpayer knew

anything about the nontax business aspects of the contemplated

venture.   Beck v. Commissioner, 85 T.C. 557 (1985); Flowers v.

Commissioner, 80 T.C. 914 (1983); Steerman v. Commissioner, T.C.

Memo. 1993-447.   The record does not show that Efron possessed

any special qualifications or professional skills in the

recycling or plastics industries.    In addition, Efron did not

hire anyone with plastics or recycling expertise to evaluate the

Clearwater transaction.

     Petitioner testified that in 1981 he consulted with the

following individuals concerning investments:    (1) Jeffrey

Jacobs, his attorney and agent; (2) Artie Brown, his accountant;

and (3) "other people * * * [who] came out of the woodwork and

offered [him] investments."

     Efron was not petitioner's agent or attorney in 1981.

Petitioner met Efron through one of petitioner's teammates at a

cocktail party.   Prior to petitioner's investment in EI, he and

Efron had only an acquaintance which petitioner described as a

"friendship type" of relationship.     Although he had met Efron a

few times before investing in EI, he had not used Efron as an
                               - 29 -

investment adviser.    The offering memorandum and the revised

offering memorandum disclosed the fact that Efron was receiving

substantial compensation and fees as the general partner of EI

and as a 50-percent owner of MFA.    In addition, both of the EI

offering memoranda specifically warned potential investors that

they were "not to consider the contents of [the offering

memoranda] or any communication from the partnership or its

general partners as legal or tax advice", and Efron testified

that he advised every limited partner in EI to talk to an

independent adviser.   Petitioner had such advisers available, but

testified that he did not rely upon them with respect to this

matter.   In our view petitioner's reliance on Efron was not

reasonable, as Efron was merely a casual acquaintance who was

essentially selling a speculative investment product and had no

fiduciary or professional relationship with petitioner and

specifically warned him in writing to obtain independent advice.

Accordingly, we hold that petitioner is not entitled to relief

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

(2) because of his purported reliance on Efron.

     Petitioner's reliance on Heasley v. Commissioner, 902 F.2d

380 (5th Cir. 1990), revg. T.C. Memo. 1988-408, is misplaced.

The facts in the Heasley case are distinctly different from the

facts of this case.    In the Heasley case the taxpayers actively

monitored their investment.    Petitioner has failed to provide
                              - 30 -

evidence of any effort to monitor his investment in EI.     He

testified that he did not learn of the change in the nature of

EI's investments to include recycling until 3 months prior to

trial of this case, over 10 years after he invested in EI.       In

addition, the taxpayers in the Heasley case were not educated

beyond high school and had limited investment experience, while

in the instant case petitioner had nearly completed the

requirements for a bachelor of science degree in business

management and had substantial previous investment experience.

Prior to his investment in EI, petitioner had invested in stocks,

bonds, commodities, certificates of deposit, real estate, a

professional women's basketball team, a sock company, and oil and

gas partnerships.   In fact, on his EI offeree questionnaire,

petitioner indicated that he believed that he possessed

"sufficient knowledge of private placements and real estate

investments to evaluate the risks associated with investing" in

EI because of his "experience in other investments."   We consider

petitioner's arguments with respect to the Heasley case

inapplicable.

     At trial, petitioner could remember almost nothing about his

investment in EI.   Although he testified that he was "sure" that

he had seen the original offering memorandum, he did not recall

reading it.   Petitioner could not recall whether he borrowed the

funds to acquire his interest in EI.   At the time of his
                               - 31 -

investment, he did not know the name of the recycling partnership

in which EI invested, and he knew "nothing" about the recycling

equipment.    In fact, petitioner testified that he did not learn

of EI's investment in recycling until 3 months prior to trial of

his case.

     We conclude that petitioner was negligent in claiming the

deductions and credits with respect to EI's investment in

Clearwater on his 1981 Federal income tax return.    We hold, upon

consideration of the entire record, that petitioner is liable for

the negligence additions to tax under the provisions of section

6653(a)(1) and (2) for 1981.

Issue 5.    Sec. 6659 Valuation Overstatement

     Respondent determined that petitioner was liable for the

addition to tax for valuation overstatement under section 6659 on

the underpayment of his 1981 Federal income tax attributable to

the business energy credit claimed with respect to EI and

Clearwater.    Petitioner has the burden of proving respondent's

determination of this addition to tax erroneous.    Rule 142(a);

Rybak v. Commissioner, 91 T.C. 524, 566 (1988).

     The underlying facts of this case with respect to this issue

are substantially the same as those in Fine v. Commissioner, T.C.

Memo. 1995-222.    In addition, petitioner's arguments with respect

to this issue are identical to the arguments made in the Fine

case.   For reasons set forth in the Fine opinion, we hold that
                                - 32 -

petitioner is liable for the section 6659 addition to tax at the

rate of 30 percent of the underpayment of tax attributable to the

disallowed credit for 1981.

Issue 6.     Sec. 6621(c) Tax-Motivated Transactions

     Respondent determined that interest on the deficiency in

petitioner's 1981 Federal income tax accruing after December 31,

1984, would be calculated under section 6621(c).7      The annual

rate of interest under section 6621(c) equals 120 percent of the

interest payable under section 6601 with respect to any

substantial underpayment attributable to tax-motivated

transactions.     An underpayment is substantial if it exceeds

$1,000.     Sec. 6621(c)(2).

        The underlying facts of this case are substantially the same

as those in Fine v. Commissioner, supra.     In addition,

petitioner's arguments on brief with respect to this issue are

verbatim copies of the arguments in the taxpayers' briefs in the

Fine case.    For reasons set forth in the Fine opinion, we hold

that respondent's determination as to the applicable interest

rate for deficiencies attributable to tax-motivated transactions

is sustained, and the increased rate of interest applies for

1981.



7
     Respondent also determined that interest on the deficiency
in petitioner's 1982 Federal income tax accruing after Dec. 31,
1984, would be calculated under section 6621(c), but respondent
has conceded this issue.
                        - 33 -

To reflect the foregoing,


                            Appropriate orders will be issued

                    granting respondent's motion to dismiss

                    and to strike and denying, except as

                    stated herein, petitioner's motion to

                    reopen record, and decision will be

                    entered under Rule 155.
