                         T.C. Memo. 1996-454



                       UNITED STATES TAX COURT



    STUART A. AND HARRIET J. GOLLIN, ET AL.,1 Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 16922-90, 19612-90,           Filed October 9, 1996.
                 21847-90.



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

docket Nos. 16922-90 and 19612-90.

     Charles Fredericks, Jr. and Stephanie Fredericks, pro se in

docket No. 21847-90.

     Louise R. Forbes, Mary P. Hamilton, and William T. Hayes,

for respondent in docket No. 16922-90.

     Paul Colleran and William T. Hayes, for respondent in docket

No. 19612-90.


1
     Cases of the following petitioners are consolidated for
opinion: Myron and Patricia Fishbach, docket No. 19612-90; and
Charles Fredericks, Jr. and Stephanie Fredericks, docket No.
21847-90. These cases were tried and briefed separately.
                               - 2 -

     Gregory S. Nickerson and Frances Ferrito Regan, for

respondent in docket No. 21847-90.

                             CONTENTS

                                                             Page
MEMORANDUM FINDINGS OF FACT AND OPINION....................... 2
OPINION OF THE SPECIAL TRIAL JUDGE............................ 3
FINDINGS OF FACT.............................................. 7
  A. The Plastics Recycling Transactions...................... 7
  B. The Partnerships.........................................10
  C. Stuart Becker and Steven Leicht..........................13
  D. Petitioners and Their Introduction to the Partnership
     Transactions.............................................17
     1. Stuart and Harriet J. Gollin..........................17
     2. Myron and Patricia Fishbach...........................20
     3. Charles Fredericks, Jr. and Stephanie Fredericks......23
OPINION.......................................................29
  A. Section 6653(a)--Negligence..............................31
     1.   The So-Called Oil Crisis............................33
     2.   Petitioners' Purported Reliance on Tax
          Advisers............................................38
          a.   The Circumstances Under Which a
               Taxpayer May Avoid Liability Under
               Section 6653(a)(1) and (2) Because
               of Reasonable Reliance on Competent
               and Fully Informed Professional
               Advice.........................................39
          b.   Becker.........................................41
          c.   Hertan.........................................48
          d.   Steele, Cohen, and Porter......................51
     3.   The Private Offering Memoranda......................54
     4.   Miscellaneous.......................................59
     5.   Conclusion as to Negligence.........................68
  B. Section 6659--Valuation Overstatement....................69
     1.   The Grounds for Petitioners' Underpayments..........71
     2.   Concession of the Deficiency........................76
     3.   Section 6659(e).....................................79
  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
     Memorandum of Law........................................83

             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
                              - 3 -

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 years 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.

                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 in the transaction

considered in the Provizer case.

     In notices of deficiency, respondent determined the

following deficiencies in and additions to petitioners' Federal

income taxes:
                                                             - 4 -

                                                                      Penalty                            Additions to Tax

Docket No.       Petitioner                 Year    Deficiency       Sec. 6621(c)    Sec. 6653(a)(1)   Sec. 6653(a)(2)
Sec. 6659          Sec. 6661

16922-90         Stuart A. and
                                                     1                   3              4
                 Harriet J. Gollin          1979      $11,888                            $594                --
$3,566               --
                                                         1               3                  4
                                            1980         2,728                              136              --
  818              --
                                                                         3                                    5
                                            1982         9,348                              467
             6
2,804         $2,337
19612-90      Myron and Patricia
              Fishbach                      1982         17,471          3                  873.55            5
  --           2,941.75

21847-90         Charles Fredericks, Jr.
                                                     2
                 and Stephanie Fredericks   1982      128,880            3              6,444                 5
                  6
30,752.70          6,592.75


         1
       The deficiencies in docket No. 16922-90 for taxable years 1979 and 1980 result all or in part from disallowance of
investment tax credit carrybacks and business energy credit carrybacks from taxable year 1982.
       2
        The deficiency in docket No. 21847-90 arose in part from respondent's disallowance of certain tax benefits flowing
from petitioners Fredericks' investment in B & H Shipping Associates V (B & H Shipping). On May 30, 1991, the parties
filed a stipulation of settled issues resolving all of the issues related to the investment in B & H Shipping.
       3
        Sec. 6621(c) 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 cases. 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
        The notice of deficiency in docket No. 16922-90 lists the additions to tax for negligence for taxable years 1979
and 1980 under sec. 6653(a)(1). For taxable years 1979 and 1980, the addition to tax for negligence was provided for
under sec. 6653(a).
       5
        50 percent of the interest payable with respect to the portion of the underpayment attributable to negligence.
Respondent determined that the portion of the underpayment attributable to negligence was $9,348 in docket No. 16922-90,
,767 in docket No. 19612-90, and $128,880 in docket No. 21847-90.
         6
         The sec. 6661 determination is in the alternative to the sec. 6659 addition to tax.
                                 -- 5 --

     On March 2, 1994, respondent filed a first amendment to

answer in docket No. 19612-90.     Respondent asserted therein a

lesser deficiency of $17,445, a lesser addition to tax for

negligence under section 6653(a)(1) in the amount of $872, and an

addition to tax for valuation overstatement under section 6659 in

the amount of $4,132.   Respondent also asserted that the interest

under sections 6653(a)(2) and 6621(c) was to be computed on

$17,445 instead of $11,767.   In addition, respondent conceded the

addition to tax determined under section 6661.

     The parties in these consolidated cases filed Stipulations

of Settled Issues concerning the adjustments relating to their

participation in the Plastics Recycling Program.     In docket Nos.

16922-90 (the Gollins) and 19612-90 (the Fishbachs), 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).
                              -- 6 --

     4. With respect to the issue of the addition to the
     tax under I.R.C. §6659, Petitioners do not intend to
     contest the value of the Sentinel Recycler or the
     existence of a valuation overstatement on the
     Petitioners' returns; however, Petitioners reserve
     their right to argue that the underpayment in tax is
     not attributable to a valuation overstatement within
     the meaning of I.R.C. §6659(a)(1), and that the
     Secretary should have waived the addition to tax
     pursuant to the provisions of I.R.C. §6659(e).

In their stipulation of settled issues, petitioners in docket No.

21847-90 (the Fredericks) conceded:     (1) The section 6621(c)

interest; (2) the tax benefits claimed on their tax returns from

their participation in the Plastics Recycling Program; and (3)

the section 6659 addition to tax on the portion of their

underpayment attributable to the disallowance of investment tax

and business energy credits claimed as a result of their

participation in the Plastics Recycling Program.     Respondent

conceded the addition to tax under section 6661 with respect to

the Fredericks' participation in the Plastics Recycling Program.

     Long after the trials of these cases, petitioners in docket

Nos. 16922-90 (the Gollins) and 19612-90 (the Fishbachs) 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 30,

1995, and on October 23, 1995, respectively.     On those same

dates, petitioners Gollin and Fishbach each also lodged with the

Court a motion for decision ordering relief from the additions to
                               -- 7 --

tax for negligence and the increased rate of interest, with

attachments, and a memorandum in support of such motion.

Subsequently, respondent filed objections, with attachments, and

memoranda in support thereof, and petitioners Gollin and Fishbach

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 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 the provisions of section 6653(a); and (2)

whether petitioners Gollin and Fishbach are liable for additions

to tax under section 6659 for underpayments of tax attributable

to valuation overstatements.

                         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 three

limited partnerships that leased Sentinel expanded polyethylene

(EPE) recyclers:   SAB Resource Recovery Associates (SAB

Recovery), SAB Resource Recycling Associates (SAB Recycling), and

SAB Resource Reclamation Associates (SAB Reclamation).
                               -- 8 --

Petitioners Gollin are limited partners in SAB Reclamation;

petitioners Fishbach are limited partners in SAB Recovery and SAB

Recycling;2 and petitioners Fredericks are limited partners in

SAB Recycling.   For convenience, we refer to these partnerships

collectively as the Partnerships.

     The transactions involving the Sentinel EPE Recyclers leased

by the Partnerships are substantially identical to those in the

Clearwater Group limited partnership (Clearwater), the

partnership considered in Provizer v. Commissioner, T.C. Memo.

1992-177.   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

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



2
     The Fishbachs' interest in SAB Recovery and SAB Recycling
was acquired through the law firm in which Myron Fishbach was a
named partner during 1981 and 1982, Zimmer, Fishbach & Hertan.
                                -- 9 --

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 and 1982 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, each of the Partnerships leased Sentinel

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

FMEC Corp.    The transactions of the Partnerships differ from the

underlying transactions in the Provizer case in the following

respects:    (1) The entity that leased the machines from F & G

Corp. and licensed them to FMEC Corp., and (2) the number of

machines sold, leased, licensed, and sublicensed.    SAB Recovery

and SAB Recycling each leased and licensed seven Sentinel EPE

recyclers.    SAB Reclamation was to lease and license eight

recyclers, according to its offering memorandum, but the SAB

Reclamation partnership tax return for 1982 indicates that it

leased and licensed only four recyclers.
                              -- 10
                                 10 --

     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

     SAB Recovery, SAB Recycling, and SAB Reclamation are New

York limited partnerships.   SAB Recovery was formed in late 1981;

SAB Recycling and SAB Reclamation were formed in early 1982.    All

three partnerships were organized and promoted by Stuart Becker

(Becker), a certified public accountant (C.P.A.) and the founder

and principal owner of Stuart Becker & Co., P.C. (Becker Co.), an

accounting firm that specialized in tax matters.    Becker

organized a total of six recycling partnerships (the SAB

Recycling Partnerships).   Two of the SAB Recycling Partnerships

closed in late 1981, two closed in early 1982, and two more

closed in late 1982.

     The general partner of each of the SAB Recycling

Partnerships, including SAB Recovery, SAB Recycling, and SAB

Reclamation, is SAB Management Ltd. (SAB Management).    SAB

Management is wholly owned by Scanbo Management Ltd. (Scanbo),

which is wholly owned by Becker.   Scanbo is an acronym for the
                               -- 11
                                  11 --

names of three of Becker's children:       Scott, Andy, and Bonnie.

The officers and directors of SAB Management and Scanbo are as

follows:    (1) Becker, president and director; (2) Noel Tucker

(Tucker), vice president, treasurer, and director; and (3) Steven

Leicht (Leicht), vice president, secretary, and director.       During

the years in issue, Tucker and Leicht also worked at Becker Co.

Tucker was vice president.    Each owned approximately 5 to 7

percent of the stock of Becker Co.        SAB Management did not engage

in any business before becoming involved with the SAB Recycling

Partnerships.

     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

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.

     The offering memoranda for SAB Recovery, SAB Recycling, and

SAB Reclamation state that the general partner will receive fees
                               -- 12
                                  12 --

from those partnerships in the respective amounts of $97,800,

$97,375, and $110,000.    SAB Management received fees of

approximately $500,000 as the general partner of the SAB

Recycling Partnerships.    In addition, Becker Co. prepared the

partnership returns and Forms K-1 for all of the SAB Recycling

Partnerships and received fees for those services.

     The offering memoranda for the Partnerships also allocate

7.5 percent of the proceeds from each offering to the payment of

sales commissions and offeree representative fees.    In addition,

the offering memoranda provide that the respective general

partners "may retain as additional compensation all amounts not

paid as sales commissions or offeree representative fees."

However, neither SAB Management nor Becker retained or received

any sales commissions or offeree representative fees.    Instead,

after the closing of each SAB Recycling Partnership, Becker

rebated to each investor whose investment was not subject to a

sales commission or offeree representative fee an amount equal to

7.5 percent of such investor's original investment.

     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)
                                -- 13
                                   13 --

the general partner has no prior experience in marketing

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

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.   Stuart Becker and Steven Leicht

     Becker does not have an engineering background, and he is

not an expert in plastics materials or plastics recycling.    He

received a B.S. degree in accounting from New York University in

1964 and an M.B.A. in taxation from New York University School of

Business Administration in 1973.     He passed the certified public

accountancy test in 1967 and was the winner of the gold medal,

awarded for achieving the highest score on the examination for

that year.   Since early 1966, Becker has practiced as a C.P.A.

exclusively in the tax area.    From 1964 until 1972 he worked for

the accounting firm of Touche, Ross & Co., and in 1972 he joined

the accounting firm of Richard A. Eisner & Co. as the partner in

charge of the tax department.    In 1977, Becker founded Becker Co.

     Becker had considerable experience involving tax shelter

transactions before he organized the SAB Recycling Partnerships.

He prepared opinions regarding tax shelters' economic and tax
                              -- 14
                                 14 --

projections, advised individuals and companies with respect to

investments in tax shelters, lectured extensively about tax

shelter investments generally, and lectured and published with

respect to leveraged tax shelters.       Becker described a leveraged

tax shelter as "a transaction where [the ratio of] the effective

[tax] writeoff, which includes the value of the tax credit, * * *

[to the amount invested] exceeds one to one."      Becker Co.

specialized in tax-advantaged investments.      From 1980 to 1982,

approximately 60 percent of the work done by Becker Co. involved

tax sheltered and private investments.      Becker has owned minority

interests in general partners of numerous limited partnerships.

Prior to organizing the SAB Recycling Partnerships, Becker owned

5 percent of the general partner of partnerships involved in

approximately 14 transactions concerning river transportation

(such as barges, tow boats, and grain elevators).

     Although investment counseling was related to his firm's

line of business, Becker did not consider himself in the business

of providing investment advice.   Becker did not normally hire

other professionals for consultation or advice.      In circumstances

where he believed there was a need for outside advice, he would

so advise the client.   Between 30 and 40 of Becker's clients

invested in the Plastics Recycling partnerships.

     Becker learned of the Plastics Recycling transactions when a

prospective client presented him with an offering memorandum
                              -- 15
                                 15 --

concerning the transactions in August or September 1981.      Becker

reviewed the offering memorandum and spoke to Miller, one of the

key figures in the transactions and an acquaintance of Becker's.

Miller was a shareholder of F & G Corp. and, as noted, the

corporate counsel to PI.   He also represented Robert Grant

(Grant), the president and 100 percent owner of the stock of ECI

Corp., and some of Grant's clients.      Thereafter, Becker

recommended the investment to the prospective client.      Although

the prospective client did not invest in the Plastics Recycling

transactions, Becker became interested in the proposal and

organized the SAB Recycling Partnerships in order to make similar

investments in Sentinel EPE recyclers conveniently available to

appropriate clients.

     In organizing the SAB Recycling Partnerships, Becker was not

allowed to change the format of the transactions or the purchase,

lease, or licensing prices of the Sentinel EPE recyclers.     He was

allowed only to conduct a limited investigation of the proposed

investments and choose whether or not to organize similar

partnerships.   Becker relied heavily upon the offering materials

and discussions with persons involved in the matter to evaluate

the Plastics Recycling transactions.      He and two other members of

Becker Co., Leicht and Tucker, investigated PI and visited its

plant in Hyannis, Massachusetts, where they saw the Sentinel EPE

recyclers.   Leicht testified in docket Nos. 16922-90 and 19612-90
                              -- 16
                                 16 --

(the Gollin and Fishbach cases).   His testimony has been

disregarded with respect to docket No. 21847-90 (the Fredericks

case).   Tucker did not testify in any of the trials.

     During his investigation of the Plastics Recycling

transactions, Becker did not hire any plastics, engineering, or

technical experts, or recommend that his clients do so.     Becker

discussed the transactions with Michael Canno (Canno) of the

Equitable Bag Co., a manufacturer of paper and plastic bags.

Canno never saw the recyclers or the pellets and never wrote any

reports assessing the equipment or the pellets.   In addition,

Becker retained a law firm, Rabin & Silverman, to assist him in

organizing the SAB Recycling Partnerships.   See Spears v.

Commissioner, T.C. Memo. 1996-341, to the effect that in

employing the law firm, Becker sought particularly to protect

himself against liability.

     Leicht and Tucker also familiarized themselves with the

Plastics Recycling transactions.   Leicht has a B.A. degree in

finance and accounting from Penn State University, a J.D. from

SUNY Buffalo, and an LL.M. in taxation from New York University

School of Law.   Leicht ran a mathematical check on the numbers

contained in the offering materials for Becker, but he did not

test the underlying assumptions upon which they were based.    He

also visited PI in Hyannis and met with Miller and other insiders

to the transactions.   Leicht never communicated an opinion as to
                              -- 17
                                 17 --

the value of the recyclers other than what was presented in the

offering memoranda.   He has no education or expertise in plastics

materials or plastics recycling.

D. Petitioners and Their Introduction to the Partnership
Transactions

     1.   Stuart and Harriet J. Gollin

     Petitioners Stuart and Harriet J. Gollin (the Gollins)

resided in Scarsdale, New York, when their petition was filed.

Stuart Gollin (Gollin) graduated from City College of New York in

1963 with a bachelor of business administration in accounting.

Thereafter he joined the accounting firm of Touche, Ross & Co.

(Touche, Ross) and within 3 to 4 years became a certified public

accountant in New York and New Jersey.      Gollin became a national

retailing director and a senior audit partner at Touche, Ross.

He was in charge of their bankruptcy and litigation practice, an

accounting specialty otherwise known as "forensic accounting."

In 1980 Gollin joined Laventhol and Horwath (Laventhol) and

headed their retail and forensic accounting practices.

     Gollin explained that forensic accounting is distinct from

auditing, taxation, and consulting.      Generally, it is

investigatory in nature.   Forensic accounting entails, inter

alia, bankruptcy and insolvency work, litigation consulting,

insurance claims work, white-collar crime work, securities fraud,

securities investigation, and fraud investigation.      As an example

of the type of work a forensic accountant does, Gollin related
                              -- 18
                                 18 --

that in one case he was hired by a major food service company to

learn whether a senior financial officer was defrauding the

company.   It was Gollin's job to determine the nature and amount

of the fraud and to help in the potential recovery, including

recovery negotiations.   Gollin describes himself as "very into

investigation and potential scams and the like."

     Gollin acquired a 2.25-percent interest in SAB Reclamation

for a gross investment of $12,500 in 1982, without taking into

consideration any sales commission rebate or advance royalty

distribution.   As a result of his investment in SAB Reclamation,

on their 1982 Federal income tax return Gollin and his wife

Harriet claimed an operating loss in the amount of $10,025.    Of a

total of $20,928 in investment tax and business energy credits

flowing from SAB Reclamation, the Gollins claimed $6,391 of the

regular investment credit on their 1982 return and carried back

the remainder, $4,073, to 1979,3 and they carried back $6,919 of

the business energy credit to 1979 and $3,545 to 1980.

Respondent disallowed the Gollins' claimed operating loss and

credits related to Gollin's investment in SAB Reclamation.

     Gollin learned of the Plastics Recycling transactions and

SAB Reclamation in 1981 or 1982 from Becker.   The two had known



3
     On their 1979 Form 1040X, Amended U.S. Individual Income Tax
Return, the Gollins carried back and claimed a total of $4,969 in
regular investment credits. The source of the additional $896 of
regular investment credits is unclear from the record in docket
No. 16922-90.
                               -- 19
                                  19 --

each other since 1964 when Becker joined Touche, Ross, and they

stayed in touch after Becker left that firm.    Becker and Gollin

first discussed the Plastics Recycling transactions at a social

occasion.   Gollin asked Becker whether he had any interesting

investments, and Becker mentioned the SAB Recycling Partnerships.

Becker provided Gollin with a copy of the SAB Reclamation

offering memorandum and Gollin reviewed it.    Gollin asked Becker

whether there really was a machine and whether it passed the

"kick-the-tire test" (that is, according to Gollin, whether

anyone looked at it, touched it, and felt it).    Becker described

his visit to PI and other particulars of his investigation, such

as talking to Canno.    In the end, Gollin relied on Becker's

judgment.   According to Becker, Gollin said, "Tell me what you

think I should do."    Gollin was very well acquainted with

Becker's background, and he knew that Becker did not have any

experience in recycling, plastics technology, or engineering.

     Neither of the Gollins has any education or experience in

plastics materials or plastics recycling.    They did not see a

Sentinel EPE recycler prior to investing in SAB Reclamation.

Gollin never asked to see the books and records of SAB

Reclamation.   At the time he made his investment, Gollin knew

that there were no end-users lined up to use the machines.

Gollin stipulated that he does not know whether SAB Reclamation

had any assets.   Gollin did not consult an independent expert in

plastics materials or plastics recycling.    He relied exclusively
                               -- 20
                                  20 --

on Becker.   The Gollins never made a profit in any year from

their participation in SAB Reclamation.    This was the only

investment Gollin made with Becker.

     2.   Myron and Patricia Fishbach

     Petitioners Myron and Patricia Fishbach (the Fishbachs)

resided in Stamford, Connecticut, when their petition was filed.

Myron Fishbach (Fishbach) attended Syracuse University and later

earned a law degree at Fordham Law School in 1963.    After briefly

working part time for a lawyer in Manhattan, Fishbach joined the

law firm of Pollan & Zimmer in Hicksville, Long Island.     He

eventually became a named partner of that firm.    Pollan & Zimmer

underwent several name changes:    during taxable years 1981 and

1982 the firm was named Zimmer, Fishbach & Hertan.    For

convenience, we shall refer to it, and its predecessors, as "ZFH"

or "the firm."   ZFH concentrated in real estate, transactional

work, commercial matters, and some litigation.    Over time the

firm acquired an office in New York City, although it continued

to maintain an office in Long Island.

     Sometime in the late 1960's John Mosler (Mosler) of the

Mosler Safe Co. hired ZFH.    Mosler had recently acquired a

substantial interest in a company called Bell Television (Bell),

and he wanted Fishbach to analyze the legal structure of Bell and

its affiliated companies.    Touche, Ross was Bell's accounting

firm at the time, and Fishbach became acquainted with Becker at

meetings held at Bell.   Fishbach found that Becker was well
                               -- 21
                                  21 --

respected.   Sometime in the mid-1970's ZFH hired Richard Eisner &

Co. to service its accounting and financial needs.    Becker

retained the ZFH account when he left Richard Eisner & Co. and

formed Becker Co.    Apart from their interaction at Bell,

Fishbach's relationship with Becker consisted primarily of client

referrals to Becker and consultations with him on select client

financial matters.    Becker also prepared Fishbach's Federal

income tax returns.

     Another partner at ZFH, Jay Hertan (Hertan), oversaw the

bookkeeping and general financial affairs of the firm.    Becker

interacted primarily with Hertan regarding ZFH's accounting and

financial needs.    Hertan had a business degree from Indiana

University, a banking degree from Northwestern University, and a

law degree from Yale Law School.    He became a member of ZFH in

1967.   Before that he represented Long Island banks and was

active in civic affairs.    His financial and banking related

experience included work as an appraiser and mortgage related

services.    In 1982 Hertan became a trustee and officer of a real

estate investment trust that operated out of an office adjacent

to ZFH's office.    Hertan often suggested investments to the firm.

As an unwritten policy, either all of the members of ZFH would

participate or the firm would not invest in the particular

venture.    ZFH invested primarily in real estate development

projects.
                              -- 22
                                 22 --

     ZFH acquired a 4.479638-percent interest in SAB Recovery for

$50,000 in 1981 and a 2.538461-percent interest in SAB Recycling

for $25,000 in 1982, without taking into consideration any sales

commission rebates or advance royalty distributions.4   As a

general partner of ZFH, Fishbach is a second-tier owner of those

interests.   Fishbach testified that during 1981 and 1982 he was

approximately a one-third partner in ZFH.   As a result of

Fishbach's second-tier interests in SAB Recycling and SAB

Recovery, on their 1982 return Fishbach and his wife Patricia

claimed an operating loss in the amount of $7,230 and investment

tax and business energy credits in the amount of $13,743.5

Respondent disallowed the Fishbachs' claimed operating loss and

credits related to Fishbach's second-tier investments in SAB

Recycling and SAB Recovery.

4
     ZFH also acquired an interest in SAB Recovery Associates in
1982, but the record in docket No. 19612-90 does not disclose the
size of the interest or how much ZFH paid for it. The record
indicates that SAB Recycling Associates was the subject of a
separate determination and proceedings, and that a decision has
since been entered with respect to that matter. The additions to
tax at issue in docket No. 19612-90 stem solely from the
Fishbachs' second-tier interests in SAB Recovery and SAB
Recycling.
5
     The $7,230 loss and $13,743 in credits claimed by the
Fishbachs on their 1982 return is generally consistent with a
one-third interest in ZFH. The 1982 Form K-1, Partner's Share of
Income, Credits, Deductions, etc. issued by SAB Recycling for ZFH
reports an ordinary loss in the amount of $19,871, and a basis in
new recovery property, the Sentinel EPE recyclers, in the amount
of $206,597. $19,871/3 = $6,623.66. $206,597/3 = $68,865.66.
Applying the 10 percent investment tax credit and business energy
credit computations to $68,866 yields a combined credit of
$13,774 (68,866 x .1 = 6,886.6; 6,887 x 2 = 13,774). The record
does not permit more exact computations.
                              -- 23
                                 23 --

     Fishbach learned of the Plastics Recycling transactions from

Hertan.   Hertan discussed the Plastics Recycling transactions

with Becker.   Fishbach understood that Hertan had seen the

machines on a visit to PI in Hyannis, and that Hertan and Becker

were exploring various aspects of the investment.    Fishbach spent

just a short amount of time flipping through the offering

materials, looking particularly to see if he recognized any of

the people involved with the Partnerships.    He did not see a

Sentinel EPE recycler prior to investing.    Other than speaking to

Hertan and Becker, Fishbach did not independently investigate the

Plastics Recycling transactions.    Through ZFH Fishbach invested

in SAB Recovery in 1981 and SAB Recycling in 1982.    He did not

monitor his plastics recycling investments or, for that matter,

any investments made by the firm.    The Fishbachs never made a

profit in any year from their participation in the Plastics

Recycling transactions.   Neither of the Fishbachs has any

education or work experience in plastics, and Fishbach did not

know whether Hertan or Becker had any education or experience in

plastics.

     3.   Charles Fredericks, Jr. and Stephanie Fredericks

     Petitioners Charles Fredericks, Jr. and Stephanie Fredericks

(the Fredericks) resided in New York, New York, when their

petition was filed.   Charles Fredericks, Jr. (Fredericks) earned

an undergraduate degree from Princeton University and a law

degree from Harvard Law School in 1948.    After he was admitted to
                              -- 24
                                 24 --

the New York State bar, Fredericks practiced law for about one

year with his father, a real estate attorney in New York City.

He then pursued a very successful career in advertising beginning

in approximately 1950.   Fredericks spent the first 20 years of

his advertising career at Ogilvy & Mather and rose to executive

vice president of that agency.   Thereafter, Fredericks served as

the president, chief operating officer, and as a director of an

advertising agency in which he held a major amount of stock,

Wells, Rich, Greene.

     In addition to the foregoing, from 1970 through the years in

issue, Fredericks served as a director of Product Design and

Engineering (PDE), a corporation located in Minneapolis,

Minnesota.   PDE manufactures polyethylene and polystyrene

closures for consumer packaged goods as well as all kinds of

small plastic parts.   The president and principal stockholder of

PDE during that time was A. J. Porter (Porter), a graduate of the

University of Minnesota and a licensed engineer.   Fredericks

explained that the closures and other plastic parts manufactured

by PDE are molded from raw material under hot presses.   During

the mid to late 1970's, in order to economize its purchases of

raw material, PDE began recycling its scrap plastic.   Scrap

plastic was run through grinders--no other processing was

necessary--and fed into another batch to be molded.

     In October of 1981, Fredericks sought to leave the employ of
                               -- 25
                                  25 --

Wells, Rich, Greene.    Fredericks hired an attorney, Robert

Stephen Cohen (Cohen), to negotiate a settlement of his contract,

and Cohen enlisted the assistance of Becker.    The Fredericks and

Cohen met with Becker, and they determined that his contract was

worth between $3.5 million and $4 million.    Cohen then negotiated

a settlement package that had a present value, at that time, of

approximately $1,750,000.    Under the terms of the settlement,

Fredericks was to continue as a consultant to Wells, Rich, Greene

for a 4-year period at $250,000 a year, and thereafter he would

receive $30,000 a year for life.

     Cohen told Fredericks that Becker could give Fredericks and

his wife Stephanie financial advice, investment advice, and tax

advice.    Fredericks was familiar with one of Becker's earlier

investment ventures, a physicians' leisure magazine in which

Fredericks had placed advertisements for clients.    He and Becker

entered into a retainer agreement for tax services.    Becker Co.

agreed to provide income tax planning and tax return preparation

services for 1982, in addition to recommending tax-oriented

investments.    The agreement provided:

     [Becker Co.] will perform an analysis of your past and
     present tax status in order to properly reflect on your
     current and future tax shelter needs. [Becker Co.]
     will continually seek such tax sheltered investments
     which are appropriate for you and which make sense from
     an economic point of view.

Robert Steele (Steele) of Becker Co. handled the Fredericks'

account.    Fredericks dealt with Steele on a regular basis and met
                              -- 26
                                 26 --

with Becker for lunch or coffee every 2 or 3 months.      Steele did

not testify at the trial in docket No. 21847-90.

     Fredericks acquired a 5.076923-percent interest in SAB

Recycling for $50,000 in 1982, without taking into consideration

any sales commission rebate or advance royalty distribution.      As

a result of his investment in SAB Recycling, on their 1982 return

he and his wife Stephanie claimed an operating loss in the amount

of $39,741 and investment tax and business energy credits in the

amount of $82,638.   Respondent disallowed the Fredericks' claimed

operating loss and credits related to his investment in SAB

Recycling.

     Fredericks learned about the Plastics Recycling transactions

and SAB Recycling from Becker in 1982.      Becker had forwarded at

least 6 prospectuses to Fredericks in early 1982, one of which

was for SAB Recycling.   SAB Recycling was the only one of those

investments that interested Fredericks.      Fredericks reviewed the

SAB Recycling offering memorandum.       He did not understand most of

the material outlining the structure of the leasing transactions.

Fredericks claims he did not notice any conflicts of interest

problems with F & G Corp.'s evaluators or that Becker would be

receiving a general partner fee.   At trial he could not recall

reading that the projected losses and credits for the first year

would exceed the amount of his investment.

     After reviewing the offering memorandum, Fredericks
                               -- 27
                                  27 --

telephoned Porter to ask him whether he thought a polyethylene or

polystyrene recycler was viable, and he also called Cohen and

asked him if he would review the transaction.     Fredericks

understood from Cohen that Cohen had invested in at least one

plastics recycling partnership in 1981 and that SAB Recycling was

virtually the same.    He also understood that Cohen thought it was

a good deal with good tax advantages.     Fredericks did not ask

Cohen if he had received any royalty distributions.     He did not

consider Cohen to be an engineer or an expert in plastics

recycling.   According to Fredericks, Porter thought a

polyethylene or polystyrene recycler was economically viable

depending upon the price of oil.    Fredericks did not otherwise

discuss plastics recycling with Porter.     He did not inform Porter

of, or ask for his opinion about, the Sentinel EPE recycler or

the Plastics Recycling transactions; he did not send Porter a

copy of the offering memorandum; he did not tell Porter what

machine he was investing in; he did not describe the machine to

Porter; he did not tell Porter the price of the machine; and he

did not ask Porter if there were any comparable machines already

on the market.    Porter and Cohen did not testify at the trial in

docket No. 21847-90.

     Fredericks next spoke to Becker and Steele about SAB

Recycling.   He asked Becker whether he had seen the machines and

if they worked.   Becker described his visit to PI and advised
                              -- 28
                                 28 --

Fredericks that he would be receiving commissions as general

partner,6 which also was disclosed in the SAB Recycling offering

memorandum.   Fredericks discussed the impact the investment would

have on his estimated tax and matters of that nature with Steele;

the two did not discuss the economics of the investment.      The

Fredericks do not have any education or experience in engineering

or plastics recycling.   Becker and Steele never said that they

were expert in engineering or plastics recycling, and Fredericks

never thought they had expertise on these subjects.      Fredericks

did not ask Becker on whom he relied in conducting his

investigation or whether he consulted any independent experts

unrelated to SAB Recycling, the promoters, or F & G Corp.        He did

not ask Becker if he had any conflict of interest.      Fredericks

did not ask Becker how many machines would be placed by PI or if

there were any similar recyclers already on the market.      The

Fredericks did not see a Sentinel EPE or EPS Recycler prior to

their investment in SAB Recycling.       They did not know whether the

machines were unique at the time of their investment.      The

Fredericks never made a profit in any year from their

participation in SAB Recycling.



6
     At trial, Becker was asked, "Did you advise Mr. Fredericks
that you would be receiving commissions as a general partner for
this investment?" Becker answered, "Yes, I did." However,
Becker did refund 7.5 percent of Fredericks' investment, which
represented the offeree representative fee.
                              -- 29
                                 29 --

                              OPINION

     We have decided a large number of the Plastics Recycling

group of cases.7   The majority of these cases, like the

consolidated cases herein, raised issues regarding additions to

tax for negligence and valuation overstatement.   We have found

the taxpayers liable for such additions to tax in all but one of


7
     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: 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;
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.
                              -- 30
                                 30 --

the opinions to date on these issues, although procedural rulings

have involved many more favorable results for taxpayers.8

     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 transaction, which is

almost identical to the Partnership transactions in these

consolidated cases, 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


8
     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
taxpayers' claim to a similar belated settlement arrangement
since the circumstances were different and taxpayers previously
had rejected settlement and elected to litigate the case. See
also Baratelli v. Commissioner, supra; Zenkel v. Commissioner,
supra.
                              -- 31
                                 31 --

relied heavily upon the overvaluation of the Sentinel EPE

recyclers.

     Although petitioners have not agreed to be bound by the

Provizer opinion, they have stipulated that the investments in

the Sentinel EPE recyclers in these cases are similar to the

investment described in Provizer v. Commissioner, supra.     The

underlying transactions in these consolidated cases, and the

Sentinel EPE recyclers considered in these cases, are the same

type of transaction and same type of machines considered in

Provizer v. Commissioner, supra.

     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 respective

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, see Provizer v.

Commissioner, supra.

A.   Section 6653(a)--Negligence

     In notices of deficiency, respondent determined that each of
                              -- 32
                                 32 --

petitioners was liable for the additions to tax for negligence

under section 6653(a)(1) and (2) for 1982, and in the case of the

Gollins, under section 6653(a) for 1979 and 1980 as well.

Petitioners have the burden of proving that respondent's

determinations of these additions to tax are erroneous.9    Rule

142(a); Luman v. Commissioner, 79 T.C. 846, 860-861 (1982).

     Section 6653(a) for 1979 and 1980 and section 6653(a)(1) for

1982 impose 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.

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



9
     In an amendment to the answer, respondent asserted that the
interest due from petitioner Fishbach under sec. 6653(a)(2) was
to be computed on an underpayment of $17,445 instead of $11,767.
However, by order dated Apr. 1, 1994, the burden of proof was
placed on petitioners Fishbach "with respect to the negligence
issues". The shifting of the burden of proof in respect of sec.
6653(a)(2) was ordered as a sanction under Rule 104(c).
                              -- 33
                                 33 --

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 reasonably expected an economic profit in

light of the so-called oil crisis in the United States in 1981

and 1982, and that they reasonably relied upon the offering

materials and one or more qualified advisers.   Petitioners each

claim to have relied on Becker.   In addition, Fishbach maintains

that he also relied on Hertan, and Fredericks contends that he

also relied on Steele, Cohen, and Porter.

     1.   The So-Called Oil Crisis

     Petitioners contend 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 years 1981 and 1982.   In support of

this argument, petitioners cite Krause v. Commissioner, 99 T.C.

132 (1992), affd. sub nom. Hildebrand v. Commissioner, 28 F.3d

1024 (10th Cir. 1994) and Von Scoyoc v. Commissioner, T.C. Memo.

1988-520, affd. without published opinion 898 F.2d 149 (4th Cir.
                              -- 34
                                 34 --

1990).

     Petitioners' assertion that they reasonably expected an

economic profit from the Partnership transactions is not

credible.   Petitioners did not seriously review the offering

memoranda, investigate the Plastics Recycling transactions, or

otherwise educate themselves in plastics recycling.   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

purported losses based on vastly exaggerated valuations of

recycling machinery.

     Petitioners' failure seriously to learn about the

Partnership transactions undermines their contention that they

reasonably expected an economic profit from them.   Gollin was an

experienced forensic accountant who described himself as "very

into investigation and potential scams and the like," yet he did

not ask to see SAB Reclamation's books and records, nor did he

see a Sentinel EPE recycler prior to investing.   Also, Gollin

knew there were no end-users committed to the transaction, and he

stipulated that he does not know whether SAB Reclamation had any

assets.   Fishbach was unsure if he had read the offering

memoranda, but speculated that he spent just a short amount of

time perusing them and that he flipped through the risk factors.

Asked if he reviewed the financial projections, Fishbach replied,

"Absolutely not."   Fredericks did not understand most of the
                                -- 35
                                   35 --

material in the SAB Recycling offering memorandum describing the

structure of the transaction.    He testified that he was unaware

that F & G Corp.'s evaluators had any conflicts of interest, that

Becker was the de facto general partner of SAB Recycling, or that

Becker would be receiving a fee as such.     Yet the offering

memorandum disclosed Becker's ownership of SAB Management, the

fees accruing to the general partner, and also explained that

Miller was the attorney for and a business associate of Burstein.

Fredericks' discussion with Porter, who may have had some insight

into plastics and/or plastics recycling, did not address the

Sentinel EPE recycler or the Plastics Recycling transactions.     In

light of petitioners' lack of knowledge about and perfunctory

investigations of the Partnership transactions, we find their

claim that they reasonably expected an economic profit from the

Partnerships unconvincing, even taking into consideration the so-

called oil crisis.

     Moreover, petitioners did not 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
                              -- 36
                                 36 --

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 Von Scoyoc v. Commissioner, supra,

is misplaced.   In Von Scoyoc, the taxpayer purchased a sailboat

for use in the charter business.   This Court held that the

taxpayer did not engage in the charter activity for profit, but

declined to sustain the negligence additions to tax.     The

taxpayer had been motivated in part by a Wall Street Journal

article stating that sailboat prices had been appreciating for

several years at the time.   This Court noted that members of the

boating industry attributed this to several factors, one of which

was the energy crisis of the early and mid-1970's.   In contrast,

the Sentinel EPE recyclers had no documented profit or

appreciation history, and the speculative influence of the so-

called oil crisis was the primary, if not only, factor upon which

petitioners purport to have based their profit hopes.    We

consider Von Scoyoc v. Commissioner, supra, inapplicable under

the facts of petitioners' cases herein.

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

misplaced.   The facts in Krause v. Commissioner, supra, are
                               -- 37
                                  37 --

distinctly different from the facts of these cases.   In the

Krause case, the taxpayers invested in limited partnerships whose

investment objectives concerned enhanced oil recovery (EOR)

technology.    The Krause 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 the Krause case

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 opinion were

experienced in or investigated the oil industry and EOR
                                -- 38
                                   38 --

technology specifically.    One of the taxpayers in Krause v.

Commissioner, 99 T.C. 132 (1992), undertook significant

investigation of the 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.     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.

     2.   Petitioners' Purported Reliance on Tax Advisers

     Petitioners maintain that they reasonably relied upon the

advice of qualified advisers.    Gollin contends that he reasonably

relied on Becker; Fredericks contends that he reasonably relied

upon Becker, Steele, Cohen, and Porter; and Fishbach contends

that he reasonably relied upon Hertan and Becker.

     The concept of negligence and the argument of reliance on an

expert are highly fact intensive.      Petitioners in these cases are

very well educated professionals:      Two are lawyers and the third

is a forensic accountant.    These professionals ultimately relied

upon an accountant to investigate the tax law and the underlying

business circumstances of a proposed investment, the success of
                              -- 39
                                 39 --

which depended upon a purportedly technologically unique machine.

Becker, who is experienced in tax matters, explains that he made

an investigation within the limits of his resources and abilities

and fully disclosed what he had done.    The question here is

whether petitioners actually and reasonably relied on the

accountant with respect to valuation problems requiring expertise

in engineering and plastics technology, or whether the accountant

gave the tax advice, facilitated the transaction, but did not

make a full and independent investigation of the relevant

business and technology, and did clearly inform his clients of

the limits of his knowledge and investigation of the transaction.

For reasons set forth below, we believe the latter statement more

accurately describes what happened here.

           a. The Circumstances Under Which a Taxpayer
           May Avoid Liability Under Section 6653(a)(1)
           and (2) Because of Reasonable Reliance on
           Competent and Fully Informed Professional
           Advice

     A taxpayer may avoid liability for the additions to tax

under section 6653(a)(1) and (2), and the former section 6653(a),

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
                              -- 40
                                 40 --

from the negligence additions to tax, the taxpayer must show that

such 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. Commissioner, T.C. Memo. 1994-217, affd. 82 F.3d

918 (9th Cir. 1996); Kozlowski v. Commissioner, T.C. Memo. 1993-

430, affd. without published opinion 70 F.3d 1279 (9th Cir.

1995); see also 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 (1Oth 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
                               -- 41
                                  41 --

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

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.

          b.    Becker

     Becker had no education, special qualifications, or

professional skills in plastics engineering, plastics recycling,

or plastics materials.   In evaluating the Plastics Recycling

transactions and organizing the SAB Recycling Partnerships,

Becker supposedly relied upon:    (1) The offering materials; (2) a

tour of the PI facility in Hyannis; (3) discussions with insiders

to the transactions; (4) Canno; and (5) his investigation of the

reputation and background of PI and persons involved in the

transactions.

     Despite his lack of knowledge regarding the product, the

target market, and the technical aspects at the heart of the

Plastics Recycling transactions, Becker did not hire an expert in

plastics materials or plastics recycling, or recommend that his

clients do so.    The only independent person having any connection

with the plastics industry with whom Becker spoke was Canno.       A

client of Becker Co., Canno was a part owner and the production
                              -- 42
                                 42 --

manager of Equitable Bag Co., a manufacturer of paper and plastic

bags.   Becker spoke to Canno about the recyclers and PI, but did

not hire or pay him for any advice.      Canno did not visit the PI

plant in Hyannis, see or test a Sentinel EPE recycler, or see or

test any of the output from a Sentinel EPE recycler or the

recycled resin pellets after they were further processed by PI.

According to Becker, Canno endorsed the Partnership transactions

after reviewing the offering materials.     Asked at trial if Canno

had done any type of comparables analysis, Becker replied, "I

don't know what Mr. Canno did."

     Becker visited the PI plant in Hyannis, toured the facility,

viewed a Sentinel EPE recycler in operation, and saw products

that were produced from recycled plastic.     Becker claims that

during his visit, he was told that the recycler was unique and

that it was the only machine of its type.     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 1982 ranged in

price from $20,000 to $200,000, including the Foremost

Densilator, Nelmor/Weiss Densification System (Regenolux), Buss-

Condux Plastcompactor, and Cumberland Granulator.     See Provizer

v. Commissioner, T.C. Memo. 1992-177.

     Becker was also told that PI had put an enormous amount of

research and development--10 to 12 years' worth--into the

creation and production of the Sentinel EPE recycler.     When he
                              -- 43
                                 43 --

asked to see the cost records for some kind of independent

verification, however, his request was denied.   Becker was

informed that such information was proprietary and secret, and

that he would just have to take PI's representations as true.

Although PI claimed that all of its information was a trade

secret, and that it never obtained patents on any of its

machines, PI had in fact obtained numerous patents prior to the

recycling transactions and had also applied for a trademark for

the Sentinel recyclers.   Becker decided to accept PI's

representations after speaking with Miller (the corporate counsel

to PI), Canno (who had never been to PI's plant or seen a

Sentinel EPE recycler), and a surrogate judge from Rhode Island

who did business in the Boston/Cape Cod area (and who had no

expertise in engineering or plastics materials).   Becker

testified that he was allowed to see PI's internal accounting

controls regarding the allocation of royalty payments and PI's

recordkeeping system in general.   In Provizer v. Commissioner,

supra, this Court found that "PI had no cost accounting system or

records."

     Becker confirmed at trial that he relied on the offering

materials and discussions with PI personnel to establish the

value and purported uniqueness of the recyclers.   Becker

testified that he relied upon the reports of Ulanoff and Burstein

contained in the offering materials, despite the fact:    (1)

Ulanoff's report did not contain any hard data to support his
                              -- 44
                                 44 --

opinion; (2) Ulanoff was not an economics or plastics expert; (3)

Becker did not know whether Burstein was an engineer; and (4)

Burstein was a client of Miller's and was not an independent

expert.   In addition, Ulanoff and Burstein each owned an interest

in more than one partnership that owned Sentinel recyclers as

part of the Plastics Recycling Program.

     Becker explained at trial that in the course of his practice

when evaluating prospective investments for clients, he focuses

on the economics of the transaction and investigates whether

there is a need or market for the product or service.    With

respect to the Partnership transactions, the records indicate

that Becker overlooked several red flags regarding the economic

viability and market for the Sentinel EPE recyclers.    The

offering memoranda for the Partnership transactions warned that

there was no established market for the Sentinel EPE recyclers.

Becker never saw any marketing plans for selling the pellets or

leasing the recyclers.   He accepted representations by PI

personnel that they would be marketing the recyclers to clients

and that there was a sufficient base of end-users for the

machines; yet he never saw PI's client list.   At the time of the

closing of the Partnerships, Becker did not know who the end-

users were or if there were any end-users actually committed to

the transaction.

     Becker purportedly checked the price of the pellets by

reading trade journals of the plastics industry.   However, he did
                                -- 45
                                   45 --

not use those same journals to investigate the recyclers'

purported value or to see whether there were any advertisements

for comparable machines.    The records in these cases do not

indicate that any of petitioners or their advisers other than

Becker asked to see those journals for their own examination.      In

concluding that the Partnerships would be economically

profitable, Becker made two assumptions that he concedes were

unsupported by any hard data:    (1) That there was a market for

the pellets; and (2) that market demand for them would increase.

     Becker had a financial interest in SAB Recovery, SAB

Recycling, SAB Reclamation, and the SAB Recycling Partnerships

generally.    He received fees in excess of $500,000 with respect

to the SAB Recycling Partnerships, more than $300,000 of which

was derived from SAB Recovery, SAB Recycling, and SAB

Reclamation.    Becker also received fees for investment advice

from some individual investors, including Fredericks but not

Gollin or Fishbach.    In addition, Becker Co. received fees from

the SAB Recycling Partnerships for preparing their partnership

returns.   As Becker himself testified, potential investors could

not have read the offering materials and been ignorant of the

financial benefits accruing to him.

     We find that petitioners' purported reliance on Becker was

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

disclosure.    Becker's expertise was in taxation, not plastics

materials or plastics recycling, and his investigation and
                              -- 46
                                 46 --

analysis of the Plastics Recycling transactions reflected this

circumstance.   Gollin knew that Becker was not an engineer or

expert in plastics materials or plastics recycling, and Fishbach

and Fredericks had no reason to believe otherwise.   Becker

testified that he was very careful not to mislead any of his

clients regarding the particulars of his investigation.   As he

put it: "I don't recall saying to a client I did due diligence *

* * [Rather,] I told [my clients] precisely what I had done to

investigate or analyze the transaction.    I didn't just say I did

due diligence, and leave it open for them to define what I might

or might not have done."

     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 Becker

recognized the nature of the tax benefits and, given their

education and professional experience, petitioners should have

recognized it as well.   Yet neither petitioners nor Becker

verified the purported value of the Sentinel EPE recycler.

Petitioners ultimately relied on Becker, and Becker confirmed at

trial that he relied on PI for the value of the Sentinel EPE

recyclers.   Investors as sophisticated as petitioners either

learned or should have learned the source and shortcomings of

Becker's valuation information when he "precisely" disclosed

"what [he] had done to investigate or analyze the transaction."
                              -- 47
                                 47 --

     Gollin was a partner in an accounting firm and had nearly 20

years' experience as a forensic accountant investigating

"potential scams and the like."   Fishbach was a named partner in

a law firm in which he had been practicing for nearly 20 years,

and through which he had made a number of investments locally and

nationally.   Fredericks was the president and chief operating

officer of a successful advertising agency and a board member of

a plastics molding company that was recycling plastic scrap.

Certainly petitioners possessed the resources and acumen properly

to investigate the Partnership transactions.   We hold that

petitioners did not reasonably or in good faith rely on Becker as

an expert or a qualified professional working in the area of his

expertise to establish the fair market value of the Sentinel EPE

recycler and economic viability of the Partnership transactions.

Becker never assumed such responsibility, and he fully described

the particulars of his investigation, taking care not to

mischaracterize it as "due diligence."

     In the end, Becker and petitioners 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."    Becker

did not have any education, special qualifications, or

professional skills in plastics materials or plastics recycling.
                              -- 48
                                 48 --

A taxpayer may rely upon his adviser's expertise (in these cases

accounting and tax advice), but it is not reasonable or prudent

to rely upon a tax 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 789-790; 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, T.C. Memo. 1994-217; Rogers v. Commissioner, T.C.

Memo. 1990-619; see also 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, with respect to Becker's

advice in Plastics Recycling cases.

           c.   Hertan

     Fishbach learned of the Plastics Recycling transactions from

Hertan, his partner at ZFH.   Hertan oversaw the bookkeeping and

general financial affairs of ZFH.    He and Fishbach lived near

each other and carpooled in and out of Manhattan.    With respect

to the Partnership transactions, Fishbach testified that Hertan

"found an investment that he thought was of interest" and that he

mentioned visiting Hyannis to look at some equipment.    Asked if

Hertan gave him a report about what he found at Hyannis, Fishbach

replied:
                              -- 49
                                 49 --

     Well, generally he would just, you know, talk about it
     * * * We had sort of a balancing out process. He would
     talk about something looked good and I would say, great
     * * * It was sort of implicit in our relationship at
     that time and the things we did that [Hertan] would go
     about evaluating things * * *.

Fishbach knew that Hertan had spoken to Becker about the

investment.   Fishbach testified that he did not know if Hertan

had a background in plastics materials or plastics recycling and

that Hertan never told him "that he was a genius at plastics."

     Fishbach had ample opportunity to question Hertan about the

Plastics Recycling transactions and the nature and extent of

Hertan's investigation, but the record in this case indicates

that he did not do so.   He never asked Hertan if he had a

background in plastics engineering or recycling.   Fishbach

believed that Hertan had thoroughly reviewed the offering

memoranda, and he testified that he understood from Hertan that

PI "seemed to have a real foothold in the marketplace."    The

offering memoranda, however, warned that there was no established

market for the recyclers.   Fishbach testified that it was hard

for him to say honestly that he "knew all of the tax benefits"

associated with the Partnerships.    Yet the tax benefits flowing

from SAB Recovery, SAB Recycling, and SAB Recovery Associates

were reported on the Fishbachs' returns and attached Forms K-1,

which Fishbach testified that he reviewed "in toto."   Fishbach

testified that he did not review the financial projections set

out in the offering memoranda; that he did not check the
                              -- 50
                                 50 --

prognosis for royalty distributions; and that he did not monitor

his 1981 investment in SAB Recovery.     Apparently based upon an

implicit understanding, Fishbach expected Hertan to do those

things.   Yet it is not clear from the record in docket No. 19612-

90 how thoroughly Hertan reviewed the offering memoranda and

investigated the respective Partnership transactions.

Notwithstanding his purported ignorance of the performance of his

1981 investment in SAB Recovery, and the tax benefits associated

therewith, Fishbach invested in two more SAB Recycling

Partnerships in 1982.

     At the time Fishbach invested in the respective SAB

Recycling Partnerships, he had been practicing law for nearly 20

years and was a named partner in a law firm with offices in

Manhattan and Long Island.   Prior to 1981 he had invested in a

number of ventures through the firm, including the financing and

development of properties, construction of buildings, shopping

centers throughout the country, and the construction of a

television station.   With respect to the Partnership

transactions, the essence of Fishbach's testimony is that he left

everything to Hertan, including monitoring the investments.

Fishbach did not pursue with Hertan any of the particulars of the

Plastics Recycling transactions or Hertan's purported

investigation of them.   In light of his education and

professional and investment experience, we consider Fishbach's
                                -- 51
                                   51 --

claim of blind faith reliance on Hertan to be unconvincing.

Fishbach has not established that his purported reliance on

Hertan was reasonable, in good faith, or based upon full

disclosure.

          d.   Steele, Cohen, and Porter

     Fredericks contends that, in addition to relying on Becker,

he also relied on Steele, Cohen, and Porter.   Neither Steele,

Cohen, nor Porter testified at trial.

     Steele was the accountant at Becker Co. primarily

responsible for handling the Fredericks' account.   With respect

to the Plastics Recycling transactions, Fredericks testified that

he spoke to Steele "about what effect [the investment would] have

on [the Fredericks'] estimated tax and things of that nature",

but he did not ask Steele "about the economics of the situation."

Steele never represented to Fredericks that he was an engineer or

expert in plastics recycling.    Other than the alleged explanation

of the impact the investment would have on the Fredericks' taxes,

there is nothing in the record suggesting the exact nature of the

advice, if any, that Fredericks received from Steele about the

Plastics Recycling transactions.

     Cohen is an attorney whom Fredericks hired in October of

1981 to negotiate the settlement of an employment contract.

Fredericks asked Cohen whether he was familiar with the Plastics

Recycling transactions and whether he could review the SAB
                               -- 52
                                  52 --

Recycling offering memorandum from a legal standpoint.       He did

not consider Cohen to be an engineer or an expert in plastics

recycling.    Cohen indicated that he had invested in a 1981

Plastics Recycling transaction, and he agreed to compare the two

offering memoranda.    Fredericks understood from Cohen that the

two transactions were virtually the same and that the investment

offered good tax advantages.    He did not ask Cohen whether he had

received any royalties.

       Porter was a licensed engineer and the president and

principal stockholder of PDE, a plastics molding company for

which Fredericks was a director.    Fredericks knew that PDE had

been recycling plastic scrap since the late 1970's.       After

reviewing the SAB Recycling offering memorandum, Fredericks

telephoned Porter and asked him if there was any economic value

in a machine that recycles polyethylene or one that recycles

polystyrene.    According to Fredericks, Porter believed that

recycling was economically viable depending upon the price of

oil.    Fredericks did not inform or question Porter about the

Plastics Recycling transactions, the Sentinel EPE recycler, or

any details of plastics recycling.        He did not tell Porter what

machine he was investing in; he did not describe the machine to

Porter; he did not tell Porter the price of the machine; he did

not send Porter a copy of the offering memorandum; and he did not

ask Porter if there were any comparable machines already on the
                                  -- 53
                                     53 --

market.    On cross-examination, Fredericks summed up his

conversation with Porter as follows:

     Q    So, basically, all you asked [Porter] was whether

recycling was a--a feasible--a feasible thing, a feasible

process.

     A    As I testified, I asked him is a recycling machine a

viable economic entity.

     Q    Okay.   But you didn't go into the specifics of this

machine.

     A    I did not.

     We hold that Fredericks' purported reliance on Steele,

Cohen, and Porter was not reasonable, not in good faith, nor

based on full disclosure.       Nothing in the record in docket No.

21847-90 suggests the nature of the advice, if any, Fredericks

received from Steele, other than the monetary impact the

investment would have on his taxes.          See Patin v. Commissioner,

88 T.C. at 1131.       Fredericks did not consider Cohen to be an

engineer or an expert in plastics recycling.         Essentially, Cohen

told Fredericks nothing more than that he had invested in a

virtually identical tax-advantaged Plastics Recycling transaction

a year before.     The two did not discuss anything of substance;

Fredericks did not even ask Cohen if he had received any royalty

distributions.     Fredericks' discussion with Porter was similarly

bereft of substantive advice.       The only thing Fredericks asked
                              -- 54
                                 54 --

Porter was whether he believed a polyethylene or polystyrene

recycler was economically viable.    They did not discuss the

Sentinel EPE recycler, the Plastics Recycling transactions, or

plastics recycling in general.    Fredericks will not be relieved

of the negligence additions to tax based upon his purported

reliance on Steele, Cohen, and Porter.

     3.   The Private Offering Memoranda

     Petitioners in very general terms maintain that they

reasonably relied upon the offering memoranda and the tax opinion

letters appended thereto.   However, petitioners' testimony and

actions 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 substantial

likelihood of audit by the IRS and a likely challenge of the

purported value of the recyclers; (2) the general partner's lack

of experience in marketing recycling or similar equipment; (3)

the lack of an established market for the recyclers; and (4)

uncertainties regarding the market prices for virgin resin and

the possibility that recycled pellets would not be as marketable

as virgin pellets.   In addition, the offering memoranda noted a

number of conflicts of interest, including Miller's interest in F
                                -- 55
                                   55 --

& G Corp. and his representation of Burstein, PI, and Grant, who

was the sole shareholder of ECI Corp.      A careful consideration of

the materials 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.

     In each of these consolidated cases the projected tax

benefits in the respective offering memoranda exceeded

petitioners' respective investments.       According to the offering

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

tax benefits were investment tax credits in excess of $82,600

plus deductions in excess of $40,000.      Specifically, the

projected investment tax credits and deductions for the

Partnerships in the first year of the investment for each $50,000

investor were as follows:

                            IT + BE Credits       Deductions
SAB Recovery                   $82,639              $40,003
SAB Recycling                   82,639               40,037
SAB Reclamation                 83,712               40,234

     As a result of Gollin's gross $12,500 investment in SAB

Reclamation, he and his wife Harriet claimed an operating loss in

the amount of $10,025 and investment tax and business energy
                                -- 56
                                   56 --

credits in the amount of $20,928.10        For Fredericks' gross

$50,000 investment in SAB Recycling, he and his wife Stephanie

claimed an operating loss in the amount of $39,741 and investment

tax and business energy credits in the amount of $82,638 on their

1982 return.    As a result of Fishbach's one-third interest in

ZFH, and ZFH's gross $50,000 investment in SAB Recovery in 1981

and gross $25,000 investment in SAB Recycling in 1982, on their

1982 return Fishbach and his wife Patricia claimed an operating

loss in the amount of $7,230 and investment tax and business

energy credits in the amount of $13,743.

     The direct reductions in petitioners' Federal income tax, as

a result of the investment tax credits alone, ranged from 165

percent to 167 percent of their cash investments, not taking into

consideration any rebated commissions or advance royalty

payments.11    Therefore, after adjustments of withholding,

estimated tax, or final payment, like the taxpayers in Provizer

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


10
     The Gollins claimed   $6,391 of the regular investment credit
on their 1982 return and   carried back the remainder, $4,073, to
1979 (an additional $896   in regular investment credits was
claimed on their amended   1979 return). With respect to the
business energy credits,   the Gollins carried back $6,919 to 1979
and $3,545 to 1980.
11
     Although the record in docket No. 19612-90 does not disclose
the amounts of Fishbach's second-tier interests, the projected
investment tax and business energy credits for SAB Recovery and
SAB Recycling for the first year of the investment, $82,639, is
165 percent of the corresponding projected investment amount,
$50,000.
                               -- 57
                                  57 --

the beginning, petitioners [Gollin, Fishbach, and Fredericks]

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 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. at 850.   A reasonably prudent person would not conclude

without substantial investigation that the Government was

providing tax benefits so disproportionate to the taxpayers'

investment of their own capital.

     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 respondent's

imposition of the negligence additions to tax with respect to one

of the partners therein.12   The Court of Appeals for the Ninth

12
     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
                                                   (continued...)
                               -- 58
                                  58 --

Circuit reversed our imposition of the negligence 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 present cases, however, petitioners have not shown

that they placed substantial reliance upon the tax opinion letter

attached to the offering memoranda.       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 SAB Recovery, SAB Recycling, and SAB 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 an
       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'
       and their tax advisors in making their own analysis and

12
 (...continued)
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.
                                -- 59
                                   59 --

       not to permit any prospective investor to rely upon our
       advice in this matter. [Emphasis added.]

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, 875 F.2d at

138.    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.

       4.   Miscellaneous

       The parties in these consolidated cases stipulated that the

fair market value of a Sentinel EPE recycler in 1981 and 1982 was

not in excess of $50,000.     Notwithstanding 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 in docket Nos. 16922-90 and 19612-90 submitted into

evidence 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
                              -- 60
                                 60 --

concluded in a signed affidavit, dated March 16, 1993, that the

machines actually had a fair market value of not more than

$50,000 each in the Fall of 1981 and 1982.

     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

for petitioners in docket Nos. 16922-90 and 19612-90 obtained

copies of these reports and urge that they support the

reasonableness of the values reported on the Gollins' and

Fishbachs' returns.   Not surprisingly, counsel in those cases did

not call Carmagnola to testify, but preferred instead to rely
                              -- 61
                                 61 --

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 Sixth

Circuit Court of Appeals 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

Gollin and Fishbach 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, 66 F.3d 729 (5th Cir.

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

Climenhage v. Commissioner, T.C. Memo. 1993-223; Reile v.

Commissioner, T.C. Memo. 1992-488; Davis v. Commissioner, T.C.

Memo. 1989-607; Chellappan v. Commissioner, T.C. Memo. 1988-208;

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

50,585 (D. Ariz. 1993).

     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
                               -- 62
                                  62 --

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 one year of

college between them and characterized themselves as financial

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

well educated and experienced professionals.   Becker and Steele

were not independent of the SAB Recycling Partnerships and Becker

disclosed the limitations of his investigation.   Cohen was not a

long-term adviser to Fredericks, and there is no evidence that he

had any expertise with respect to the Plastics Recycling

transaction.    Porter did not advise Fredericks specifically with

respect to the Sentinel EPE recycler or the Plastics Recycling

transactions.   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

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
                               -- 63
                                  63 --

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.

     Neither petitioners nor Becker had any formal education,

expertise, or experience in plastics recycling.      Neither Cohen,

Steele, nor Hertan ever represented that he was expert in

plastics recycling and Fredericks and Fishbach had no reason to

believe otherwise.   The records indicate that none of petitioners

or their purported advisers 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.   Although Fredericks served on the board

of a plastics molding company, there is no showing in docket No.

21847-90 that this gave him special insight into plastics

recycling.    Moreover, when he purportedly spoke to Porter about a

polyethylene or polystyrene recycler, he sought no advice
                              -- 64
                                 64 --

specifically about the Plastics Recycling transactions or the

Sentinel EPE recycler.   Similarly, Becker purportedly discussed

the transactions with Canno, who apparently was familiar with the

plastics industry, but Canno was not hired by Becker to

investigate PI and the Sentinel EPE recycler, never saw a

Sentinel EPE recycler, and never prepared any kind of formal,

written analysis of the venture.   Becker and petitioners relied

upon representations by insiders to the Plastics Recycling

transactions, and neither he nor petitioners hired any

independent experts in the field of plastic materials or plastics

recycling.   Accordingly, we consider petitioners' arguments with

respect to the Mollen case inapplicable under the circumstances

of these cases.

     In Climenhage, the taxpayers incorrectly excluded from gross

income damages awarded to them in a breach of contract suit.    We

rejected imposition of the negligence addition to tax because the

taxpayers reasonably followed the tax advice of the attorney who

brought their suit.   Unlike petitioners' cases, the adviser in

the Climenhage case was aware of all of the relevant facts and

his advice pertained to a matter within his area of expertise,

interpretation of the law.   Accordingly, petitioners' reliance on

Climenhage v. Commissioner, supra, is misplaced.

     In Chellappan v. Commissioner, supra, the taxpayers invested

in a fraudulent equipment leasing tax shelter.   Although the
                               -- 65
                                  65 --

subject machines--modified copiers--performed adequately on a

demonstration basis, prolonged use was mechanically

impracticable.    Under "the somewhat unique circumstances of

[that] case," we found no basis for the negligence addition to

tax.    The taxpayers had seen the equipment demonstrated and had

no reason to suspect that the scheme was fraudulent.    They and

their accountant/adviser were in general aware of the cost of

ordinary office copy machine equipment, and the modified machines

were not priced disproportionately higher than first class copy

machine equipment.    At the behest of one of the taxpayers, a

securities broker contacted an IRS representative and was told

that he saw no problem with the investment.    Also, a revenue

agent told the accountant that the venture sounded good and that

he might be interested in investing himself; and at least some of

the taxpayers were told that the IRS had looked at the shelter

and found it legitimate.    In addition, the accountant or his son

told the taxpayers that the machine was unique and had been

patented.

       In contrast, the Sentinel EPE recycler was priced

disproportionately higher than other plastics recycling machines

on the market, a fact that should not have eluded a serious

investigation by petitioners or their purported advisers.13      None



13
     The Fredericks stipulated that information published prior
to the Plastics Recycling transactions indicated that several
machines capable of densifying low density materials were already
on the market.
                               -- 66
                                  66 --

of petitioners saw a Sentinel EPE recycler prior to investing in

the Partnerships.    Not only were petitioners not under the

impression that the IRS had informally approved of the Plastics

Recycling transactions, but the offering memoranda expressly

warned of a substantial likelihood of audit and that the purchase

price of the recyclers would probably be challenged by the IRS as

being in excess of fair market value.     In addition, even though

PI had obtained patents prior to the Plastics Recycling

transactions, PI actually claimed that it had never obtained

patents on any of its machines.    The facts of petitioners' cases

are distinctly different from those in Chellappan v.

Commissioner, T.C. Memo. 1988-208, and we consider it

inapplicable under the circumstances of petitioners' cases.

     Petitioners also rely on two recent decisions by the Court

of Appeals for the Fifth Circuit that reversed this Court's

imposition of the negligence additions to tax in a pair of non-

plastics recycling cases:    Durrett v. Commissioner, 71 F.3d 515

(5th Cir. 1996); and Chamberlain v. Commissioner, 66 F.3d 729

(5th Cir. 1995).    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 Western cases, however, the Courts
                               -- 67
                                  67 --

of Appeals have affirmed decisions of the Tax Court imposing

negligence additions to tax.   See Chakales v. Commissioner, T.C.

Memo. 1994-408 (reliance on 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. 849

(1987) (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), affd.

904 F.2d 1011 (5th Cir. 1990), affd. 501 U.S. 868 (1991).   Here

we have found that none of the advisers consulted by petitioners

possessed sufficient knowledge of the plastics recycling business

to render a competent opinion.14   This circumstance has been

deemed relevant by the Court of Appeals for the Second Circuit,

the court to which appeal in these cases lies.   See David v.

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



14
     Fredericks purports to have spoken to Porter, a licensed
engineer and the president of a plastics molding company that at
the time was recycling plastic. However, Porter did not testify
at trial, and Fredericks did not establish the extent of Porter's
expertise in plastics recycling, if any. Moreover, when
Fredericks spoke with Porter by telephone they did not discuss
the Plastics Recycling transactions or the Sentinel EPE
recyclers.
                               -- 68
                                  68 --

advice not reasonable where expert lacks knowledge of business in

which taxpayers invested); Goldman v. Commissioner, 39 F.3d at

408 (same).    Accordingly, we shall not relieve petitioners of the

negligence additions to tax based upon the Court of Appeals for

the Fifth Circuit's decisions in the Durrett and Chamberlain

cases.15

     5.    Conclusion as to Negligence

     Under the circumstances of these 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, their purported advisers, or in good

faith investigate the underlying viability, financial structure,

and economics of the Partnership transactions.   We are

unconvinced by the claim of these experienced and highly

sophisticated, able, and successful professionals that they

reasonably failed to inquire about their investments and simply

relied on the offering circulars and their purported advisers,

despite warnings in the offering circulars and explanations by

Becker about the limitations of his investigation.    In each case


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.
                              -- 69
                                 69 --

these 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 the provisions of

section 6653(a) for the taxable years at issue.    Respondent is

sustained on this issue.

B.   Section 6659--Valuation Overstatement

     In notices of deficiency, respondent determined that

petitioners Gollin and Fredericks were liable for the section

6659 addition to tax on the portion of their respective

underpayments attributable to valuation overstatement.    In a

stipulation of settled issues, the Fredericks conceded the

section 6659 addition to tax on the portion of their underpayment

attributable to the disallowance of the investment tax and

business energy credits claimed as a result of their

participation in the Plastics Recycling Program.    Petitioners

Gollin have the burden of proving that respondent's determination

of the section 6659 addition to tax in their case is erroneous.

Rule 142(a); Luman v. Commissioner, 79 T.C. at 860-861.

     In an amendment to answer, respondent asserted that

petitioners Fishbach were liable for the section 6659 addition to

tax on the portion of their underpayment attributable to

valuation overstatement.   Because the section 6659 addition to

tax was raised for the first time in the amendment to answer, the

burden of proof is shifted to respondent.    Rule 142(a); Vecchio

v. Commissioner, 103 T.C. 170, 196 (1994).    For convenience, in
                                -- 70
                                   70 --

this subsection hereafter references to "petitioners" shall be

limited to petitioners Gollin and Fishbach.

     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

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 and 1982 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

underpayment 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
                              -- 71
                                 71 --

claimed tax benefits precludes imposition of the section 6659

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

the section 6659 addition 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.

Commissioner, 92 T.C. 827 (1989); 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. 132, 178 (1992) (citing Todd v.

Commissioner, supra), affd. sub nom. Hildebrand v. Commissioner,

28 F.3d 1024 (10th Cir. 1994).   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) (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.
                              -- 72
                                 72 --

     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

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; 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.
                              -- 73
                                 73 --

     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

predicated upon a projected stream of royalty income, and this

Court merely rejected the taxpayer's 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 lie.   See Golsen v. Commissioner, 54 T.C. 742, 756-

758 (1970), affd. 445 F.2d 985 (1Oth 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,
                                -- 74
                                   74 --

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

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.'"     Id. 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. 524,

566-567 (1988); 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, 893 F.2d

225 (9th Cir. 1990); Todd v. Commissioner, 862 F.2d 540 (5th Cir.

1988); and McCrary v. Commissioner, 92 T.C. 827 (1989), is

misplaced.   In those cases, in contrast to the consolidated cases

herein, it was found that a valuation overstatement did not
                               -- 75
                                  75 --

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 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 ground 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.   The cases of

petitioners Fishbach and Gollin 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



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.")
                              -- 76
                                 76 --

     2.   Concession of the Deficiency

     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 if their

underpayments were attributable to a valuation overstatement or

other 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, supra, 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

Partnership transactions lacked economic substance.    Regardless

of petitioners' concessions, in these cases the underpayments of
                              -- 77
                                 77 --

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

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 2325
                              -- 78
                                 78 --

percent, was an integral part of our findings in Provizer v.

Commissioner, supra, 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 their claimed

tax benefits, and the section 6659 additions to tax were held

inapplicable.   However, the concessions of the claimed tax

benefits, in and of themselves, did not preclude imposition of

the section 6659 additions 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.      We hold that

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

inappropriate.17

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



17
     Petitioners' citation of Heasley v. Commissioner, supra, in
support of the concession argument is also inappropriate. That
case was not decided by the Court of Appeals for the Fifth
Circuit on the basis of a concession. Moreover, see supra note
16 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.
                                -- 79
                                   79 --

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.    Petitioners

stipulated that the Partnership transactions were similar to the

Clearwater transaction described in the Provizer case, and that

the fair market value of a Sentinel EPE recycler in 1981 and 1982

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 was 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)

     Petitioners argue that respondent erroneously failed to

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

authorizes respondent to waive all or part of the addition to tax

for valuation overstatements 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.    Respondent'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 respondent's refusal to exercise her

discretion is arbitrary, capricious, or unreasonable.    See

Mailman v. Commissioner, 91 T.C. 1079 (1988); Estate of Gardner
                               -- 80
                                  80 --

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.    The Gollins made their request

more than 6 months after the trial of their case, and the

Fishbachs made their request more than 4 months after the trial

of their case.   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. 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 Becker in

deciding on the valuation claimed on their tax returns.      Fishbach

maintains that he relied on Hertan as well.      Petitioners contend

that such reliance was reasonable, and, therefore, that

respondent should have waived the section 6659 additions to

tax.18   However, as we explained above in finding petitioners


18
     In their posttrial brief, the Gollins referenced the reports
prepared by Carmagnola in support of the reasonableness of the
claimed valuation. For reasons discussed supra, we consider the
                                                   (continued...)
                             -- 81
                                81 --

liable for the negligence additions to tax, petitioners'

purported reliance on the offering materials and their advisers

was not reasonable.

     The offering materials for the Partnerships 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.     At trial, Fishbach was

unsure if he had read the offering memoranda and speculated that

he spent just a short amount of time perusing them and that he

flipped through the risk factors.   Neither Fishbach nor Gollin

sought to resolve the numerous issues raised in the offering

memoranda.

     Becker possessed no special qualifications or professional

skills in the recycling or plastics industries and petitioners

had no reason to believe otherwise.     Although Fishbach claims

that he did not know whether Hertan had any education or

experience in plastics recycling, nothing in Hertan's background

would indicate such qualifications, and Fishbach conceded that

Hertan never said he had such education or experience.     Despite

these obvious limitations, Becker, Hertan, and petitioners never

hired or consulted any plastics engineering or technical experts

with respect to the Plastics Recycling transactions.     Becker



18
 (...continued)
reports prepared by Carmagnola to be unreliable and of no
consequence.
                               -- 82
                                  82 --

spoke with Canno, who apparently had some knowledge of the

plastics industry, but the substance of Canno's purported

comments is doubtful, and he had only minimal information about

the transaction.    At trial, Becker confirmed that in the end he

relied exclusively on PI, its personnel, and the offering

materials as to the value and purported uniqueness of the

machines.   Hertan similarly relied on PI personnel and the

offering materials, in addition to Becker.

     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 section 6659, 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 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
                               -- 83
                                  83 --

scope of expertise and experience of their advisers.

Consequently, we consider petitioners' reliance on the Mauerman

case inappropriate.

     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, Becker, and Hertan 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 addition to tax 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.

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 Memorandum of Law

     Long after the trials of these cases, petitioners Gollin and

Fishbach 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 Gollin and Fishbach also lodged with

the Court motions for decision ordering relief from the additions

to tax for negligence and from the increased rate of interest,
                              -- 84
                                 84 --

with attachments, and memoranda in support of such motions.

Respondent filed objections, with attachments, and memoranda in

support thereof, and petitioners thereafter filed reply

memoranda.   Petitioners Gollin and Fishbach 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 Grelsamer v. Commissioner, T.C.

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

For convenience, in this subsection hereafter references to

"petitioners" shall be limited to petitioners Gollin and

Fishbach.

     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

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 Robin 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.
                                -- 85
                                   85 --

     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.      Such 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.

     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 the Estate of Satin and Fisher cases 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
                               -- 86
                                  86 --

effectively rejected it.19

     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

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.20   Petitioners assert that the Plastics Recycling

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


19
     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.)
20
     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.
                              -- 87
                                 87 --

claim to have accepted the offer timely, so they effectively

rejected it.21

     In December 1988, the Miller cases were disposed of by

settlement agreement between the taxpayers and respondent.22

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

21
     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.)
     In docket No. 16922-90, respondent attached to her objection
to petitioners' motion for leave a copy of an Appeals Transmittal
Memorandum and Supporting Statement, dated Apr. 26, 1990, which
relates that the Gollins were offered and rejected the offer.
The Gollins have not disputed the accuracy of its contents.
     In docket No. 19612-90, respondent attached to her objection
to petitioners' motion for leave a copy of a letter, dated Apr.
19, 1988, extending the offer to petitioners Fishbach in another
plastics recycling case, docket No. 34890-87. Also attached to
respondent's objection is a copy of the Fishbachs' reply letter,
which rejected the offer but stated their desire to stipulate to
be bound to the test cases. Respondent states in her objection
that docket No. 34890-87 is among the cases in which she made
administrative abatements of the negligence additions to tax and
increased interest. See Farrell v. Commissioner, T.C. Memo.
1996-295. The Fishbachs have not disputed the accuracy of the
copies of the settlement offer in docket No. 34890-87, their
reply letter, or respondent's subsequent abatements in that case.
22
     Although it is not otherwise a part of the record in the
Gollin and Fishbach cases, respondent attached copies of the
Miller closing agreement and disclosure waiver to her objections
to petitioners' motion for leave, and petitioners do not dispute
the accuracy of the document.
                               -- 88
                                  88 --

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 the

taxpayer in the Miller cases, and that in accordance with 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.

     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), affg. 575 F.

Supp. 508 (N.D. Ga. 1983); 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.
                               -- 89
                                  89 --

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

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,

"Surely, 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
                              -- 90
                                 90 --

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 in the records 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.

     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

also did not enter into 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
                               -- 91
                                  91 --

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,




                                      An appropriate order will

                               be issued denying petitioners'

                               motions, and decisions will be

                               entered under Rule 155.
