                       T.C. Memo. 1997-325



                     UNITED STATES TAX COURT



            DAVID AND SHIRLEY SINGER, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 22931-86.                      Filed July 16, 1997.



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

     Paul Colleran, Maureen T. O'Brien, and William T. Hayes, for

respondent.

                            CONTENTS

                                                            Page
MEMORANDUM FINDINGS OF FACT AND OPINION....................... 2
OPINION OF THE SPECIAL TRIAL JUDGE............................ 2
FINDINGS OF FACT.............................................. 5
  A. The Plastics Recycling Transactions...................... 5
  B. Plymouth Equipment Associates............................ 7
  C. Richard Roberts.......................................... 9
  D. Petitioners and Their Introduction to Plymouth
     Equipment Associates.....................................10
OPINION.......................................................17
  A. Section 6653(a)--Negligence..............................19
                               - 2 -

     1. The So-Called Oil Crisis..............................21
     2. Petitioner's Purported Reliance on an Adviser.........24
     3. Miscellaneous.........................................31
     4. Conclusion as to Negligence...........................40
  B. Section 6659--Valuation Overstatement....................41
     1. The Grounds for Petitioners' Underpayments ...........42
     2. Concession of the Deficiency..........................47
     3. Section 6659(e).......................................50
  C. Petitioners' 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........................................53

             MEMORANDUM FINDINGS OF FACT AND OPINION

     DAWSON, Judge:   This case was assigned to Special Trial

Judge Norman H. Wolfe pursuant to the provisions of section

7443A(b)(4) and Rules 180, 181, and 183.     All section references

are to the Internal Revenue Code in effect for the tax year in

issue, unless otherwise indicated.     All Rule references are to

the Tax Court Rules of Practice and Procedure.     The Court agrees

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

set forth below.

                 OPINION OF THE SPECIAL TRIAL JUDGE

     WOLFE, Special Trial Judge:     This case is part of the

Plastics Recycling group of cases.     For a detailed discussion of

the transactions involved in the Plastics Recycling cases, see

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

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

the underlying transactions and the Sentinel recyclers in this

case are substantially identical to those considered in the

Provizer case.
                               - 3 -

     In a notice of deficiency dated March 26, 1986, respondent

determined a deficiency in petitioners' 1981 joint Federal income

tax in the amount of $102,686, plus an addition to tax under

section 6659 for valuation overstatement in the amount of

$30,465.   Respondent also determined that interest on the

deficiency accruing after December 31, 1984, would be calculated

at 120 percent of the statutory rate under section 6621(c).1

     In a first amendment to answer, respondent asserted

additions to tax for 1981 in the amount of $5,134 under section

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

amount of 50 percent of the interest due on the underpayment

attributable to negligence.

     In respondent's trial memorandum and posttrial brief,

respondent asserted a lesser addition to tax under section 6659

for valuation overstatement in the amount of $24,758.   We

consider the addition to tax under section 6659 to be reduced

accordingly.



1
     The deficiency notice refers to sec. 6621(d). This section
was redesignated as sec. 6621(c) by sec. 1511(c)(1)(A) of the Tax
Reform Act of 1986, Pub. L. 99-514, 100 Stat. 2085, 2744, and
repealed by sec. 7721(b) of the Omnibus Budget Reconciliation Act
of 1989 (OBRA 1989), Pub. L. 101-239, 103 Stat. 2106, 2399,
effective for tax returns due after Dec. 31, 1989, OBRA 1989 sec.
7721(d), 103 Stat. 2400. The repeal does not affect the instant
case. For simplicity, we refer to this section as sec. 6621(c).
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 parties filed a Stipulation of Settled Issues concerning

the adjustments relating to petitioners' participation in the

Plastics Recycling Program.   The stipulation provides:

     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 section 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 I.R.C. §6653(a).

     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 petition, petitioners raised the statute of

limitations on assessment as a bar to respondent's deficiency

determination.   Respondent asserted otherwise in the answer, and

petitioners have not argued the statute of limitations elsewhere

in the record.   In view of the third stipulation in the
                               - 5 -

stipulation of settled issues, we consider that any statute of

limitations defense has been conceded by petitioners.

     The issues remaining in this case are:   (1) Whether

petitioners are liable for the additions to tax for negligence

under section 6653(a)(1) and (2); and (2) whether petitioners are

liable for the addition to tax under section 6659 for

underpayment of tax attributable to a valuation overstatement.

                         FINDINGS OF FACT

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

The stipulated facts and attached exhibits are incorporated

herein by this reference.

A.   The Plastics Recycling Transactions

     This case concerns petitioners' investment in Plymouth

Equipment Associates (Plymouth), a limited partnership that

leased seven Sentinel expanded polyethylene (EPE) recyclers.    The

transactions involving the Sentinel EPE recyclers leased by

Plymouth 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 transactions closely resembling those in the Provizer

case, Packaging Industries, Inc. (PI), manufactured and sold

seven Sentinel EPE recyclers to ECI Corp. for $981,000 each.    ECI
                                - 6 -

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

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

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

     No arm's-length negotiations for the price of the Sentinel

EPE recyclers took place among PI, ECI, and F & G Corp.     All of

the monthly payments required among the entities in the above

transactions offset each other.   These transactions were done

simultaneously.    Although the recyclers were sold and leased for

the above amounts under the structure of simultaneous

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

1981 was not in excess of $50,000.

     PI allegedly sublicensed the recyclers to entities that

would use them to recycle plastic scrap.   The sublicense

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

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

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

     Both Clearwater and Plymouth leased Sentinel EPE recyclers

from F & G Corp. and licensed those recyclers to FMEC Corp.
                                 - 7 -

Apart from leasing and licensing seven recyclers instead of six,

the underlying transactions involving Plymouth do not differ in

any substantive respect from the Clearwater transactions

considered in the Provizer case.

     For convenience, we refer to the series of transactions

among PI, ECI Corp., F & G Corp., Plymouth, FMEC Corp., and PI as

the Plymouth transactions.   In addition to the Plymouth

transactions, a number of other limited partnerships entered into

transactions similar to the Plymouth transactions, also involving

Sentinel EPE recyclers and Sentinel expanded polystyrene (EPS)

recyclers.   We refer to these collectively as the Plastics

Recycling transactions.

B.   Plymouth Equipment Associates

     Plymouth is a New York limited partnership that closed on

December 21, 1981.   Richard Roberts (Roberts) is the general

partner of Plymouth.

     A private placement memorandum for Plymouth 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 memorandum.       Ulanoff

owns a 1.27-percent interest in Plymouth and a 4.37-percent

interest in Taylor Recycling Associates.       Burstein owns a 2.605-

percent interest in Empire Associates and a 5.82-percent interest

in Jefferson Recycling Associates.       Like Plymouth, Taylor
                              - 8 -

Recycling Associates, Empire Associates, and Jefferson Recycling

Associates are partnerships that leased Sentinel recyclers.

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

Miller (Miller), the corporate counsel to PI.

     The Plymouth offering memorandum states that the general

partner will receive fees from Plymouth in the amount of $37,500.

According to the offering memorandum, 10 percent of the proceeds

from the offering--$97,500--was allocated to the payment of sales

commissions and offeree representative fees.    The offering

memorandum further provides that the general partner "may retain

as additional compensation all amounts not paid as sales

commissions or offeree representative fees".    Roberts therefore

was to receive a minimum of $37,500 and up to $135,000 from

Plymouth.

     The offering memorandum lists significant business and tax

risk factors associated with an investment in Plymouth.

Specifically, the offering memorandum states:    (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) Plymouth has no prior operating history; (3) the

general partner has no prior experience in marketing recycling or

similar equipment; (4) the limited partners have no control over

the conduct of Plymouth's business; (5) there is no established

market for the Sentinel EPE recyclers; (6) there are no
                                 - 9 -

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.

     Although the offering memorandum represented that the

Sentinel EPE recycler was a unique machine, it was not.     Several

machines capable of densifying low density materials were already

on the market in 1981.    Other plastics recycling machines

available during 1981 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.

C.   Richard Roberts

     Roberts is a businessman and the general partner in a number

of limited partnerships that leased and licensed Sentinel EPE

recyclers, including Plymouth.    He also is a 9-percent

shareholder in F & G Corp., the corporation that leased the

recyclers to Plymouth.    From 1982 through 1985, Roberts

maintained the following office address with Raymond Grant

(Grant), the sole owner and president of ECI Corp.:

                       Grant/Roberts
                       Investment Banking
                       Tax Sheltered Investments
                       745 Fifth Avenue, Suite 410
                       New York, New York 10022

Grant was instrumental in the hiring of Ulanoff as an evaluator

of the Plastics Recycling transactions; the two had met on a
                                - 10 -

cruise.     Roberts and Grant together have been general partners in

other investments.

     Prior to the Plymouth transactions, Roberts and Grant were

clients of the accounting firm H. W. Freedman & Co. (Freedman &

Co.).     Harris W. Freedman (Freedman), a certified public

accountant (C.P.A.) and the named partner in Freedman & Co., was

the president and chairman of the board of F & G Corp.     He also

owned 94 percent of a Sentinel EPE recycler.     Freedman & Co.

prepared the partnership returns for ECI Corp., F & G Corp., and

Plymouth.     It also provided tax services to John D. Bambara

(Bambara).     Bambara is the 100-percent owner of FMEC Corp., as

well as its president, treasurer, clerk, and director.     He, his

wife, and daughter also owned directly or indirectly 100 percent

of the stock of PI.

D. Petitioners and Their Introduction to Plymouth Equipment
Associates

        Petitioners resided in Fort Lee, New Jersey, at the time

their petition was filed.     Hereafter, reference to petitioner in

the singular denotes David Singer.

        In 1930, at the age of 16, petitioner left high school

during his sophomore year and entered the work force.     By the

late 1930's he was selling, with some success, sundry goods and

dresses.     Petitioner then served in the Army for 45 months.

Approximately 1 year after completing his military service

petitioner became a salesman for a floor covering business, Hy
                              - 11 -

Abrams Co., owned by his brother-in-law.     Petitioner also helped

his father, a carpenter, collect rent on houses his father owned

on the lower East Side of Manhattan.     In the 1950's his father

sold those houses and purchased several apartment buildings in

Harlem.   Together the buildings had a total of 28 apartment

units.

      In 1960 petitioner's father passed away, and petitioner

inherited the apartment buildings.     At that time petitioner's

brother-in-law offered to sell him an interest in Hy Abrams Co.,

but only if petitioner sold the apartment buildings so he could

devote more time to the business.    Petitioner did so and invested

the proceeds in Hy Abrams Co. for a 30-percent interest.     Hy

Abrams Co. became Hy Abrams Corp., and petitioner was named vice

president, although he continued to devote his attention

primarily to sales activities.   In 1978 petitioner's brother-in-

law retired, and the corporation was liquidated.     Petitioner was

not yet ready to retire, and with his daughter he started his own

floor covering business named Singer Carpet Distributors, Inc.

(Singer Carpet).   Petitioner operated Singer Carpet out of a

warehouse in New Jersey for 4 years before retiring at the age of

68.

      On their 1981 Federal income tax return, petitioners

reported gross income from wages, interest, dividends, and
                              - 12 -

capital gains2 in the amount of $373,286, less $34,669 in losses

from partnerships, trusts, etc., including losses here in issue.

Consequently, in the absence of significant deductions or

credits, petitioners were subject to payment of Federal income

taxes in a substantial amount for taxable year 1981.

     In 1981, petitioner acquired a 5.07-percent limited

partnership interest in Plymouth for $50,000.   As a result of the

investment in Plymouth, on their 1981 return petitioner and his

wife Shirley claimed an operating loss in the amount of $40,555,

and investment tax and business energy credits totaling $82,526.

Respondent disallowed petitioners' claimed operating loss and

credits related to Plymouth in full.

     Petitioner learned of the Plastics Recycling transactions

and Plymouth in November or December of 1981 from Abraham

Bramnick (Bramnick).   Bramnick is a stockbroker with the

brokerage house Bond Richmond in New York City.   Petitioner and

Bramnick have known each other socially since the late 1960's or

early 1970's.   Prior to 1981, petitioner and Bramnick invested in

some initial public offerings (IPO's) together, and according to

petitioner, most of these were successful.   Petitioner recalled

his introduction to the Plastics Recycling transactions and

Plymouth as follows:


2
     The bulk of petitioners' income for 1981 derived from gross
capital gains in the amount of $313,523 ($292,960 of which was
short-term capital gain).
                                - 13 -

       There was one before [Plymouth], I think it was Empire,
       and for some reason or other, I didn't jump at it and
       then [Bramnick] called me, well, you missed it, because
       they've got all the members they needed, they don't
       have it--they may not have it again. Then they came
       back a week or two later, I don't remember, but he
       said, this thing is alive again * * *.

Petitioner did not recount any other conversations he may have

had with Bramnick or the substance of the broker's advice, if

any.    Bramnick did not testify at the trial of this case.

       Petitioner also discussed the Plastics Recycling

transactions with Martin Bach (Bach), a certified public

accountant (C.P.A.).    Bach and petitioner were introduced

sometime in 1981 by Bramnick.    At the time, petitioner was

looking for a tax return preparer.       Petitioner retained Bach, and

Bach prepared petitioners' return for 1981 and for several years

thereafter.

       Bach does not have any education or work experience in

engineering, plastics materials, or plastics recycling.      He

graduated cum laude with a B.S. degree in accounting from Long

Island University in 1947.    Three years later he became a

certified public accountant in New York State.      After college,

Bach worked for several accounting firms before founding his own

practice in 1956, named Martin Bach & Co., P.C. (Bach & Co.).

       Bach headed Bach & Co. for approximately 30 years until his

practice was taken over by another firm.      Located in the Wall

Street area, Bach & Co. primarily serviced stock brokerage

houses.    The firm represented clients before the Securities and
                               - 14 -

Exchange Commission (SEC), provided tax services, and performed

certified audits on a monthly and annual basis.    Bach & Co.

performed accounting services for approximately 50 brokerage

houses during Bach's tenure and employed five accountants at its

peak.    Over the course of his career, Bach reviewed a large

number of prospectuses and offering circulars that were filed

with the SEC, as well as private placements that had been

suggested to clients.

     Like petitioner, Bach learned of the Plastics Recycling

transactions and Plymouth in 1981 from Bramnick.    Bond Richmond

was a longstanding client of Bach & Co., and Bramnick was Bach's

primary contact at Bond Richmond.    On occasion, Bramnick

forwarded private placement memoranda to Bach, "just to look at".

In this instance, Bramnick sent Bach the Plymouth offering

memorandum and asked him what he thought about it.    Bach reviewed

the offering memorandum for approximately 3 hours.    He found the

economic projections "very lucrative", to the investor, even if

reduced "by 50-percent".    Bach then met with Bramnick and told

him that he thought the situation was interesting and that it

warranted further investigation.    He also received a phone call

from petitioner asking for his thoughts about Plymouth.

     Next, Bach contacted Peter Gardino (Gardino), a broker who

had traded for one of Bach & Co.'s former accounts.    During 1981

Gardino was working in the syndicate department of a brokerage

house.    Gardino reviewed the Plymouth offering memorandum and
                               - 15 -

arranged for the two of them to visit the PI plant in Hyannis,

Massachusetts, sometime in November.    Bach invited Bramnick to go

with them.   Bach explained:   "I thought he would go too, but he

didn't want to go."    Petitioner recalled that Bach also extended

an invitation to him to visit the PI plant in Hyannis, but

petitioner declined.

     Gardino and Bach toured the PI plant.    Bach testified that

he was impressed with the plant and the "spirit of the workers."

Although the Sentinel EPE recycler was explained to Bach, he did

not understand "the technicalities of the machine too well".

Bach recalls being told that the Sentinel EPE recycler was

unique, but he could not remember what he was told about the

capability of the machine or its place in the market.     He

testified, "I just don't remember being told specifically by

anybody anything--they told me a lot of things when I was up

there, but I don't remember all the things they told me.       Pete

[Gardino] was asking most of the questions."     Bach did not review

any of the accounting or cost records pertaining to the Sentinel

EPE recycler while he was at PI, nor did he ask to see them.

     In addition to touring the PI plant, Bach and Gardino were

taken by a PI representative to visit some end-users of the

machines and see them in operation.     Gardino and Bach questioned

the end-users, but Bach's lack of understanding limited the

number of questions he could ask to one.     Bach recalled that,

"The only question I asked the people was about the breakdown,
                               - 16 -

does the machine breakdown because I don't have a great technical

background."   He understood from the end-users that the machine

was functioning perfectly well.

     Bach did not consult an independent appraiser with respect

to the value of the Sentinel EPE recycler, but instead relied

upon the representations in the Plymouth offering memorandum.    As

Bach recalled:   "I believe that I saw * * * an independent

appraisal stating how they got to the value of the machine based

upon the production, the income the pellets would bring, the

royalties, et cetera."    Bach did not investigate the market for

recycled resin pellets.   Nor did he contact the F & G Corp.

evaluators or inquire if either of them had an interest in the

Plastics Recycling transactions.   Bach concluded that the author

of the appraisal--whose name he could not recall--was independent

based on what he read in the offering memorandum.3

     After returning from Hyannis, Bach related his observations

to Bramnick.   Bach recalled speaking to petitioner only by

telephone.   Bach could not recall the substance of his

communication to petitioner or for how long they spoke.   He

characterized petitioner as "basically only an annual tax

account" and explained that he "didn't see * * * [petitioner] on

a regular basis".   With respect to Plymouth, Bach "spoke mostly


3
     The reports by the F & G Corp. evaluators, Ulanoff and
Burstein, are the only reports appended to the offering
memorandum that assess the Sentinel EPE recycler in any respect.
                                - 17 -

to Mr. Bramnick", who in turn saw petitioner on a regular basis.

Bach recalled arguing with Bramnick because Bramnick wanted

petitioner to purchase two limited partnership units at a cost of

$100,000, whereas Bach thought "one is enough".    Bond Richmond,

not Bach, was petitioner's offeree representative for Plymouth,

and that status entitled it to a commission equal to 10 percent

of petitioner's investment.

     In contrast to Bach's recollection of events, petitioner

claims that after Bach returned from Hyannis, he and his wife

discussed the Plymouth transaction with Bach at a dinner meeting.

According to petitioner, Bach informed them that he and a client

had visited PI and thought well of it, and that Bach was taking

another client, who petitioner knew was "a very successful

attorney for some insurance company."     As petitioner recalls, "I

said if it was good enough for those fellows, it's * * * good

enough for me.    So that's when we made up our mind to do it."

     Petitioners have no education or work experience in plastics

materials or plastics recycling.    They did not read the Plymouth

offering memorandum, see a Sentinel EPE recycler, or otherwise

investigate Plymouth or the Plastics Recycling transactions to

any extent.   Petitioners never made a profit in any year from

their investment in Plymouth.

                                OPINION

     We have decided a large number of the Plastics Recycling

group of cases.    Provizer v. Commissioner, T.C. Memo. 1992-177,
                              - 18 -

affd. without published opinion 996 F.2d 1216 (6th Cir. 1993),

concerned the substance of the partnership transaction and also

the additions to tax.   See also Greene v. Commissioner, T.C.

Memo. 1997-296; Kaliban v. Commissioner, T.C. Memo. 1997-271;

Sann v. Commissioner, T.C. Memo 1997-259 (and cases cited

therein).   The majority of these cases, like the present case,

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 the opinions to date on

these issues.

     In Provizer v. Commissioner, supra, a test case for the

Plastics Recycling group of cases, this Court (1) found that each

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

$50,000, (2) held that the Clearwater transaction was a sham

because it lacked economic substance and a business purpose, (3)

upheld the section 6659 addition to tax for valuation

overstatement since the underpayment of taxes was directly

related to the overstatement of the value of the Sentinel EPE

recyclers, and (4) held that losses and credits claimed with

respect to Clearwater were attributable to tax-motivated

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

the conclusion that the Clearwater transaction lacked economic

substance and a business purpose, this Court relied heavily upon

the overvaluation of the Sentinel EPE recyclers.
                                - 19 -

     Although petitioners have not agreed to be bound by the

Provizer opinion, they have stipulated that their investment in

the Sentinel EPE recyclers in this case is similar to the

investment described in Provizer v. Commissioner, supra.       The

underlying transactions in this case, and the Sentinel EPE

recyclers purportedly leased by Plymouth, are the same type of

transactions and same type of machines considered in Provizer v.

Commissioner, supra.

      Based on the entire record in this case, including the

extensive stipulations, testimony of respondent's experts, and

petitioner's testimony, we hold that the Plymouth transaction 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 deficiency.    We note that petitioners have

explicitly conceded this issue in the stipulation of settled

issues filed shortly before trial.       The record plainly supports

respondent's determination regardless of such concession.      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

     Respondent asserted the additions to tax for negligence

under section 6653(a)(1) and (2) for 1981 in an amended answer.

Ordinarily, because these additions to tax were raised for the
                                - 20 -

first time in an amended answer, respondent would have the burden

of proof.    Rule 142(a); Vecchio v. Commissioner, 103 T.C. 170,

196 (1994); Bagby v. Commissioner, 102 T.C. 596, 612 (1994).

However, by order dated April 1, 1994, this Court granted a

motion for sanctions by respondent, and the burden of proof with

respect to the negligence issues in this case was placed on

petitioners.

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

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

is due to negligence or intentional disregard of rules or

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

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

of the underpayment attributable to negligence or intentional

disregard of rules or regulations.

     Negligence is defined as the failure to exercise the due

care that a reasonable and ordinarily prudent person would employ

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

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

in connection with the transactions were reasonable in light of

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

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

When considering the negligence addition to tax, we evaluate the

particular facts of each case, judging the relative

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

they approached their investment.     McPike v. Commissioner, T.C.
                              - 21 -

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

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

     Petitioners contend that they were reasonable in claiming a

loss deduction and investment tax and business energy credits

with respect to Plymouth.   Petitioner maintains that he expected

an economic profit in light of the so-called oil crisis in the

United States in 1981, and that he reasonably relied upon Bach as

a qualified adviser on this matter.

     1.   The So-Called Oil Crisis

     Petitioner claims that he reasonably expected to make an

economic profit because plastic is an oil derivative and the

United States was experiencing a so-called oil crisis when he

invested in Plymouth.   Based upon our review of the record, we

find petitioner's claim unconvincing, regardless of the so-called

oil crisis.   Moreover, testimony by one of respondent's experts

establishes that the oil pricing changes during the late 1970's

and early 1980's did not justify petitioners' claiming excessive

investment credits and purported losses based on vastly

exaggerated valuations of recycling machinery.

     Petitioner testified that he "was told by Marty [Bach] or

Abe Bramnick that the potential of the investment is great

because oil is going crazy and this thing was something".

Bramnick did not testify at the trial of this case, and Bach

could not recall the substance of his communications with

petitioner.   Petitioner did not read the Plymouth offering
                               - 22 -

memorandum or in any manner attempt to research the business

aspects of the Plymouth transaction.    In view of petitioners'

failure seriously to investigate or learn about the Plymouth

transaction, we are not convinced that they invested in Plymouth

with an honest objective of making an economic profit, regardless

of the so-called oil crisis.

     Moreover, petitioners did not adequately explain how the so-

called oil crisis provided a reasonable basis for them to invest

in Plymouth and claim the associated operating loss and credits.

The offering memorandum warned that there could be no assurances

that prices for new resin pellets would remain at their then

current level.    One of respondent's experts, Steven Grossman,

explained that the price of plastics materials is not directly

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

less than 10 percent of crude oil is utilized for making plastics

materials and that studies have shown that "a 300% increase in

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

of plastics products."   Furthermore, during 1980 and 1981, in

addition to the media coverage of the so-called oil crisis, there

was "extensive continuing press coverage of questionable tax

shelter plans."    Zmuda v. Commissioner, 731 F.2d 1417, 1422 (9th

Cir. 1984), affg. 79 T.C. 714 (1982).

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

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

(10th Cir. 1994), is misplaced.    The facts in the Krause case are
                              - 23 -

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

case, the taxpayers invested in limited partnerships whose

investment objectives concerned enhanced oil recovery (EOR)

technology.   The Krause opinion 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

1970s and early 1980s to invest in EOR technology."    Id. at 177.

In the present case, 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' decision 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

the record 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

technology specifically.   One of the taxpayers in the Krause case
                              - 24 -

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 case, petitioners are not experienced or educated in

plastics recycling, and they did not independently investigate

the Sentinel EPE recyclers or hire an expert in plastics to

evaluate the Partnership transactions.   We consider petitioners'

arguments with respect to the Krause case inapplicable.

     2.   Petitioner's Purported Reliance on an Adviser

     Petitioner contends that he reasonably relied upon Bach as a

qualified adviser on this matter.

     A taxpayer may avoid liability for the additions to tax

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

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

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

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

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

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

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

professional advice to excuse a taxpayer from the negligence

additions to tax, the taxpayer must show that such professional

had the expertise and knowledge of the pertinent facts to provide

informed advice on the subject matter.    David v. Commissioner, 43
                              - 25 -

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; Buck v.

Commissioner, T.C. Memo. 1997-191; 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, e.g., Kaliban v.

Commissioner, T.C. Memo. 1997-271; Sann v. Commissioner, T.C.

Memo. 1997-259; Friedman v. Commissioner, T.C. Memo. 1996-558;

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

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

Memo. 1996-84.

     Reliance on representations by insiders, promoters, or

offering materials has been held an inadequate defense to

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

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

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

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

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

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

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

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

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

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

when neither the taxpayer nor the advisers purportedly relied
                             - 26 -

upon by the taxpayer knew anything about the nontax business

aspects of the contemplated venture.   David v. Commissioner,

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

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

Commissioner, supra; 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 in Sann v. Commissioner,

supra.

     Bach has no education or work experience in engineering,

plastics materials, or plastics recycling.   His investigation of

the Plastics Recycling transactions and Plymouth consisted of a

review of the offering memorandum, plus a visit to the PI plant

and some end-users chosen by a PI representative.   Bach

acknowledged that he does not "have a great technical background"

and that he "didn't understand the technicalities of the machine

too well even though it was explained to [him]".    Because of his

limited technical background, the only question he posed to the

end-users with whom he spoke was whether the machine broke down.

     Bach indicated that he deferred to Gardino with respect to

the technical aspects of the Sentinel EPE recycler.   He claimed

that Gardino had a technical background, understood the

technicalities of the machine, and "asked a lot of questions

about how the machine operates, what it does."   When asked if he
                               - 27 -

could elaborate on Gardino's technical background, however, Bach

replied:   "No.   All I know is that * * * he was the head of the

syndicate department and used to pass on all offerings that came

into * * * his place of business, * * * and even though he wasn't

an engineer, he had an engineering background."     Bach did not

know what type of degree Gardino earned in college or whether he

had any experience in plastics recycling.     Gardino did not

testify at the trial of this case.

     Bach acknowledged that he was not qualified to assess the

value of the Sentinel EPE recycler.     He did not consult an

independent appraiser or anyone with expertise in plastics

materials or plastics recycling.    Bach relied upon the Plymouth

offering memorandum for the value of the machine.     He recalled

reading "an independent appraisal stating how they got to the

value of the machine based upon the production, the income the

pellets would bring".   However, Bach did not investigate the

market for recycled resin pellets.      Nor did he contact Ulanoff or

Burstein, or inquire whether they had an interest in the Plastics

Recycling transactions.   He concluded that the author of the

appraisal was independent based solely on the offering

memorandum.   In fact, Ulanoff and Burstein each invested in

several Plastics Recycling partnerships, and as the offering

memorandum disclosed, Burstein was a client and business

associate of the corporate counsel to PI, Miller.
                              - 28 -

     Upon returning from his visit to the PI plant in Hyannis,

Bach recalled speaking to petitioner about his observations, "but

not face-to-face.   I know we spoke on the telephone."   However,

Bach could not recall the substance of his communication with

petitioner or for how long they spoke on the phone.    Petitioner

claims that he and his wife had a dinner meeting with Bach to

discuss his observations at PI.    According to petitioner, Bach

informed him over dinner that Plymouth "was a wonderful deal,"

that another of Bach's clients purportedly "felt it was very

good," and that Bach intended to accompany another client to

Hyannis.   Bach has no recollection of any such meeting.

     We hold that petitioner's purported reliance on Bach was not

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

Petitioner met and retained Bach to prepare his and his wife's

tax return in 1981.   Bach characterized petitioners as an annual

tax account whom he saw infrequently.    Bramnick was at least one

of petitioner's stock brokers and sometimes was an investment

adviser to petitioner.   Bramnick introduced the Plastics

Recycling transactions and Plymouth to petitioner, as well as to

Bach.   His firm, Bond Richmond, was the offeree representative

for petitioners and as such received a 10-percent commission on

petitioners' investment.   Bach testified that he spoke mostly to

Bramnick with respect to Plymouth and that Bramnick saw

petitioner on a regular basis.    However, notwithstanding
                              - 29 -

Bramnick's obvious involvement in this matter, petitioner

purports to have relied on Bach.

     Bach does not have any education, experience, or expertise

in engineering, plastics materials, or plastics recycling.    He

indicated that his lack of technical background hindered his

investigation of Plymouth and the Sentinel EPE recycler.    Bach

acknowledged that he had no competence to value the machines; yet

he did not independently confirm their value or the economic

viability of the Plastics Recycling transactions.    Instead, he

relied on the offering memorandum and representations by insiders

for the value of the machines and the economic viability of the

Plastics Recycling transactions.   See Vojticek v. Commissioner,

T.C. Memo. 1995-444, to the effect that advice from such persons

"is better classified as sales promotion."

     The purported value of the Sentinel EPE recycler generated

the deductions and credits in this case, and that circumstance

was reflected in the Plymouth offering memorandum.    Petitioners

did not read the offering memorandum, but Bach did.    Certainly

Bach recognized and understood the nature of the tax benefits,

and he discussed Plymouth and his investigation with Bramnick and

petitioner.   In his discussions with Bach and Bramnick,

petitioner learned or should have learned about the amount and

nature of the tax benefits.   Indeed, the tax benefits involved

herein were not inconsequential and certainly would have been of

interest to petitioners in a year in which they recognized in
                               - 30 -

excess of $300,000 in capital gains, mostly short-term gains.

Bramnick urged that petitioner acquire two units of the Plymouth

partnership for $100,000, but Bach, the tax return preparer,

counseled that $50,000 of this transaction was enough.   The

direct reductions claimed on petitioners' 1981 tax return, from

the investment tax credits alone, equaled 165 percent of their

cash investment.   Therefore, like the taxpayers in Provizer v.

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

beginning, petitioners never had any money in the * * * [Plymouth

transaction]."   A reasonably prudent person would have asked a

qualified adviser if such a windfall were not too good to be

true.    McCrary v. Commissioner, 92 T.C. at 850.

     Petitioner's own testimony is the only account in the record

regarding the advice petitioner received from Bach and Bramnick.

Bach could not recall the substance of his communications with

petitioner, and Bramnick did not testify in the trial of this

case.4   Petitioner's testimony in this case is self-serving and

often not credible, and this Court is not required to accept it




4
     Petitioners failure to call Bramnick to testify gives rise
to the inference that his testimony would not have been favorable
to them. See Mecom v. Commissioner, 101 T.C. 374, 386 (1993),
affd. without published opinion 40 F.3d 385 (5th Cir. 1994);
Pollack v. Commissioner, 47 T.C. 92, 108 (1966), affd. 392 F.2d
409 (5th Cir. 1968); Wichita Terminal Elevator Co. v.
Commissioner, 6 T.C. 1158, 1165 (1946), affd. 162 F.2d 513 (10th
Cir. 1947); Sacks v. Commissioner, T.C. Memo. 1994-217, affd. 82
F.3d 918 (9th Cir. 1996).
                               - 31 -

as true.    Wood v. Commissioner, 338 F.2d 602, 605 (9th Cir.

1964), affg. 41 T.C. 593 (1964); Niedringhaus v. Commissioner, 99

T.C. 202, 212 (1992); Tokarski v. Commissioner, 87 T.C. 74, 77

(1986); Snyder v. Commissioner, T.C. Memo. 1995-285; Sacks v.

Commissioner, T.C. Memo. 1994-217.      Petitioner owned significant

interests in two successful floor covering companies,

participated in successful real estate ventures and IPO's, and in

1981 his investment decisions yielded capital gains in excess of

$300,000.    His demonstrated business acumen and investment

sophistication show that he possessed the intelligence and

experience to recognize that further investigation of the

transaction in issue was required.      A taxpayer may rely upon his

adviser's expertise (in this case accounting), but it is not

reasonable or prudent to rely upon an adviser regarding matters

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

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

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

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

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

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

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

     3.    Miscellaneous

     Petitioners stipulated that the fair market value of a

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

Notwithstanding this concession, petitioners contend that they
                               - 32 -

were reasonable in claiming credits on their 1981 Federal income

tax return based upon each recycler's having a value of

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

     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
                              - 33 -

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 record that respondent used them as a basis for any

determinations in the notice of deficiency.   Even so, counsel for

petitioners obtained copies of these reports and urge that they

support the reasonableness of the value reported on petitioners'

1981 return.   Not surprisingly, petitioners' counsel did not call

Carmagnola to testify in this case, but preferred instead to rely

solely upon his preliminary ill-founded valuation estimates

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

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

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

Circuit Court of Appeals in the Provizer case, where we held the

taxpayers negligent.   Consistent therewith, we find in this case,

as we have found previously, that the reports prepared by

Carmagnola are unreliable and of no consequence.

     Petitioners cite a number of cases in support of their

position, including Balboa Energy Fund 1981 v. Commissioner, 85

F.3d 634 (9th Cir. 1996), affg. in part and revg. in part without

published opinion Osterhout v. Commissioner, T.C. Memo. 1993-251;

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
                               - 34 -

revg. in part T.C. Memo. 1994-228; Mollen v. United States, 72

AFTR 2d 93-6443, 93-2 USTC par. 50,585 (D. Ariz. 1993); Wright v.

Commissioner, T.C. Memo. 1994-288; Daoust v. Commissioner, T.C.

Memo. 1994-203; Wood v. Commissioner, T.C. Memo. 1991-205; and

Davis v. Commissioner, T.C. Memo. 1989-607.

     Petitioners' reliance on the Wright, Daoust, Wood, and Davis

cases is misplaced.    The taxpayers in the Wright case had an

objective of making a profit; relied upon an adviser who

expressly recommended the subject investment; reviewed the

offering memorandum; were advised that the investment had already

survived an IRS audit unchanged; and personally monitored the

investment.   In the Daoust case, the taxpayer husband relied upon

the advice of two qualified independent investment advisers and

an independent C.P.A., who also was the taxpayer husband's

brother.   In the Wood case, a group of consolidated cases, a

financial planner recommended the investment, all of the

taxpayers had profit objectives, the transactions were not sham

transactions, and one taxpayer husband and wife inspected the

equipment at issue.    The taxpayers in the Davis case relied in

part upon the express recommendation of a "trusted and long-term

adviser", and in part upon their review of the offering materials

(which did not reflect that the principals in the venture lacked

experience in the pertinent line of business).    Davis v.

Commissioner, supra.    In contrast to those cases, Bach was not a

trusted and long-term adviser to petitioners but a recently
                                - 35 -

employed tax return preparer, and there is no showing in the

record that he expressly recommended Plymouth to them.

Petitioners did not read the offering memorandum, see a Sentinel

EPE recycler, or make any effort to learn about the Plymouth

transactions.    In addition, the Plymouth transaction is a sham

lacking economic substance, and we are not convinced that

petitioners had an honest objective of making a profit.

Accordingly, we consider the Wright, Daoust, Wood, and Davis

cases distinguishable from the instant case.

     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 which invested

in the production, marketing, and distribution of medical

educational video tapes.     The District Court found that the

taxpayer's personal expertise and insight in the underlying

investment gave him reason to believe it would be economically

profitable.     Although the taxpayer was not experienced in

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

tax lawyer regarding those matters.      Moreover, the District Court

noted that the propriety of the taxpayer's disallowed deduction

therein was "reasonably debatable."      See Zfass v. Commissioner,
                                - 36 -

    F.3d     (4th Cir. June 23, 1997), affg. T.C. Memo. 1996-167,

and sustaining findings of negligence in a similar transaction.

        In contrast, petitioners and their purported adviser did not

have 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.

Further, neither Bach nor petitioners consulted or hired any

independent experts in the field of plastic materials or plastics

recycling.5    Instead, they relied upon the offering materials and

representations by insiders to the Plastics Recycling

transactions.     We consider petitioners' arguments with respect to

Mollen v. United States, supra, inapplicable under the

circumstances of this case, particularly in light of the opinion

of the Court of Appeals for the Fourth Circuit in Zfass v.

Commissioner, supra.

        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

5
     Bach testified that he discussed the Plastics Recycling
transactions and visited PI with Gardino, whom he claims had a
technical background. However, Gardino did not testify in this
case, and the record does not show that he was qualified to
analyze the Sentinel EPE recycler or the Plastics Recycling
transactions.
                               - 37 -

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.6   The Court of Appeals for the Ninth

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.

However, petitioners did not read the Plymouth offering

memorandum, let alone the tax opinion appended thereto.

       Moreover, the Plymouth offering memorandum warned

prospective investors that the accompanying tax opinion letter

was not in final form and was 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 Plymouth.    The tax opinion letter

accompanying the Plymouth offering memorandum was addressed

solely to the general partner and began with the following

opening disclaimer:

       This opinion is provided to you for your individual
       guidance. We expect that prospective investors will
       rely upon their own professional advisors with respect
       to all tax issues arising in connection with their

6
     Osterhout v. Commissioner, T.C. Memo. 1993-251, affd. in
part and revd. in part without published opinion sub nom. Balboa
Energy Fund 1981 v. Commissioner, 85 F.3d 634 (9th Cir. 1996),
involved a group of consolidated cases. The parties therein
agreed to be bound by the Court's opinion regarding the
application of the additions to tax under sec. 6653(a), inter
alia. Accordingly, although the Court's analysis focused on one
taxpayer, the additions to tax were sustained with respect to all
of the taxpayers.
                              - 38 -

     investment in the Partnership and the operations
     thereof. We recognize that you intend to include this
     letter with your offering materials and we have
     consented to that with the understanding that the
     purpose in distributing it is to assist your offerees'
     tax advisors in making their own analysis and not to
     permit any prospective investor to rely upon our advice
     in this matter. [Emphasis added.]

Accordingly, the tax opinion letter expressly indicated that

prospective investors such as petitioners were not to rely upon

the tax opinion letter.   See Collins v. Commissioner, 857 F.2d

1383, 1386 (9th Cir. 1988), affg. Dister v. Commissioner, T.C.

Memo. 1987-217.   The limited, technical opinion of tax counsel

expressed in this letter was not designed as advice upon which

taxpayers might rely and the opinion of counsel itself so states.

     Petitioners' reliance on the Durrett and Chamberlain cases

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

Fifth Circuit reversed this Court's imposition of the negligence

additions to tax in two nonplastics recycling cases.   The

taxpayers in the Durrett and Chamberlain cases were among

thousands who invested in the First Western tax shelter program

involving alleged straddle transactions of forward contracts.     In

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

Fifth Circuit concluded that the taxpayers reasonably relied upon

professional advice concerning tax matters.   In other First

Western cases, however, the Courts of Appeals have affirmed

decisions of the Tax Court imposing negligence additions to tax.

See Foulds v. Commissioner, T.C. Memo. 1994-489 (the well-
                              - 39 -

educated taxpayer failed to establish the substance of advice,

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

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

Commissioner, T.C. Memo. 1994-408 (reliance on 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).

     Bach did not possess sufficient knowledge of the plastics or

recycling industries to render a competent opinion.   This fact

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

Circuit.   See David v. Commissioner, 43 F.3d at 789-790

(taxpayers' reliance on expert advice not reasonable where expert

lacks knowledge of business in which taxpayers invested), affg.

T.C. Memo. 1993-621; Goldman v. Commissioner, 39 F.3d 402 (2d

Cir. 1994) (same), affg. T.C. Memo. 1993-480.   Accordingly,

petitioners will not be relieved of the negligence additions to
                               - 40 -

tax based upon the decisions in the Durrett and Chamberlain cases

by the Court of Appeals for the Fifth Circuit.

     4.   Conclusion as to Negligence

     Under the circumstances of this case, petitioners failed to

exercise due care in claiming a large loss deduction and tax

credits with respect to Plymouth on their 1981 Federal income tax

return.   Petitioner declined to read the offering memorandum,

visit PI, or otherwise learn about the Plymouth transactions and

the Sentinel EPE recycler to any significant extent.   Instead,

petitioner purports to have relied on Bach, the accountant he

only recently had retained to prepare petitioners' tax return.

Bach had no education or experience in plastics materials or

plastics recycling, and he ultimately relied upon the offering

memorandum for the value of, capabilities, and market demand for

the machines.   The tax benefits flowing from Plymouth were

contingent upon the purported value of the Sentinel EPE recycler.

Yet neither petitioner nor Bach in good faith investigated the

fair market value of a Sentinel EPE recycler, or the underlying

viability, financial structure, and economics of the Plymouth

transaction.    We hold, upon consideration of the entire record,

that petitioners are liable for the negligence additions to tax

under section 6653(a)(1) and (2) for the taxable year at issue.

We note that in this case because of sanctions, petitioners have

the burden of proof with respect to negligence.   However, on this

record respondent has proved petitioners' negligence, and our
                                 - 41 -

holding on this issue is the same, regardless of the incidence of

the burden of proof.   Respondent is sustained on this issue.

B.   Section 6659--Valuation Overstatement

      In the notice of deficiency, respondent determined that

petitioners were liable for the section 6659 addition to tax on

the portion of their underpayment attributable to valuation

overstatement.    In respondent's trial memorandum and posttrial

brief, respondent conceded that the section 6659 addition to tax

is to be applied only to the portion of the deficiency

attributable to the disallowed investment tax and business energy

credits derived from Plymouth.     Petitioners have the burden of

proving that respondent's determination of the section 6659

addition to tax is erroneous.     Rule 142(a); Luman v.

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

      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 investment tax

credits and business energy credits, based on a purported value
                              - 42 -

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

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

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

petitioners' claimed tax benefits is attributable to such

valuation overstatements, petitioners are liable for the section

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

underpayment of tax attributable to the investment tax and

business energy credits claimed with respect to Plymouth.

     Petitioners contend that section 6659 does not apply in

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

the claimed tax benefits was attributable to other than a

valuation overstatement; (2) petitioners' concession of the

claimed tax benefits precludes imposition of the section 6659

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

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

taxpayers claim tax benefits that are disallowed on grounds

separate and independent from alleged valuation overstatements,

the resulting underpayments of tax are not regarded as

attributable to valuation overstatements.     Krause v.
                              - 43 -

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

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

disallowing deductions and credits, section 6659 is applicable.

See Zfass v. Commissioner,       F.3d    (4th Cir. June 23, 1997),

affg. T.C. Memo. 1996-167; Illes v. Commissioner, 982 F.2d 163,

167 (6th Cir. 1992), affg. T.C. Memo. 1991-449; Gilman v.

Commissioner, 933 F.2d 143, 151 (2d Cir. 1991) (the section 6659

addition to tax applies if a finding of lack of economic

substance is "due in part" to a valuation overstatement), affg.

T.C. Memo. 1989-684; Masters v. Commissioner, T.C. Memo. 1994-

197, affd. without published opinion 70 F.3d 1262 (4th Cir.

1995); Harness v. Commissioner, T.C. Memo. 1991-321.

     Petitioners argue that the disallowance of the claimed

investment tax and business energy credits was not "attributable

to" a valuation overstatement.   According to petitioners, the

credits were disallowed because the Plymouth transaction lacked

economic substance, not because of any valuation overstatement.

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

deficiency.   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
                              - 44 -

(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 Plymouth transaction lacked economic

substance was separate and independent from the overvaluation of

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

Plymouth transaction 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 operating loss; (2) the underpayment

of tax; and (3) our finding that the Plymouth transaction lacked

economic substance.

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

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

economic substance for reasons independent of the valuation

reported in that case.   According to petitioners, the purported

value of the recyclers in the Clearwater transaction was

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
                              - 45 -

recyclers in this case is the ground for our holding herein that

the Plymouth transaction lacked economic substance.

     Moreover, a virtually identical argument was rejected in

Gilman v. Commissioner, supra.   In the Gilman case, the taxpayers

engaged in a computer equipment sale and leaseback transaction

that this Court held was a sham transaction lacking economic

substance.   The taxpayers therein, citing Todd v. Commissioner,

supra, and Heasley v. Commissioner, supra, argued that their

underpayment of taxes derived from nonrecognition of the

transaction for lack of economic substance, independent of any

overvaluation.   The Court of Appeals for the Second Circuit

sustained imposition of the section 6659 addition to tax because

overvaluation of the computer equipment contributed directly to

this Court's earlier conclusion that the transaction lacked

economic substance and was a sham.     Gilman v. Commissioner, supra

at 151.   In addition, the Court of Appeals for the Second Circuit

agreed with this Court and with the Court of Appeals for the

Eighth Circuit that "'when an underpayment stems from disallowed

* * * investment credits due to lack of economic substance, the

deficiency is * * * subject to the penalty under section 6659.'"

Gilman v. Commissioner, supra at 151 (quoting Massengill v.

Commissioner, 876 F.2d 616, 619-620 (8th Cir. 1989), affg. T.C.

Memo. 1988-427); see also Zfass v. Commissioner, supra; Rybak v.

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

970, 978-979 (1986); Donahue v. Commissioner, T.C. Memo. 1991-
                              - 46 -

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

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

(6th Cir. 1993).

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

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

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

herein, it was found that a valuation overstatement did not

contribute to an underpayment of taxes.   In the Todd and Gainer

cases, the underpayments were due exclusively to the fact that

the property in each case had not been placed in service.   In the

McCrary case, the underpayments were deemed to result from a

concession that the agreement at issue was a license and not a

lease.   Although property was overvalued in each of those cases,

the overvaluations were not the grounds on which the taxpayers'

liability was sustained.   In contrast, "a different situation

exists where a valuation overstatement * * * is an integral part

of or is inseparable from the ground found for disallowance of an

item."   McCrary v. Commissioner, supra at 859.   Petitioners' case

presents just such a "different situation":   overvaluation of the

recyclers was integral to and inseparable from petitioners'

claimed tax benefits and our holding that the Plymouth

transaction lacked economic substance.7

7
     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.
                                                   (continued...)
                              - 47 -

     2.   Concession of the Deficiency

     Petitioners argue that their concession of the deficiency

precludes imposition of the section 6659 addition to tax.

Petitioners contend that their concession renders any inquiry

into the grounds for such deficiency moot.   Absent such inquiry,

petitioners argue that it cannot be known if their underpayment

was 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, 902 F.2d

380 (5th Cir. 1990), and McCrary v. Commissioner, supra.

     Petitioners' open-ended concession does not obviate our

finding that the Plymouth transaction 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

7
 (...continued)
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
Courts of Appeals for the Second, Fourth, Sixth and Eighth
Circuits have disagreed. See Gilman v. Commissioner, 933 F.2d
143, 151 (2d Cir. 1991) (The lack of economic substance was due
in part to the overvaluation, and thus the underpayment was
attributable to the valuation overstatement), affg. T.C. Memo.
1989-684; Zfass v. Commissioner, supra.
                                - 48 -

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 Plymouth, petitioners

claimed an operating loss deduction and credits that resulted in

an underpayment of tax, and we held that the Plymouth transaction

lacked economic substance.    Regardless of petitioners'

concession, in this case the underpayment of tax was attributable

to the valuation overstatement.

     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 case, 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
                              - 49 -

overstatement.   To the contrary, petitioners stipulated

substantially the same facts concerning the Plymouth transaction

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 2,325 percent, was an

integral part of our findings in Provizer that the transaction

was a sham and lacked economic substance.   Similarly, the record

in this case plainly shows that the overvaluation of the

recyclers is integral to and is the core of our holding that the

Plymouth transaction was a sham and lacked economic substance.

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

misplaced.   In that case, the taxpayers conceded disentitlement

to their claimed tax benefits and the section 6659 addition to

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

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

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

Commissioner, supra, the section 6659 addition to tax was

disallowed because the agreement at issue was conceded to be a

license and not a lease.   In contrast, the record in this case

plainly shows that petitioners' underpayment was attributable to

overvaluation of the Sentinel EPE recyclers.   We hold that
                               - 50 -

petitioners' reliance on McCrary v. Commissioner, 92 T.C. at 827,

is inappropriate.8

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

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

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

recyclers had been overvalued was integral to and inseparable

from our holding of a lack of economic substance.   Petitioners

stipulated that the Plymouth transaction was similar to the

Clearwater transaction described in the Provizer case, and that

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

in excess of $50,000.    Given those concessions, and the fact that

the record here plainly shows that the overvaluation of the

recyclers was the only reason for the disallowance of the claimed

investment tax and business energy credits, we conclude that the

amount of the deficiency corresponding thereto was attributable

to overvaluation of the Sentinel EPE recyclers.

     3.    Section 6659(e)

     Petitioners argue that respondent erroneously failed to

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

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

8
     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
8 to the effect that the Courts of Appeals for the Second,
Fourth, Sixth, and Eighth Circuits and this Court have not
followed the Heasley opinion with respect to the application of
sec. 6659.
                                - 51 -

for valuation overstatement if taxpayers establish that there was

a reasonable basis for the adjusted bases or valuations claimed

on the returns and that such claims were made in good faith.

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

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 addition to tax until more

than 4 months after the trial of this case.      We are reluctant to

find that respondent abused any discretion in this case when

respondent 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 a waiver but instead, we have

considered the issue on its merits.      Petitioners urge that

petitioner relied on Bach in deciding on the valuation claimed on

their 1981 tax return.   Petitioners contend that such reliance

was reasonable and, therefore, that respondent should have waived
                                 - 52 -

the section 6659 addition to tax.     However, as we explained above

in finding petitioners liable for the negligence additions to

tax, petitioner's purported reliance on Bach was not reasonable.

Bach did not have any education or experience in plastics

materials or plastics recycling.     He acknowledged that he was not

qualified to assess the machines and that his technical

limitations hindered his investigation at Hyannis.    In the end,

neither petitioner nor Bach in good faith investigated the fair

market value of a Sentinel EPE recycler, or the underlying

viability, financial structure, and economics of the Plymouth

transaction.

     In support of the contention that petitioner 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 this case.   In Mauerman, the Court of Appeals for the

Tenth Circuit held that there was an abuse of discretion on the

part of the Commissioner 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
                              - 53 -

scope of the advisers' expertise, the interpretation of the tax

laws as applied to undisputed facts.   In the present case,

however, particularly with respect to valuation, petitioner

relied upon advice which was outside the scope of expertise and

experience of the purported adviser.   Bach had no education,

special qualifications, or professional skills or experience in

plastics engineering, plastics recycling, or plastics materials.

Consequently, we consider petitioners' reliance on the Mauerman

case inapplicable.

     We hold that petitioners did not have a reasonable basis for

the adjusted bases or valuations claimed on their 1981 tax return

with respect to their investment in Plymouth.   In this case,

respondent could find that petitioner's reliance on Bach was

unreasonable.   The record in this case does not establish an

abuse of discretion on the part of respondent but supports

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

waive the section 6659 addition to tax in this case is not an

abuse of discretion.   Petitioners are liable for the section 6659

addition to tax at the rate of 30 percent of the underpayment of

tax attributable to the disallowed investment tax and business

energy credits.   Respondent is sustained on this issue.

C. Petitioners' 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

     Approximately 4 months after the trial of this case,

petitioners filed a Motion For Leave to File Motion for Decision
                              - 54 -

Ordering Relief From the Negligence Penalty and the Penalty Rate

of Interest and to File Supporting Memorandum of Law under Rule

50.   Petitioners also lodged with the Court a motion for decision

ordering relief from the additions to tax for negligence and from

the increased rate of interest, with attachments and a memorandum

in support of such motion.   Respondent filed an objection, with

attachments and a memorandum in support thereof, and petitioners

thereafter filed a reply memorandum.   Petitioners argue that they

should be afforded the same settlement that was reached between

other taxpayers and the IRS in docket Nos. 10382-86 and 10383-86,

each of which was styled Miller v. Commissioner.   See Farrell v.

Commissioner, T.C. Memo. 1996-295 (denying a motion similar to

petitioners' motions); see also Kaliban v. Commissioner, T.C.

Memo. 1997-271; Sann v. Commissioner, T.C. Memo. 1997-259;

Friedman v. Commissioner, T.C. Memo. 1996-558; Jaroff v.

Commissioner, T.C. Memo. 1996-527; Gollin v. Commissioner, T.C.

Memo. 1996-454; Grelsamer v. Commissioner, T.C. Memo. 1996-399;

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

      Counsel for petitioners seek to raise a new issue long after

the trial in this case.   Resolution of such issue might well

require a new trial.   Such further trial "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 Haft Trust v. Commissioner, 62 T.C. 145, 147 (1974).
                              - 55 -

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 this case, petitioners' motion for

leave is not well founded.   Farrell v. Commissioner, supra.

     Even if petitioners' motion for leave were granted, the

arguments set forth in their motion for decision and the attached

memorandum, lodged with this Court, are invalid and such motion

would be denied.   Therefore, and for reasons set forth in more

detail below, petitioners' motion for leave shall be denied.

     Some of our discussion of background and circumstances

underlying petitioners' motion is drawn from documents submitted

by the parties and findings of this Court in two earlier

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

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

are not disputed by the parties.   We discuss the background

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

petitioners' motion 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 Estate of Satin and Fisher that the terms of

the piggyback agreement bound the parties to the results in all
                               - 56 -

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

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

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

rejected it.9

     On 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.10   Petitioners assert that the Plastics Recycling

9
     In their motion 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.)
10
     In respondent's motion for leave to file an amended answer,
                                                   (continued...)
                              - 57 -

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

claim to have accepted the offer timely, so they effectively

rejected it.11

     In December 1988, the Miller cases were disposed of by

settlement agreement between the taxpayers and respondent.12

This Court entered decisions based upon those settlements on

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

the Miller cases were liable for the addition to tax under

section 6659 for valuation overstatement, but not for the

additions to tax under the provisions of section 6661 and section

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

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

years at issue, was not applicable because Miller made payments

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

10
 (...continued)
respondent attached a copy of a settlement offer that was
extended to petitioners and other taxpayers who at the time were
represented by counsel other than their present counsel. The
terms of the offer were as stated above, except that no mention
was made with respect to the execution of a closing agreement
(Form 906) stating the settlement and resolving the entire matter
for all years.
11
     In their motion 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.)
12
     Although it is not otherwise a part of the record in this
case, respondent attached copies of the Miller closing agreement
and disclosure waiver to her objection to petitioners' motion for
leave, and petitioners do not dispute the accuracy of the
document.
                                - 58 -

time.     Respondent did not notify petitioners or any other

taxpayers of the disposition of the Miller cases.     Estate of

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

        Petitioners argue that they are similarly situated to

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

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

same settlement agreement executed by respondent and Miller in

those cases.     In effect, petitioners seek to resurrect the

piggyback agreement offer and/or the settlement offer they

previously failed to accept.

        Petitioners contend that under the principle of "equality,"

the Commissioner has a duty of consistency toward similarly

situated taxpayers and cannot tax one and not tax another without

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

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

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

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

According to petitioners, the principle of equality precludes the

Commissioner from making arbitrary distinctions between like

cases.     See Baker v. Commissioner, 787 F.2d 637, 643 (D.C. Cir.

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

        The different tax treatment accorded petitioners and Miller

was not arbitrary or irrational.     While petitioners and Miller

both invested in the Plastics Recycling transactions, their

actions with respect to such investments provide a rational basis
                              - 59 -

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 case.   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 recites

"That there is no increased interest due from the petitioner[s]

for the taxable years [at issue] under the provisions of IRC

section 6621(c)."   According to petitioners, "if the Millers were

not otherwise subject to the penalty interest provisions because

of the particular timing of their tax payments, there would have

been no need for the Court to include such a recital in its

decisions."   This argument by petitioners is entirely conjectural

and is not supported by the documentation on which counsel

relies.   In fact, the recital that no increased interest under

section 6621(c) was due in the Miller cases was an express term

of the settlement documents in those cases and apparently

included in the decisions for completeness and accuracy.    There

is nothing on the record in the instant case, or in the Court's
                              - 60 -

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 this case 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 case.    Petitioners failed

to accept a piggyback settlement offer that would have entitled

them to the settlement reached in the Miller cases and also

rejected a settlement offer made to them prior to trial of a test

case.   In contrast, Miller negotiated for himself and accepted an

offer that was essentially the same as the Plastics Recycling

project settlement offer rejected by petitioners prior to trial.

Accordingly, petitioners' motion is not supported by the

principle of equality on which they rely.    Cf. Baratelli v.

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

     To reflect the foregoing,

                                      An appropriate order will be

                                 issued denying petitioners'

                                 motion, and decision will be

                                 entered under Rule 155.
