                         T.C. Memo. 1996-399



                       UNITED STATES TAX COURT



          PHILIPPE AND NADINE GRELSAMER, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent

                 DAVID E. MORGAN, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 5788-90, 30317-91.            Filed August 27, 1996.



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

docket Nos. 5799-90 and 30317-91.

     Gail A. Campbell and Frances Ferrito Regan, for respondent

in docket No. 5788-90.

     Wendy Sands and Frances Ferrito Regan, for respondent in

docket No. 30317-91.
                               - 2 -

                             CONTENTS
                                                             Page
MEMORANDUM FINDINGS OF FACT AND OPINION.......................2
OPINION OF THE SPECIAL TRIAL JUDGE............................3
FINDINGS OF FACT..............................................6
  A. The Plastics Recycling Transactions......................6
  B. The Partnerships.........................................9
  C. Richard Roberts.........................................12
  D. Stuart Becker and Steven Leicht.........................13
  E. Petitioners and Their Introduction to the Partnership
     Transactions............................................17
     1. Philippe and Nadine Grelsamer.......................17
     2. David E. Morgan.....................................20
OPINION......................................................23
  A. Section 6653(a)--Negligence.............................26
     1.   The So-Called Oil Crisis...........................28
     2.   Petitioners' Purported Reliance on Tax
          Advisers...........................................34
          a. The Circumstances Under Which a Taxpayer May
              Avoid Liability Under Section 6653(a)(1) and
              (2) Because of Reasonable Reliance on
              Competent and Fully Informed Professional
              Advice.........................................35
          b. Green and the Tax Return Preparers.............37
          c. Becker.........................................38
          d. Conclusion as to Petitioners' Alleged
              Reliance on Becker.............................43
     3.   The Private Offering Memoranda.....................46
     4.   Miscellaneous......................................51
     5.   Conclusion as to Negligence........................57
  B. Section 6659--Valuation Overstatement...................58
     1.   The Grounds for Petitioners' Underpayments.........60
     2.   Concession of the Deficiency.......................64
     3.   Section 6659(e)....................................68
  C. Petitioners' Motions For Leave To File Motion for
     Decision Ordering Relief From the Negligence Penalty
     and the Penalty Rate of Interest and To File Supporting
     Memoranda of Law........................................72

             MEMORANDUM FINDINGS OF FACT AND OPINION

     DAWSON, Judge:   These cases were assigned to Special Trial

Judge Norman H. Wolfe pursuant to the provisions of section

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

briefed separately but consolidated for purposes of opinion.     All
                               - 3 -

section references are to the Internal Revenue Code in effect for

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

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

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

Judge, which is set forth below.

                 OPINION OF THE SPECIAL TRIAL JUDGE

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

Plastics Recycling group of cases.     For a detailed discussion of

the transactions involved in the Plastics Recycling cases, see

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

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

transactions in these cases are substantially identical to the

transaction considered in the Provizer case.

     In a notice of deficiency dated January 11, 1990, respondent

determined a deficiency in the 1982 joint Federal income tax of

petitioners Philippe and Nadine Grelsamer and additions to tax

for that year under section 6653(a)(1)(A) and (B) for negligence

and under section 6659 for valuation overstatement (and in the

alternative thereto under section 6661 for substantial

underpayment).   Respondent also determined that interest on

deficiencies accruing after December 31, 1984, would be

calculated at 120 percent of the statutory rate under section

6621(c).   In her answer to petition, respondent asserted a lesser

deficiency in the amount of $26,223 as well as reduced additions

to tax in the amount of $6,949 under section 6659, in the amount
                                     - 4 -

of $1,158 under section 6653(a)(1), and under section 6653(a)(2)

in an amount equal to 50 percent of the interest due on the

underpayment attributable to negligence.            Respondent also

asserted that only $23,163 of the deficiency is subject to the

increased rate of interest under section 6621(c).

       In a notice of deficiency dated September 30, 1991,

respondent determined deficiencies in the 1978, 1980, 1981, and

1982 Federal income taxes of petitioner David E. Morgan (Morgan)

in the respective amounts of $23,031, $38,491, $33,928, and

$6,618.    The deficiencies for taxable years 1978 and 1980 are due

all or in part to respondent's disallowance of an investment

credit carryback from taxable year 1981.            Respondent also

determined the following additions to tax.

                                Additions to Tax
Year      Sec. 6653(a)     Sec. 6653(a)(1) Sec. 6653(a)(2)            Sec. 6659
1978        $1,152               --               --                   $6,909
1980         1,925               --               --                    2,643
                                                   1
1981          --              $1,696                                    4,275
                                                   1
1982          --                 331                                      --
      1
       50 percent of the interest payable with respect to the portion of the
underpayment attributable to negligence.

In her answer to petition, respondent asserted that interest on

deficiencies accruing after December 31, 1984, would be

calculated at 120 percent of the statutory rate under section

6621(c).

       The parties in these consolidated cases each filed

Stipulations of Settled Issues relating to their participation in

the Plastics Recycling Program.          These stipulations are virtually
                               - 5 -

identical except that petitioner Morgan's is drafted in the

singular because he is the sole petitioner in docket No. 30317-

91.   The stipulations provide, in part:

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

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

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

Petitioner Morgan also stipulated that he did not intend to

contest the value of the Sentinel recycler or the existence of a

valuation overstatement on his returns, but reserved his right to

argue that his underpayments were not attributable to a valuation

overstatement and that the section 6659 addition to tax should

have been waived by respondent under section 6659(e).   In a

Second Stipulation of Settled Issues, petitioner Morgan and

respondent stipulated that "with respect to the non-plastics

recycling issues for the years in issue, the parties agree to the

adjustments as set forth in the statutory notice of deficiency."
                                 - 6 -

     Long after the trials of these cases, petitioners each filed

a Motion For Leave to File Motion for Decision Ordering Relief

From the Negligence Penalty and the Penalty Rate of Interest and

to File Supporting Memorandum of Law under Rule 50.     These

motions were filed with attached exhibits on September 22, 1995,

in docket No. 30317-91 (Morgan), and on October 18, 1995, in

docket No. 5788-90 (Grelsamer).     On those same dates, petitioners

each lodged with the Court a motion for decision ordering relief

from the additions to tax for negligence and the increased rate

of interest, with attachments, and a memorandum in support of

such motion.     Subsequently, respondent filed objections, with

attachments, and memoranda in support thereof, and petitioners

lodged reply memoranda.     For reasons discussed in more detail at

the end of this opinion, and also in Farrell v. Commissioner,

T.C. Memo. 1996-295, petitioners' motions shall be denied; see

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

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

Whether petitioners are liable for additions to tax for

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

whether petitioners are liable for additions to tax under section

6659 for underpayments of tax attributable to valuation

overstatement.
                                - 7 -

                          FINDINGS OF FACT

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

so found.    The stipulated facts and attached exhibits are

incorporated in the respective cases by this reference.

A.   The Plastics Recycling Transactions

     These cases concern petitioners' investments in two limited

partnerships that leased Sentinel expanded polyethylene (EPE)

recyclers:    Plymouth Leasing Associates (Plymouth) and SAB

Resource Reclamation Associates (SAB Reclamation).     Petitioners

Grelsamer are limited partners in SAB Reclamation and petitioner

Morgan is a limited partner in Plymouth.     For convenience, we

refer to these partnerships collectively as the Partnerships.

     The transactions involving the Sentinel EPE Recyclers leased

by the Partnerships are substantially identical to those in the

Clearwater Group limited partnership (Clearwater), the

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

1992-177.    Petitioners have stipulated substantially the same

facts concerning the underlying transactions as we found in the

Provizer case.

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

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

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

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

to Clearwater, which licensed the recyclers to FMEC Corp., which
                                - 8 -

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

to ECI Corp. were financed with nonrecourse notes.    Approximately

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

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

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

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

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

     All of the monthly payments required among the entities in

the above transactions offset each other.    These transactions

were done simultaneously.    Although the recyclers were sold and

leased for the above amounts within the structure of simultaneous

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

1981 and 1982 was not in excess of $50,000.

     PI allegedly sublicensed the recyclers to entities that

would use them to recycle plastic scrap.    The sublicense

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

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

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

     Like Clearwater, each of the Partnerships leased Sentinel

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

FMEC Corp.    The transactions of the Partnerships differ from the

underlying transactions in the Provizer case in the following

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

Corp. and licensed them to FMEC Corp., and (2) the number of
                               - 9 -

machines sold, leased, licensed, and sublicensed.    Plymouth

leased and licensed seven Sentinel EPE recyclers.    SAB

Reclamation was to lease and license eight recyclers, according

to its offering memorandum, but the SAB Reclamation partnership

tax return for 1982 indicates that it leased and licensed only

four recyclers.

     For convenience, we refer to the series of transactions

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

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

the Partnership transactions, a number of other limited

partnerships entered into transactions similar to the Partnership

transactions, also involving Sentinel EPE recyclers and Sentinel

expanded polystyrene (EPS) recyclers.   We refer to these

collectively as the Plastics Recycling transactions.

B.   The Partnerships

     Plymouth and SAB Reclamation are New York limited

partnerships that were formed in late 1981 and early 1982,

respectively.   The general partner of Plymouth is Richard Roberts

(Roberts).

     SAB Reclamation was organized and promoted by Stuart Becker

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

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

accounting firm that specialized in tax matters.    Becker

organized a total of six recycling partnerships (the SAB
                               - 10 -

Recycling Partnerships).    Two of the SAB Recycling Partnerships

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

closed in late 1982.

      The general partner of all of the SAB Recycling

Partnerships, including SAB Reclamation, is SAB Management Ltd.

(SAB Management).   SAB Management is wholly owned by Scanbo

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

Scanbo is an acronym for three of Becker's children:    Scott,

Andy, and Bonnie.   The officers and directors of SAB Management

and Scanbo are as follows:    (1) Becker, president and director;

(2) Noel Tucker (Tucker), vice president, treasurer, and

director; and (3) Steven Leicht (Leicht), vice president,

secretary, and director.    During the years in issue, Tucker and

Leicht also worked at Becker Co.   Tucker was vice president.

Each owned approximately 5 to 7 percent of the stock of Becker

Co.   SAB Management did not engage in any business before

becoming involved with the SAB Recycling Partnerships.

      With respect to each of the Partnerships, a private

placement memorandum was distributed to potential limited

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

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

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

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

Plymouth and a 4.37-percent interest in Taylor Recycling
                               - 11 -

Associates, partnerships that leased Sentinel recyclers.

Burstein owns a 2.605-percent interest in Empire Associates and a

5.82-percent interest in Jefferson Recycling Associates, also

partnerships that leased Sentinel recyclers.    Burstein also was a

client and business associate of Elliot I. Miller (Miller), the

corporate counsel to PI.

     The offering memoranda for Plymouth and SAB Reclamation

state that the general partner will receive fees from those

partnerships in the respective amounts of $37,500 and $110,000.

SAB Management received fees of approximately $500,000 as the

general partner of the SAB Recycling Partnerships.    In addition,

Becker Co. prepared the partnership returns and Forms K-1 for all

of the SAB Recycling Partnerships and received fees for those

services.

     The offering memoranda for Plymouth and SAB Reclamation

state that sales commissions and offeree representative fees will

be paid in amounts equal to 10 percent and 7.5 percent,

respectively, of each investment guided to the partnerships and

that the general partner "may retain as additional compensation

all amounts not paid as sales commissions or offeree

representative fees."    However, neither SAB Management nor Becker

retained or received any sales commissions or offeree

representative fees.    Instead, after the closing of each SAB

Recycling Partnership, Becker rebated to each investor whose
                              - 12 -

investment was not subject to a sales commission or offeree

representative fee an amount equal to 7.5 percent of such

investor's original investment.

     The offering memoranda list significant business and tax

risk factors associated with investments in the Partnerships.

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

substantial likelihood of audit by the Internal Revenue Service

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

probably will be challenged as being in excess of fair market

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

the general partner has no prior experience in marketing

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

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

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

there are no assurances that market prices for virgin resin will

remain at their current costs per pound or that the recycled

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

potential conflicts of interest exist.

C.   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 and SAB Reclamation.    From 1982 through
                                - 13 -

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

cruise.   Roberts and Grant together have been general partners in

other investments.

     Prior to the Partnership transactions, Roberts and Grant

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

(Freedman & Co.).    Harris W. Freedman (Freedman), 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.   Stuart Becker and Steven Leicht

      Becker does not have an engineering background, and he is

not an expert in plastics materials or plastics recycling.      He

received a B.S. degree in accounting from New York University in
                                - 14 -

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

Business Administration in 1973.    He passed the certified public

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

awarded for achieving the highest score on the examination for

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

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

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

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

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

     Becker had considerable experience involving tax shelter

transactions before he organized the SAB Recycling Partnerships.

He prepared opinions regarding tax shelters' economic and tax

projections, advised individuals and companies with respect to

investments in tax shelters, lectured extensively about tax

shelter investments generally, and lectured and published with

respect to leveraged tax shelters.       Becker described a leveraged

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

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

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

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

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

tax sheltered and private investments.      Becker has owned minority

interests in general partners of numerous limited partnerships.

Prior to organizing the SAB Recycling Partnerships, Becker owned
                              - 15 -

5 percent of the general partner of partnerships involved in

approximately 14 transactions with respect to river

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

     Although investment counseling was related to his firm's

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

of providing investment advice.   Becker did not normally hire

other professionals for consultation or advice.    In circumstances

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

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

invested in the Plastics Recycling partnerships.

     Becker learned of the Plastics Recycling transactions when a

prospective client presented him with an offering memorandum

concerning the transactions in August or September 1981.   Becker

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

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

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

corporate counsel to PI.   He also represented Grant and some of

Grant's clients.   Thereafter, Becker recommended the investment

to the prospective client.   Although the prospective client did

not invest in the Plastics Recycling transactions, Becker became

interested in the proposal and organized the SAB Recycling

Partnerships in order to make similar investments in Sentinel EPE

recyclers conveniently available to appropriate clients.
                              - 16 -

     In organizing the SAB Recycling Partnerships, Becker was not

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

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

allowed only to conduct a limited investigation of the proposed

investments and choose whether or not to organize similar

partnerships.   Becker relied heavily upon the offering materials

and discussions with persons involved in the matter to evaluate

the Plastics Recycling transactions.   He and two other members of

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

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

recyclers.   Tucker did not testify at either of petitioners'

trials.

     During his investigation of the Plastics Recycling

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

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

discussed the transactions with Michael Canno (Canno) of the

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

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

reports assessing the equipment or the pellets.   Becker retained

a law firm, Rabin & Silverman, to assist him in organizing the

SAB Recycling Partnerships.   See, e.g., Spears v. Commissioner,

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

firm, Becker particularly sought to protect himself against

liability.
                               - 17 -

     After the 1981 SAB Recycling Partnerships closed, Becker had

an accountant sent to PI to confirm, by serial number, that as of

December 31, 1981, the equipment that was leased to the 1981 SAB

Recycling Partnerships was indeed available for use.   Becker

arranged for this verification, independent of PI, because he

understood that the investment tax and business energy credits

would not be available if the qualifying property was not

available for use.

     Leicht and Tucker also familiarized themselves with the

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

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

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

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

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

test the underlying assumptions upon which they were based.     He

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

to the transactions.   Leicht never communicated an opinion as to

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

offering memoranda.    He has no education or expertise in plastics

materials or plastics recycling.

E. Petitioners and Their Introduction to the Partnership
Transactions

     1.   Philippe and Nadine Grelsamer

     Petitioners Philippe and Nadine Grelsamer (the Grelsamers)

resided in New York, New York, at the time their petition was
                               - 18 -

filed.   Nadine Grelsamer is a petitioner in docket No. 5788-90

solely because she filed a joint Federal income tax return with

her husband Philippe for the year in issue.

     Philippe Grelsamer (Grelsamer) graduated high school in

France and thereafter received a B.S. degree in industrial

engineering from the Rensselair Polytechnic Institute (RPI) in

New York State in 1945.   He then worked for 2 years in the

engineering department of the Carrier Corp. (Carrier), which he

considered to be the leading air conditioning and refrigeration

corporation in the United States, if not the world.    After

leaving Carrier, Grelsamer worked in the marketing department of

a cosmetics firm for several years and after that as an agent for

a biochemical manufacturer that specialized in products for the

cosmetics industry.   Sometime in the late 1950's or early 1960's,

Grelsamer became self-employed as a money manager.    At that time,

he already had started managing money for family members and

friends.   Grelsamer invested his clients' money in the stock

market and liquid securities in general.    Over the years,

Grelsamer has reviewed hundreds of preliminary prospectuses and

he has personally invested in dozens of private placements.

     After the oil embargo in the early 1970's, Grelsamer sought

to invest in oil drilling ventures.     He expressed his interest to

a social acquaintance who had experience in the oil business,

petitioner Morgan.    Morgan was interested, and the two contacted
                               - 19 -

a mutual friend and attorney, Paul Green (Green), to help

structure an appropriate investment vehicle.   Grelsamer had known

Green on a social basis since the late 1940's or early 1950's,

but had never before conducted business with him or employed his

services.    Grelsamer, Morgan, and Green took the necessary steps

to ensure a minimum return on each oil drilling investment, even

if the price of oil went down.

     Grelsamer learned of the Plastics Recycling transactions

from Green sometime in late 1981 or early 1982.     Green introduced

him to Becker, who Grelsamer understood was an accountant and not

in the plastics business.   Grelsamer's accountant at the time

confirmed that Becker had a good reputation as an accountant.

Becker gave Grelsamer a copy of the offering memorandum, which he

spent at least a few hours reading during several sittings.

Grelsamer thought the numbers "looked terribly good, maybe too

good."   He presented his general, overall questions to Green and

his more specific questions to Becker.

     Becker told Grelsamer about his visit to PI.    Grelsamer

believed that Becker went to Hyannis to see that the recycler

existed and to get an impression of PI.   He was under no

illusions as to the limits of Becker's ability to assess the

recyclers.   According to Grelsamer, Becker "certainly was not an

engineer and * * * [his visit to PI] could not have meant too
                              - 20 -

much to him and I'm sure it didn't.    They can't talk to him."

Grelsamer purportedly concluded that the Sentinel EPE recycler

was unique on the basis of his discussions with Becker and the

assessments by Ulanoff and Burstein, whose credentials he

believed that Becker had checked.

     Grelsamer has no education in plastics recycling or plastics

materials.   He knew that Becker was the de facto general partner

of SAB Reclamation and that Becker had no experience in plastics

recycling.   Grelsamer did not know whether Green had any

experience in the plastics recycling business.    Grelsamer did not

investigate the value of the Sentinel EPE recycler or how it

functioned or compare it with other similar products.     He did not

visit any of the end-user locations or review any periodicals

relating to resin prices.   Grelsamer did not talk to Green about

the tax benefits associated with SAB Reclamation.    Instead he

discussed them with his tax return preparer, Abraham Israelite.

Six months after investing in SAB Reclamation, Grelsamer invested

in a second plastics recycling partnership.    Grelsamer never made

a profit in any year from his interest in SAB Reclamation.

     2.   David E. Morgan

     Morgan resided in Palm Beach, Florida, at the time his

petition was filed.   He was born and raised in Poland.   When he

was 8 or 9 years old, oil was discovered on his family's farm,
                                - 21 -

and they went into the oil business, which spurred Morgan's

interest in engineering and geology.     Morgan attended the

University of Leige, Belgium, and in 1938 he transferred to the

Massachusetts Institute of Technology (MIT), where he graduated

in 1939 with a B.S. degree in petroleum engineering.     From there

he went to Columbia University to earn a graduate degree in

geology.   Upon receiving his degree in 1940, Morgan worked for

about a year at the General Geophysical Co. prospecting for oil

and then for 2 to 3 years for Continental Oil in Indiana.

Thereafter he was hired by Dresser Industries and was put in

charge of machining for the production of warheads for half-ton

bombs.

     When the war ended, Morgan opened and operated his own

business, Peerless Precision Products Co. (Peerless), in

Pawtucket, Rhode Island.    Peerless specialized in making

components, assemblies, and subassemblies for engine

manufacturers, such as United Technology and Lockheed, primarily

in the aircraft industry.    Morgan also organized and syndicated

joint ventures involved in drilling for oil in Texas, Oklahoma,

and New York State.   Before proceeding with any oil drilling

venture, Morgan would hire a geologist in the area to assess the

potential for oil extraction.    Morgan's oil drilling ventures

were about 30 to 40 percent successful in his first few years in
                               - 22 -

the business.   Consequently, Morgan turned to more conservative

oil drilling ventures, so-called development drilling, which

yielded a success ratio of 90 to 95 percent.    Development

drilling involves acquiring land, if available, and drilling

between two producing wells.   Morgan raised money for his oil

drilling ventures from relatives and friends.    One such friend

was Green, whom Morgan had met sometime in the mid-1970's.

     Morgan learned of the Plastics Recycling transactions,

specifically Plymouth, from either Roberts or some other casual

acquaintance.   He discussed it with Green for no more than 5 to

10 minutes, and Green suggested that he speak with Becker.

Shortly thereafter he spoke to Becker for no more than 30 minutes

about the Plastics Recycling transactions.   Becker informed him

of his efforts relating to the investment and provided him with

all the information he provided to other investors.    Morgan spent

about half a day reviewing the offering memorandum and then sent

it to his accountant in Boston, Martin Braver (Braver).    After

talking to Green and Becker, Morgan asked at a social gathering

whether anyone knew Burstein, and he received an affirmative

response from one of his social acquaintances.    Morgan accepted

that the Sentinel EPE recycler was a technically viable piece of

equipment and decided to invest in it.
                               - 23 -

     Becker and Green never represented to Morgan that they were

specialists in plastics and Morgan did not believe that they

were.   Morgan has no work experience in plastics recycling.     At

the time he made his investment, Morgan lived in or near

Pawtucket, which is just a short distance from Hyannis, the

location of PI.    Morgan has been to Hyannis many times, but he

did not visit PI or see a Sentinel EPE recycler prior to making

his investment.    He never asked whether there were any other

machines that could recycle low density polyethylene or

polystyrene.   Morgan did not make any independent investigation

of the value placed on the recyclers.    He was not aware of any

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

Morgan never made a profit in any year from his investment in

Plymouth.

                               OPINION

     We have decided a large number of the Plastics Recycling

group of cases.1   The majority of these cases, like the


1
     Provizer v. Commissioner, T.C. Memo. 1992-177, affd. without
published opinion 996 F.2d 1216 (6th Cir. 1993), concerned the
substance of the partnership transaction and also the additions
to tax.
     The following cases concerned the addition to tax for
negligence, inter alia: Zenkel v. Commissioner, T.C. Memo. 1996-
398; Estate of Busch v. Commissioner, T.C. Memo. 1996-342; Spears
v. Commissioner, T.C. Memo. 1996-341; Stone v. Commissioner, T.C.
Memo. 1996-230; Reimann v. Commissioner, T.C. Memo. 1996-84;
Bennett v. Commissioner, T.C. Memo. 1996-14; Atkind v.
                                                   (continued...)
                             - 24 -

consolidated cases herein, raised issues regarding additions to

tax for negligence and valuation overstatement.   We have found

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

the opinions to date on these issues, although procedural rulings

have involved many more favorable results for taxpayers.2


(...continued)
1

Commissioner, T.C. Memo. 1995-582; Triemstra v. Commissioner,
T.C. Memo. 1995-581; Pace v. Commissioner, T.C. Memo. 1995-580;
Dworkin v. Commissioner, T.C. Memo. 1995-533; Wilson v
Commissioner, T.C. Memo. 1995-525; Avellini v. Commissioner, T.C.
Memo. 1995-489; Paulson v. Commissioner, T.C. Memo. 1995-387;
Zidanich v. Commissioner, T.C. Memo. 1995-382; Ramesh v.
Commissioner, T.C. Memo. 1995-346; Reister v. Commissioner, T.C.
Memo. 1995-305; Fralich v. Commissioner, T.C. Memo. 1995-257;
Shapiro v. Commissioner, T.C. Memo. 1995-224; Pierce v.
Commissioner, T.C. Memo. 1995-223; Fine v. Commissioner, T.C.
Memo. 1995-222; Pearlman v. Commissioner, T.C. Memo. 1995-182;
Kott v. Commissioner, T.C. Memo. 1995-181; Eisenberg v.
Commissioner, T.C. Memo. 1995-180.
     Greene v. Commissioner, 88 T.C. 376 (1987), concerned the
applicability of the safe-harbor leasing provisions of sec.
168(f)(8). Trost v. Commissioner, 95 T.C. 560 (1990), concerned
a jurisdictional issue.
     Farrell v. Commissioner, T.C. Memo. 1996-295; Baratelli v.
Commissioner, T.C. Memo. 1994-484; Estate of Satin v.
Commissioner, T.C. Memo. 1994-435; Fisher v. Commissioner, T.C.
Memo. 1994-434; Foam Recycling Associates v. Commissioner, T.C.
Memo. 1992-645; Madison Recycling Associates v. Commissioner,
T.C. Memo. 1992-605, concerned other issues.
2
     In Zidanich v. Commissioner, T.C. Memo. 1995-382, we held
the taxpayers liable for the sec. 6659 addition to tax, but not
liable for the negligence additions to tax under sec. 6653(a).
As indicated in our opinion, the Zidanich case, and the Steinberg
case consolidated with it for opinion, involved exceptional
circumstances.
     In Estate of Satin v. Commissioner, supra, and Fisher v.
Commissioner, supra, after the decision in Provizer v.
Commissioner, supra, the taxpayers were allowed to elect to
                                                   (continued...)
                              - 25 -

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

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

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

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

almost identical to the Partnership transactions in these

consolidated cases, was a sham because it lacked economic

substance and a business purpose, (3) upheld the section 6659

addition to tax for valuation overstatement since the

underpayment of taxes was directly related to the overstatement

of the value of the Sentinel EPE recyclers, and (4) held that

losses and credits claimed with respect to Clearwater were

attributable to tax-motivated transactions within the meaning of

section 6621(c).   In reaching the conclusion that the transaction

lacked economic substance and a business purpose, this Court

relied heavily upon the overvaluation of the Sentinel EPE

recyclers.

     Although petitioners have not agreed to be bound by the

Provizer opinion, they have stipulated that the investments in


(...continued)
2

accept a beneficial settlement because of exceptional
circumstances. In Farrell v. Commissioner, supra, we rejected
taxpayers' claim to a similar belated settlement arrangement
since the circumstances were different and taxpayers previously
had rejected settlement and elected to litigate the case. See
also Baratelli v. Commissioner, supra; Zenkel v. Commissioner,
T.C. Memo. 1996-398.
                              - 26 -

the Sentinel EPE recyclers in these cases are similar to the

investment described in Provizer v. Commissioner, supra.     The

underlying transactions in these consolidated cases, and the

Sentinel EPE recyclers considered in these cases, are the same

type of transaction and same type of machines considered in

Provizer v. Commissioner, supra.

     Based on the entire records in these cases, including the

extensive stipulations, testimony of respondent's experts, and

petitioners' testimony, we hold that each of the Partnership

transactions herein was a sham and lacked economic substance.       In

reaching this conclusion, we rely heavily upon the overvaluation

of the Sentinel EPE recyclers.     Respondent is sustained on the

question of the underlying deficiencies.     We note that

petitioners have explicitly conceded this issue in the respective

stipulations of settled issues filed shortly before trial.     The

record plainly supports respondent's determination regardless of

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

applicable law in a substantially identical case, see Provizer v.

Commissioner, supra.

A.   Section 6653(a)--Negligence

     Respondent determined that petitioners are liable for

additions to tax for negligence under the provisions of section

6653(a).   Petitioners have the burden of proving that
                               - 27 -

respondent's determinations of these additions to tax are

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

861 (1982).

     Section 6653(a) for 1978 and 1980, and section 6653(a)(1)

for 1981 and 1982, impose an addition to tax equal to 5 percent

of the underpayment if any part of an underpayment of tax is due

to negligence or intentional disregard of rules or regulations.

Section 6653(a)(2) imposes an addition to tax equal to 50 percent

of the interest payable with respect to the portion of the

underpayment attributable to negligence or intentional disregard

of rules or regulations.

     Negligence is defined as the failure to exercise the due

care that a reasonable and ordinarily prudent person would employ

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

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

in connection with the transactions were reasonable in light of

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

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

When considering the negligence addition to tax, we evaluate the

particular facts of each case, judging the relative

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

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

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

1996-341, with Zidanich v. Commissioner, T.C. Memo. 1995-382.
                               - 28 -

     When petitioners invested in the partnerships, they had no

education or experience in plastics materials or plastics

recycling, nor had any of them seen a Sentinel recycler.    In each

of these consolidated cases, petitioners contend that they were

reasonable in claiming deductions and credits with respect to the

Partnerships.    In support of such contentions, petitioners argue,

in general terms:   (1) That claiming the deductions and credits

with respect to the Partnerships was reasonable in light of the

so-called oil crisis in the United States in 1981 and 1982; and

(2) that they reasonably relied upon the offering materials and

qualified advisers, specifically Becker, Green, and their tax

return preparers.

     1.   The So-Called Oil Crisis

     Petitioners maintain that they reasonably expected to make

an economic profit from the Partnership transactions, in

particular because plastic is an oil derivative and the United

States was experiencing a so-called oil crisis during the years

1981 and 1982.    In support of this argument, petitioners cite

Krause v. Commissioner, 99 T.C. 132 (1992), affd. sub nom.

Hildebrand v. Commissioner, 28 F.3d 1024 (10th Cir. 1994).

     Petitioners' contention that they reasonably expected an

economic profit from the Partnership transactions is

unconvincing, regardless of the so-called oil crisis.

Petitioners made no effort to resolve the caveats and warnings
                                - 29 -

contained in the offering memoranda.     See The Private Offering

Memoranda, infra at 43.   Nor did they seriously investigate or

educate themselves in the Plastics Recycling transactions.

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.   Moreover, petitioners' alleged blind faith

that oil prices would continue to rise is inconsistent with the

conservative manner in which they approached their oil drilling

ventures.   According to Grelsamer, he and Morgan chose and

organized their oil drilling ventures to ensure at least a

minimum return, "whether [the price of] oil went up or down".

     Petitioners each earned an engineering degree, Grelsamer

from RPI and Morgan from MIT.    Grelsamer worked in the

engineering department of the "leading air conditioning and

refrigeration corporation in the United States, if not the

world." He has reviewed hundreds of preliminary prospectuses over

the course of his career as a money manager.     Morgan was employed

in the production of warheads for half-ton bombs at Dresser

Industries.   Specifically, he was in charge of machining, and

later he founded a company that made components, assemblies, and

subassemblies for engine manufacturers.     In organizing and

syndicating their oil drilling ventures, petitioners took the
                               - 30 -

necessary steps and made the necessary effort to ensure at least

a minimum return.   Morgan consulted a local geologist or expert

with respect to each potential well.    Petitioners only invested

in so-called development drilling, which yielded a success rate

of 90 to 95 percent.

     That effort and prudence are not evident with respect to

petitioners' investments in the Partnerships.    Morgan lived a

relatively short distance from PI's headquarters and

manufacturing facility in Hyannis at the time, but neither he nor

Grelsamer ever physically inspected or even saw a Sentinel EPE

recycler.   Petitioners did not personally investigate the value

placed on the recycler or hire a plastics or recycling expert to

assess the machine.    Morgan was unaware of any companies that

would be suitable end-users for the recyclers and neither

petitioner ever visited any end-user locations.    Grelsamer claims

that he thought that the Sentinel EPE recyclers were unique based

upon the reports by Ulanoff and Burstein, who he allegedly

believed were qualified, disinterested evaluators.    However,

Ulanoff and Burstein each own interests in partnerships that

lease Sentinel recyclers, and the offering memoranda disclosed

that Burstein was a client and business associate of the

corporate counsel to PI, Miller.    In light of their inadequate

investigation of the Partnership transactions, especially when

compared to the care and effort they put into their oil drilling
                               - 31 -

ventures, we find that petitioners' claims that they reasonably

expected an economic profit from the Partnership transactions are

incredible, even taking into consideration the so-called oil

crisis.

     Moreover, petitioners did not explain how the so-called oil

crisis provided a reasonable basis for them to invest in the

Partnerships and claim the associated tax deductions and credits.

The offering materials warned that there could be no assurances

that prices for new resin pellets would remain at their then

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

explained that the price of plastics materials is not directly

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

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

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, supra, and

Rousseau v. United States, 71A AFTR 2d 93-4294, 91-1 USTC par.

50,252 (E.D. La. 1991), is misplaced.    The facts in Krause v.

Commissioner, supra, are distinctly different from the facts of
                              - 32 -

these cases.   In the Krause case, the taxpayers invested in

limited partnerships whose investment objectives concerned

enhanced oil recovery (EOR) technology.    The Krause opinion

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

Government adopted specific programs to aid research and

development of EOR technology.   In holding that the taxpayers in

the Krause case were not liable for the negligence additions to

tax, this Court noted that one of the Government's expert

witnesses acknowledged that "investors may have been

significantly and reasonably influenced by the energy price

hysteria that existed in the late 1970's and early 1980's to

invest in EOR technology."   Id. at 177.    In the present cases,

however, as explained by respondent's expert Steven Grossman, the

price of plastics materials was not directly proportional to the

price of oil, and there is no persuasive evidence that the so-

called oil crisis had a substantial bearing on petitioners'

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 these records

that the so-called energy crisis would provide a reasonable basis

for petitioners' investing in recycling of polyethylene,

particularly in the machinery here in question.

     In addition, the taxpayers in the Krause opinion

investigated EOR technology specifically.    One of the taxpayers
                              - 33 -

in the Krause case undertook significant investigation of the

proposed investment including researching EOR technology.   The

other taxpayer, a geological and mining engineer whose work

included research of oil recovery methods, hired an independent

geologic engineer to review the offering materials.    Id. at 166.

Like the latter taxpayer, petitioners are engineers experienced

in the oil industry.   Unlike the taxpayers in the Krause case,

however, petitioners did not research the plastics recycling

industry, independently investigate the Sentinel recyclers, or

hire an expert in plastics to evaluate the Partnership

transactions.

     In Rousseau v. United States, supra, the property underlying

the investment, ethanol producing equipment, was widely

considered at that time to be a viable fuel alternative to oil,

and its potential for profit was apparent.   In addition, the

taxpayer therein conducted an independent investigation of the

investment and researched the market for the sale of ethanol in

the United States.   In contrast, as we noted in distinguishing

the Krause case, there is no showing in these records that the

so-called oil crisis would provide a reasonable basis for

petitioners' investing in the polyethylene recyclers here in

question.   As noted above, petitioners did not independently

investigate the Sentinel EPE recyclers or hire an expert in

plastics to evaluate the Partnership transactions.    The facts of
                                - 34 -

petitioners' cases are distinctly different from the Rousseau

case.

     Because of the circumstances summarized above, we do not

consider petitioners' arguments with respect to the Krause and

Rousseau cases applicable to the present cases.

     2.   Petitioners' Purported Reliance on Tax Advisers

     Petitioners maintain that they reasonably relied upon the

advice of qualified advisers.    Grelsamer and Morgan discussed the

investment with, and purportedly relied upon, Green and Becker.

In addition, petitioners' tax return preparers apparently

reviewed the offering materials and/or purportedly discussed the

investments with petitioners.

     The concept of negligence and the argument of reliance on an

expert are highly fact intensive.    Petitioners in these cases are

engineers experienced in organizing and syndicating investments

in the oil industry.   One also is experienced in machine

manufacture and the other has for many years been engaged in

business as a professional money manager.   These technologically

and financially astute businessmen ultimately relied upon an

accountant to investigate the tax law and the underlying business

circumstances of a proposed investment, the success of which

depended upon a purportedly technologically unique machine.

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

an investigation within the limits of his resources and abilities
                              - 35 -

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

whether petitioners, themselves technologically proficient and

financially successful, actually and reasonably relied on the

accountant with respect to valuation problems requiring expertise

in engineering and plastics technology, or whether the accountant

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

make a full and independent investigation of the relevant

business and technology, and did clearly inform his clients of

the limits of his knowledge and investigation of the transaction.

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

accurately describes what happened here.

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

     A taxpayer may avoid liability for the additions to tax under

the provisions of section 6653(a) if he or she reasonably relied on

competent professional advice.   United States v. Boyle, 469 U.S.

241, 250-251 (1985); Freytag v. Commissioner, 89 T.C. 849, 888

(1987), affd. 904 F.2d 1011 (5th Cir. 1990), affd. 501 U.S. 868

(1991).   Reliance on professional advice, standing alone, is not an

absolute defense to negligence, but rather a factor to be

considered.   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.
                               - 36 -

David v. Commissioner, 43 F.3d 788, 789-790 (2d Cir. 1995), affg.

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

1994), affg. T.C. Memo. 1993-480; Freytag v. Commissioner, supra;

Sacks v. Commissioner, T.C. Memo. 1994-217, affd. 82 F.3d 918 (9th

Cir. 1996); Kozlowski v. Commissioner, T.C. Memo. 1993-430, affd.

without published opinion 70 F.3d 1279 (9th Cir. 1995); see also

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

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

     Reliance on representations by insiders, promoters, or

offering materials has been held an inadequate defense to

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

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

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

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

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

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

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

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

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

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

when neither the taxpayer nor the advisers purportedly relied

upon by the taxpayer knew anything about the nontax business

aspects of the contemplated venture.    David v. Commissioner,

supra; Goldman v. Commissioner, supra; Freytag v. Commissioner,
                                 - 37 -

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

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

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

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

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

Recycling cases cited, supra note 1.

             b.   Green and the Tax Return Preparers

     In addition to relying ultimately on Becker, Grelsamer and

Morgan assert that they reasonably relied on Green and their

respective tax return preparers, Israelite and Braver.    Neither

Braver, Green, nor Israelite (who died prior to the Grelsamers'

trial) testified at the trials in these cases.     See Bresler v.

Commissioner, 65 T.C. 182, 188 (1975), Pollack v. Commissioner,

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

Wichita Terminal Elevator Co. v. Commissioner, 6 T.C. 1158, 1165

(1946), affd. 162 F.2d 513 (10th Cir. 1947) to the effect that

the failure of a party to offer available testimony gives rise to

the inference that it would have been unfavorable to his

contention.

     Grelsamer and Morgan had no reason to believe that Green had

any experience or expertise in plastics materials or plastics

recycling.    Green, an attorney, apparently answered Grelsamer's

general questions about the Plastics Recycling transactions, but

by the time of trial Grelsamer could not remember exactly what
                              - 38 -

they discussed.   Grelsamer claimed that he remembered only that

they did not discuss SAB Reclamation's tax benefits.    Morgan

discussed Plymouth with Green for no more than 5 or 10 minutes.

Grelsamer testified that he discussed the tax benefits with

Israelite, his tax return preparer, but he could not remember for

how long, and Morgan testified only that he sent the offering

memorandum to Braver, his accountant in Boston.   Nothing in the

records of these cases indicates what, if anything, Green,

Israelite, or Braver did to investigate the Plastics Recycling

transactions, or whether they were qualified to do so, nor is

there any record of the substance of their advice.   See Bresler

v. Commissioner, supra, Pollack v. Commissioner, supra, and

Wichita Terminal Elevator Co. v. Commissioner, supra.

Petitioners have failed to show that they reasonably relied upon

Green and their tax return preparers.

          c.   Becker

     Becker had no education, special qualifications, or

professional skills in plastics engineering, plastics recycling,

or plastics materials.   In evaluating the Plastics Recycling

transactions and organizing the SAB Recycling Partnerships,

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

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

to the transactions; (4) Canno; and (5) his investigation of the
                              - 39 -

reputation and background of PI and persons involved in the

transactions.

     Despite his lack of knowledge regarding the product, the

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

Plastics Recycling transactions, Becker did not hire an expert in

plastics materials or plastics recycling, or recommend that his

clients do so.   The only independent person having any connection

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

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

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

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

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

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

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

recycled resin pellets after they were further processed by PI.

According to Becker, Canno endorsed the Partnership transactions

after reviewing the offering materials.   Asked at trial if Canno

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

don't know what Mr. Canno did."

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

viewed a Sentinel EPE recycler in operation, and saw products

that were produced from recycled plastic.   Grelsamer testified

that because Becker was not an engineer, he was sure that

Becker's visit "could not have meant too much to him" and he
                              - 40 -

doubted that the people at PI could even "talk to [Becker]."

Becker claims that during his visit, he was told that the

recycler was unique and that it was the only machine of its type.

In fact, the Sentinel EPE recycler was not unique.   Several

machines capable of densifying low density materials already were

on the market.   Other plastics recycling machines available

during 1981 ranged in price from $20,000 to $200,000, including

the Foremost Densilator, Nelmor/Weiss Densification System

(Regenolux), Buss-Condux Plastcompactor, and Cumberland

Granulator.   See Provizer v. Commissioner, T.C. Memo. 1992-177.

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

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

creation and production of the Sentinel EPE recycler.     When he

asked to see the cost records for some kind of independent

verification, however, his request was denied.   Becker was

informed that such information was proprietary and secret, and

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

Although PI claimed that all of its information was a trade

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

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

recycling transactions and had also applied for a trademark for

the Sentinel recyclers.   Becker decided to accept PI's

representations after speaking with Miller (the corporate counsel

to PI), Canno (who had never been to PI's plant or seen a
                              - 41 -

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

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

expertise in engineering or plastics materials).   Becker

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

controls regarding the allocation of royalty payments and PI's

recordkeeping system in general.   In Provizer v. Commissioner,

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

records."

     Becker confirmed at trial that he relied on the offering

materials and discussions with PI personnel to establish the

value and purported uniqueness of the recyclers.   Becker

testified that he relied upon the reports of Ulanoff and Burstein

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

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

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

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

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

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

in more than one partnership that owned Sentinel recyclers as

part of the Plastics Recycling program.

     Becker explained at trial that in the course of his practice

when evaluating prospective investments for clients, he focuses

on the economics of the transaction and investigates whether

there is a need or market for the product or service.    With
                                - 42 -

respect to the Partnership transactions the records indicate that

Becker overlooked several red flags regarding the economic

viability and market for the Sentinel EPE recyclers.    The

offering memoranda for the Partnership transactions warned that

there was no established market for the Sentinel EPE recyclers.

Becker never saw any marketing plans for selling the pellets or

leasing the recyclers.   He accepted representations by PI

personnel that they would be marketing the recyclers to clients

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

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

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

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

the transaction.

     Becker purportedly checked the price of the pellets by

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

not use those same journals to investigate the recyclers'

purported value or to see whether there were any advertisements

for comparable machines.   The records in these cases do not

indicate that petitioners or their advisers other than Becker

asked to see those journals for their own examination.    In

concluding that the Partnerships would be economically

profitable, Becker made two assumptions that he concedes were

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

the pellets; and (2) that market demand for them would increase.
                              - 43 -

     Becker plainly had a financial interest in SAB Reclamation,

and the SAB recycling transactions generally.   Becker received

fees in excess of $500,000 with respect to the SAB Recycling

Partnerships, $110,000 of which derived from SAB Reclamation.

Becker also received fees for investment advice from some

individual investors, though not from petitioners herein.    In

addition, Becker Co. received fees from the SAB Recycling

Partnerships for preparing their partnership returns.     As Becker

himself testified, potential investors could not have read the

offering materials and been ignorant of the financial benefits

accruing to him.

          d. Conclusion as to Petitioners' Alleged
          Reliance on Becker

     Petitioners in these cases are well educated and

accomplished engineers, successful businessmen, and sophisticated

investors.   Grelsamer and Morgan earned engineering degrees

respectively from RPI and MIT.   Morgan applied his engineering

skills in the production of munitions and later owned and

operated his own business making components, assemblies, and

subassemblies for engine manufacturers in the aircraft industry,

including United Technology and Lockheed.   Grelsamer's

engineering education and ability resulted in his obtaining

employment at Carrier, which he described as "the leading air

conditioning and refrigeration corporation in the United States,

if not the world," and several years later he became a
                               - 44 -

professional money manager.    Beginning in the early 1970's,

petitioners combined their talents and together they began

organizing and syndicating oil drilling ventures.     Morgan

estimated that they drilled about 10 to 15 wells a year in the

mid to late 1970's.   Because of their investment acumen and

thorough, cautious approach, petitioners' oil drilling ventures

yielded a 90- to 95-percent success rate.     Certainly petitioners

possessed the engineering and financial intellect, skills,

experience, and resources to investigate properly the viability

of the Plastics Recycling transactions either themselves or by

employing an independent, qualified expert.

     Petitioners claim that they relied on Becker for the bona

fides and viability of the Partnership transactions.     Yet

Becker's expertise was in taxation, not plastics materials or

plastics recycling, and his investigation and analysis of the

Plastics Recycling transactions reflected this circumstance.

Petitioners knew that Becker was not an engineer or expert in

plastics materials or plastics recycling.     Grelsamer even

testified that because Becker was not an engineer his visit to PI

could not have meant much to him and that Grelsamer was sure that

it did not.   Moreover, Becker testified that he was very careful

not to mislead any of his clients regarding the particulars of

his investigation.    As he put it:   "I don't recall saying to a

client I did due diligence * * * [Rather,] I told [my clients]
                              - 45 -

precisely what I had done to investigate or analyze the

transaction.   I didn't just say I did due diligence, and leave it

open for them to define what I might or might not have done."

     The purported value of the Sentinel EPE recycler generated

the deductions and credits in these cases, and that circumstance

was reflected in the offering memoranda.   Certainly Becker

recognized the nature of the tax benefits and, given their

education and professional experience, petitioners should have

recognized it as well.   Yet neither petitioners nor Becker

verified the purported value of the Sentinel EPE recycler.

Becker confirmed at trial that he relied on PI for the value of

the Sentinel EPE recyclers.

     Investors as technologically and financially sophisticated

as petitioners either learned or should have learned the source

and shortcomings of Becker's valuation information when he

"precisely" disclosed "what [he] had done to investigate or

analyze the transaction."   Grelsamer knew that Becker was not

qualified to perform an on-site evaluation of the recycler and

Morgan knew from experience "what specialized equipment or

machinery costs".   Accordingly, we find that petitioners did not

reasonably or in good faith rely on Becker as an expert or a

qualified professional working in the area of his expertise to

establish the fair market value of the Sentinel EPE recycler and

economic viability of the Partnership transactions.   Becker never
                              - 46 -

assumed such responsibility, and he fully described the

particulars of his investigation, taking care not to

mischaracterize it as "due diligence."

     In the end, Becker and petitioners relied on PI personnel

for the value of the Sentinel EPE recyclers and the economic

viability of the Partnership transactions.   See Vojticek v.

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

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

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

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

to rely upon a tax adviser regarding matters outside of his field

of expertise or with respect to facts that he does not verify.

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

Commissioner, 39 F.3d at 408; Skeen v. Commissioner, 864 F.2d 93

(9th Cir. 1989), affg. Patin v. Commissioner, 88 T.C. 1086

(1987); Lax v. Commissioner, T.C. Memo. 1994-329; Sacks v.

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

Memo. 1990-619; see also Zenkel v. Commissioner, T.C. Memo. 1996-

398, Estate of Busch v. Commissioner, T.C. Memo. 1996-342; Spears

v. Commissioner, T.C. Memo. 1996-341, with respect to Becker's

advice in Plastics Recycling cases.

     3.   The Private Offering Memoranda

     In addition to purportedly relying on Becker, Green, and

their respective tax return preparers, petitioners maintain that
                              - 47 -

they reasonably relied upon the offering memoranda and the tax

opinion letter appended thereto.   However, petitioners' testimony

and actions indicate that they did not thoroughly review or study

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

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

on the representations therein.

     The offering memoranda included numerous caveats and

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

substantial likelihood of audit by the IRS and a likely challenge

of the purported value of the recyclers; (2) the general

partners' lack of experience in marketing recycling or similar

equipment; (3) the lack of an established market for the

recyclers; and (4) uncertainties regarding the market prices for

virgin resin and the possibility that recycled pellets would not

be as marketable as virgin pellets.    In addition, the offering

memoranda noted a number of conflicts of interest, including

Miller's interest in F & G Corp. and his representation of

Burstein, PI, and Grant.   A careful consideration of the

materials in the offering memoranda in these cases, especially

the discussions of high writeoffs and risk of audit, should have

alerted a prudent and reasonable investor to the questionable

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

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

v. Commissioner, T.C. Memo. 1987-217; Sacks v. Commissioner,
                              - 48 -

supra.   Indeed, Grelsamer testified that when he reviewed the SAB

Reclamation offering memorandum he thought that the "mathematics

looked terribly good, maybe too good."

     In each case, the projected tax benefits in the offering

memoranda exceeded petitioners' respective investments.

According to the offering memoranda, for each $50,000 investor,

the projected first-year tax benefits were investment tax credits

in excess of $82,500 plus deductions in excess of $40,000.

Specifically, the projected investment tax credits and deductions

for the Partnerships in the first year of the investment, for

each $50,000 investor, were as follows:   $82,639 and $40,376,

respectively, for Plymouth in 1981, and $83,712 and $40,234,

respectively, for SAB Reclamation in 1982.

     For Grelsamer's gross $25,000 investment, the Grelsamers

claimed an operating loss in the amount of $20,050 and investment

tax and business energy credits in the amount of $41,856 for

taxable year 1982.   As a result of his $50,000 investment, Morgan

claimed a $40,554 operating loss and $82,526 in investment tax

and business energy credits for taxable year 1981.   The direct

reductions in petitioners' Federal income tax, from the

investment tax credits alone, ranged from 165 percent to 167

percent of their cash investments, without taking into

consideration any rebated commissions or advance royalty

payments.   Therefore, after adjustments of withholding, estimated
                              - 49 -

tax, or final payment, like the taxpayers in Provizer v.

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

beginning petitioners [Grelsamer and Morgan] never had any money

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

disproportionately large tax benefits claimed on petitioners'

1981 and 1982 Federal income tax returns, relative to the dollar

amounts invested, further investigation of the Partnership

transactions clearly was required.     A reasonably prudent person

would have asked a qualified independent tax adviser if this

windfall were not too good to be true.     McCrary v. Commissioner,

92 T.C. 827, 850 (1989).   A reasonably prudent person would not

conclude without substantial investigation that the Government

was providing tax benefits so disproportionate to the taxpayers'

investment of their own capital.

     Petitioners' reliance upon the Court of Appeals for the

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

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

part without published opinion sub nom. Balboa Energy Fund 1981

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

Osterhout, on which petitioners rely, we found that certain oil

and gas partnerships were not engaged in a trade or business and

sustained respondent's imposition of the negligence additions to

tax with respect to one of the partners therein.3    The Court of


3
     Osterhout v. Commissioner, T.C. Memo. 1993-251, affd. in
                                                   (continued...)
                               - 50 -

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, the offering memoranda for

the Partnerships herein warned prospective investors that the

accompanying tax opinion letters were not in final form, and were

prepared for the general partner, and that prospective investors

should consult their own professional advisers with respect to

the tax benefits and tax risks associated with the Partnerships.

The tax opinion letter accompanying the SAB Reclamation offering

memorandum was addressed solely to the general partner and began

with the following disclaimer:

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




(...continued)
3

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.
                                - 51 -

A similar disclaimer appears in the tax opinion letter

accompanying the Plymouth offering memorandum.     Accordingly, the

tax opinion letters expressly indicate that prospective investors

such as petitioners were not to rely upon the tax opinion letter.

See Collins v. Commissioner, supra.      The limited, technical

opinion of tax counsel expressed in these letters was not

designed as advice upon which taxpayers might rely and the

opinion of counsel itself so states.

     4.   Miscellaneous

     The parties in these consolidated cases stipulated that the

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

not in excess of $50,000.    Notwithstanding this concession,

petitioners contend that they were reasonable in claiming credits

on their Federal income tax returns based upon each recycler's

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

petitioners 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
                              - 52 -

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 and 1982.

     We accord no weight to the Carmagnola reports submitted by

petitioners.   The projected valuations therein were based on

inadequate information, research, and investigation, and were

subsequently rejected and discredited by their author.    Indeed,

in one preliminary report, Carmagnola states that he has "a

serious concern of actual profit" from a Sentinel EPE recycler

and that to determine whether the machines actually could be

profitable, he required additional information from PI.

Carmagnola also indicates that in preparing the report, he did

not have information available concerning research and

development costs of the machines and that he estimated those

costs in his valuations of the machines.

     Respondent rejected the Carmagnola reports and considered

them unsatisfactory for any purpose, and there is no indication

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

determinations in the notices of deficiency.   Even so,

petitioners' counsel obtained copies of these reports and urge

that they support the reasonableness of the values reported on

petitioners' returns.   Not surprisingly, petitioners did not call

Carmagnola to testify in these cases, but preferred instead to
                              - 53 -

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.   See Bresler v.

Commissioner, 65 T.C. at 188; Pollack v. Commissioner, 47 T.C. at

108; Wichita Terminal Elevator Co. v. Commissioner, 6 T.C. at

1165.   The Carmagnola reports were a part of the record

considered by this Court and reviewed by the Sixth Circuit Court

of Appeals in the Provizer case, where we held the taxpayers

negligent.   Consistent therewith, we find in these cases, as we

have found previously, that the reports prepared by Carmagnola

are unreliable and of no consequence.   Petitioners are not

relieved of the negligence additions to tax based on the

preliminary reports prepared by Carmagnola.

     Petitioners' reliance on Reile v. Commissioner, T.C. Memo.

1992-488, and Davis v. Commissioner, T.C. Memo. 1989-607, is

misplaced.   This Court declined to sustain the negligence

additions to tax in the Reile and Davis cases for reasons

inapposite to the facts herein.   In the Davis case, the taxpayers

reasonably relied upon a "trusted and long-term adviser" who was

independent of the investment venture, and the offering materials

reviewed by the taxpayers did not reflect that the principals in

the venture lacked experience in the pertinent line of business.

In the Reile case, the taxpayers, a married couple, had only 1

year of college between them and characterized themselves as
                              - 54 -

financial "dummies."   In contrast to those cases, petitioners

herein are well educated, sophisticated, and successful

businessmen.   Becker and Green were not long-term advisers of

petitioners.   Green was an investor in the oil drilling ventures,

and he recommended the appropriate legal structure for the

ventures.   However, there is no showing in the records that Green

acted as a tax or investment adviser to petitioners.    As for

petitioners' tax return preparers, the records fail to show their

qualifications to analyze the Partnership transactions, what they

did, and the subject of their advice, if any.   In addition, the

offering memoranda disclosed that the Partnerships had no prior

operating history and that the general partner had no prior

experience in marketing recycling or similar equipment.

     Petitioners' position is not supported by Mollen v. United

States, 72 AFTR 2d 93-6443, 93-2 USTC par. 50,585 (D. Ariz.

1993).   In Mollen, the taxpayer was a medical doctor who

specialized in diabetes and who, on behalf of the Arizona Medical

Association, led a continuing medical education (CME)

accreditation program for local hospitals.   The underlying tax

matter involved the taxpayer's investment in Diabetics CME Group,

Ltd., a limited partnership that invested in 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 every reason to
                              - 55 -

believe it would be economically profitable.   Although the

taxpayer was not experienced in business or tax matters, he did

consult with an accountant and a tax lawyer regarding those

matters.   Moreover, the District Court noted that the propriety

of the taxpayer's disallowed deduction therein was "reasonably

debatable."   Id.

     Neither petitioners nor Becker had any education, special

qualifications, or professional skills in plastics recycling or

plastics materials.   Grelsamer was keenly aware of this and

certainly Morgan did not believe otherwise.    None of them had any

personal insight or industry know-how in plastics recycling that

would reasonably lead them to believe that the Plastics Recycling

transactions would be economically profitable.   Becker and

petitioners relied upon representations by insiders to the

Plastics Recycling transactions, and neither he nor petitioners

hired any independent experts in the field of plastic materials

or plastics recycling.   Becker purportedly discussed the

transactions with Canno, who apparently was familiar with the

plastics industry, but Canno was not hired by Becker to

investigate PI and the Sentinel EPE recycler, never saw a

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

written analysis of the venture.   Accordingly, we consider

petitioners' arguments with respect to the Mollen case

inapplicable under the circumstances of these cases.
                              - 56 -

     Petitioners also rely on two recent decisions by the Court

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

imposition of the negligence additions to tax in non-plastics

cases:   Durrett v. Commissioner, 71 F.3d 515 (5th Cir. 1996),

affg. in part and revg. in part T.C. Memo. 1994-179; Chamberlain

v. Commissioner, 66 F.3d 729 (5th Cir. 1995), affg. in part and

revg. in part T.C. Memo. 1994-228.     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 the negligence

additions to tax.   See Chakales v. Commissioner, T.C. Memo. 1994-

408 (reliance on long-term adviser, who was a tax attorney and

accountant, and who in turn relied on a promoter of the venture,

held unreasonable), affd. 79 F.3d 726 (8th Cir. 1996); Kozlowski

v. Commissioner, T.C. Memo. 1993-430 (reliance on adviser held

unreasonable absent a showing that the adviser understood the

transaction and was qualified to give an opinion whether it was

bona fide), affd. without published opinion 70 F.3d 1279 (9th

Cir. 1995); Freytag v. Commissioner, 89 T.C. 849 (1987) (reliance
                               - 57 -

on tax advice given by attorneys and C.P.A.'s held unreasonable

absent a showing that the taxpayers consulted any experts

regarding the bona fides of the transactions), affd. 904 F.2d

1011 (5th Cir. 1990), affd. 501 U.S. 868 (1991).   Here we have

found that none of the advisers consulted by petitioners

possessed sufficient knowledge of the plastics recycling business

to render a competent opinion.    See David v. Commissioner, 43

F.3d 788, 789-790 (2d Cir. 1995) (taxpayers' reliance on expert

advice not reasonable where expert lacks knowledge of business in

which taxpayers invested); Goldman v. Commissioner, 39 F.3d 402,

408 (2d Cir. 1994) (same).    Accordingly, petitioners will not be

relieved of the negligence additions to tax based upon the

decisions in the Durrett and Chamberlain cases by the Court of

Appeals for the Fifth Circuit.4

     5.    Conclusion as to Negligence

     Under the circumstances of these cases, petitioners failed

to exercise due care in claiming large deductions and tax credits

with respect to the Partnerships on their Federal income tax

returns.    Petitioners did not reasonably rely upon the offering

memoranda, Becker, Green, or their tax return preparers, or in


4
     Other cases cited by petitioners are inapplicable and
distinguishable for the following general, nonexclusive reasons:
(1) They involve far less sophisticated, if not unsophisticated,
taxpayers; (2) the reasonableness of the respective taxpayers'
reliance on expert advice was established in those cases on
grounds that do not exist here; and (3) the advice given was
within the adviser's area of expertise.
                               - 58 -

good faith investigate the underlying viability, financial

structure, and economics of the Partnership transactions.    We are

unconvinced by the claim of these experienced engineers and

highly sophisticated, able, and successful businessmen that they

reasonably failed to inquire about their investments and simply

relied on the offering circulars and on Green, their tax return

preparers, and ultimately Becker, despite warnings in the

offering circulars and explanations by Becker about the

limitations of his investigation.    In each case, these taxpayers

knew or should have known better.    We hold, upon consideration of

the entire records, that petitioners are liable for the

negligence additions to tax under the provisions of section

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

on this issue.

B.   Section 6659--Valuation Overstatement

       Respondent determined that petitioners are each liable for

the section 6659 addition to tax on the portion of their

respective underpayments attributable to valuation overstatement.

Petitioners have the burden of proving that respondent's

determinations of these section 6659 additions to tax are

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

861.

       A graduated addition to tax is imposed when an individual

has an underpayment of tax that equals or exceeds $1,000 and "is
                                - 59 -

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

A valuation overstatement exists if the fair market value (or

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

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

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

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

underpayment.   Sec. 6659(b).

     Petitioners claimed tax benefits, including an investment

tax credit and a business energy credit, based on purported

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

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

1981 and 1982 was not in excess of $50,000.   Therefore, if

disallowance of petitioners' claimed tax benefits is attributable

to such valuation overstatements, petitioners are liable for the

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

underpayment of tax attributable to the tax benefits claimed with

respect to the Partnerships.

     Petitioners contend that section 6659 does not apply in

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

claimed tax benefits was attributable to other than a valuation

overstatement; (2) petitioners' concessions of the claimed tax

benefits precludes imposition of the section 6659 additions to

tax; and (3) respondent erroneously failed to waive the section
                              - 60 -

6659 addition to tax.   We reject each of these arguments in these

cases for reasons set forth below.

     1.   The Grounds for Petitioners' Underpayments

     Section 6659 does not apply to underpayments of tax that are

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

Commissioner, 92 T.C. 827 (1989); Todd v. Commissioner, 89 T.C.

912 (1987), affd. 862 F.2d 540 (5th Cir. 1988).   To the extent

taxpayers claim tax benefits that are disallowed on grounds

separate and independent from alleged valuation overstatements,

the resulting underpayments of tax are not regarded as

attributable to valuation overstatements.   Krause v.

Commissioner, 99 T.C. 132, 178 (1992) (citing Todd v.

Commissioner, supra).   However, when valuation is an integral

factor in disallowing deductions and credits, section 6659 is

applicable.   See Illes v. Commissioner, 982 F.2d 163, 167 (6th

Cir. 1992), affg. T.C. Memo. 1991-449; Gilman v. Commissioner,

933 F.2d 143, 151 (2d Cir. 1991) (section 6659 addition to tax

applies if a finding of lack of economic substance is "due in

part" to a valuation overstatement), affg. T.C. Memo. 1989-684;

Masters v. Commissioner, T.C. Memo. 1994-197, affd. without

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

Commissioner, T.C. Memo. 1991-321.

     Petitioners argue that the disallowance of the claimed tax

benefits was not "attributable to" a valuation overstatement.
                                - 61 -

According to petitioners, the tax benefits were disallowed

because the Partnership transactions lacked economic substance,

not because of any valuation overstatements.    It follows,

petitioners reason, that because the "attributable to" language

of section 6659 requires a direct causative relationship between

a valuation overstatement and an underpayment in tax, section

6659 cannot apply to their deficiencies.    Petitioners cite in

support of this argument:     Todd v. Commissioner, supra; Heasley

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

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

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

     Petitioners' argument rests on the mistaken premise that our

holding that the Partnership transactions lacked economic

substance was separate and independent from the overvaluation of

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

Partnership transactions lacked economic substance, we relied

heavily upon the overvaluation of the recyclers.    Overvaluation

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

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

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

transactions lacked economic substance.

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

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

economic substance for reasons independent of the valuation
                               - 62 -

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 taxpayers' valuation method.

Petitioners misread and distort our Provizer opinion.    In the

Provizer case, overvaluation of the Sentinel EPE recyclers,

irrespective of the technique employed by the taxpayers in their

efforts to justify the overvaluation, was the dominant factor

that led us to hold that the Clearwater transaction lacked

economic substance.   Likewise, overvaluation of the Sentinel EPE

recyclers in these cases is the ground for our holding herein

that the Partnership transactions lacked economic substance.

     Moreover, a virtually identical argument was recently

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

Appeals for the Second Circuit.   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
                              - 63 -

this Court's earlier conclusion that the transaction lacked

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

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

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

Eighth Circuit that "'when an underpayment stems from disallowed

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

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

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

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

Memo. 1988-427); see also Rybak v. Commissioner, 91 T.C. 524,

566-567 (1988); Zirker v. Commissioner, 87 T.C. 970, 978-979

(1986); Donahue v. Commissioner, T.C. Memo. 1991-181, affd.

without published opinion 959 F.2d 234 (6th Cir. 1992), affd. sub

nom. Pasternak v. Commissioner, 990 F.2d 893 (6th Cir. 1993).

     Petitioners' reliance on Gainer v. Commissioner, 893 F.2d

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

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

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

herein, it was found that a valuation overstatement did not

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
                               - 64 -

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

the overvaluations were not the ground on which the taxpayers'

liability was sustained.   In contrast, "a different situation

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

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

item."    McCrary v. Commissioner, supra at 859.   Each of these

consolidated cases 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

Partnership transactions lacked economic substance.5

     2.   Concession of the Deficiency

     Petitioners argue that their concessions of the deficiencies

preclude imposition of the section 6659 additions to tax.

Petitioners contend that their concessions render any inquiry

into the grounds for such deficiencies moot.   Absent such

inquiry, petitioners argue that it cannot be known whether their

underpayments were attributable to a valuation overstatement or


5
     To the extent that Heasley v. Commissioner, 902 F.2d 380
(5th Cir. 1990), revg. T.C. Memo. 1988-408, merely represents an
application of Todd v. Commissioner, 89 T.C. 912 (1987), affd.
862 F.2d 540 (5th Cir. 1988), we consider it distinguishable. To
the extent that the reversal in the Heasley case is based on a
concept that where an underpayment derives from the disallowance
of a transaction for lack of economic substance, the underpayment
cannot be attributable to an overvaluation, this Court and the
Court of Appeals for the Second Circuit, and other Courts 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.")
                              - 65 -

other discrepancy.   Without a finding that a valuation

overstatement contributed to an underpayment, according to

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

of reasoning, petitioners rely heavily upon Heasley v.

Commissioner, supra, and McCrary v. Commissioner, supra.

     Petitioners' open-ended concessions do not obviate our

finding that the Partnership transactions lacked economic

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

situation where we have "to decide difficult valuation questions

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

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

EPE recycler was established in Provizer v. Commissioner, T.C.

Memo. 1992-177, and stipulated by the parties.   As a consequence

of the inflated value assigned to the recyclers by the

Partnerships, petitioners claimed deductions and credits that

resulted in underpayments of tax, and we held that the

Partnership transactions lacked economic substance.   Regardless

of petitioners' concessions, in these cases the underpayments of

tax were attributable to the valuation overstatements.

     Moreover, concession of the investment tax credit in and of

itself does not relieve taxpayers of liability for the section

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

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

the ground upon which the investment tax credit is disallowed or
                               - 66 -

conceded is significant.   Even in situations in which there are

arguably two grounds to support a deficiency and one supports a

section 6659 addition to tax and the other does not, the taxpayer

may still be liable for the addition to tax.    Gainer v.

Commissioner, 893 F.2d at 228; Irom v. Commissioner, 866 F.2d

545, 547 (2d Cir. 1989), vacating in part T.C. Memo. 1988-211;

Harness v. Commissioner, T.C. Memo. 1991-321.

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

was presented to the Court to prove that disallowance and

concession of the investment tax credits related to anything

other than a valuation overstatement.   To the contrary,

petitioners each stipulated substantially the same facts

concerning the Partnership transactions as we found in Provizer

v. Commissioner, supra.    In the Provizer case, we held that the

taxpayers were liable for the section 6659 addition to tax

because the underpayment of taxes was directly related to the

overvaluation of the Sentinel EPE recyclers.    The overvaluation

of the recyclers, exceeding 2325 percent, was an integral part of

our findings in Provizer that the transaction was a sham and

lacked economic substance.   Similarly, the records in these cases

plainly show that the overvaluation of the recyclers is integral

to and is the core of our holding that the underlying

transactions here were shams and lacked economic substance.
                               - 67 -

     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 additions to

tax were held inapplicable.    However, the concessions of the

claimed tax benefits, in and of themselves, did not preclude

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

Commissioner, supra, the section 6659 addition to tax was

disallowed because the agreement at issue was conceded to be a

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

petitioners' cases plainly show that petitioners' underpayments

were attributable to overvaluation of the Sentinel EPE recyclers.

We hold that petitioners' reliance on McCrary v. Commissioner,

supra, is inappropriate.6

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

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

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

recyclers had been overvalued was integral to and inseparable

from our holding of a lack of economic substance.    Petitioners

stipulated that the Partnership transactions were similar to the

Clearwater transaction described in the Provizer case, and that


6
     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 5
to the effect that this Court, the Court of Appeals for the
Second Circuit, and other Courts have not followed the Heasley
opinion with respect to the application of sec. 6659.
                                - 68 -

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

was not in excess of $50,000.    Given those concessions, and the

fact that the records here plainly show that the overvaluation of

the recyclers was the underlying reason for the disallowance of

the claimed tax benefits, we conclude that the deficiencies were

attributable to overvaluation of the Sentinel EPE recyclers.

     3.   Section 6659(e)

     Petitioners argue that respondent erroneously failed to

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

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

for valuation overstatements if taxpayers establish that there

was a reasonable basis for the adjusted bases or valuations

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

faith.    Respondent's refusal to waive a section 6659 addition to

tax is reviewable by this Court for abuse of discretion.       Krause

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

found in situations where respondent's refusal to exercise her

discretion is arbitrary, capricious, or unreasonable.    See

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

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

Memo. 1993-58.

     We note initially that petitioners did not request

respondent to waive the section 6659 additions to tax until well

after the trials of these cases.    Morgan made his request more

than 6 months after the trial of his case, and the Grelsamers
                                - 69 -

made their request more than 4 months after the trial of their

case.     We are reluctant to find that respondent abused her

discretion in these cases in which she was not timely requested

to exercise it and where there is no direct evidence of any abuse

of administrative discretion.     Haught v. Commissioner, supra; cf.

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

Commissioner, T.C. Memo. 1992-734.

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

failure timely to request waivers, but instead we have considered

the issue on its merits.     Petitioners urge that they relied on

the respective offering materials, Becker, Green, and their tax

return preparers in deciding on the valuation claimed on their

tax returns.     Petitioners contend that such reliance was

reasonable, and, therefore, that respondent should have waived

the section 6659 additions to tax.       However, as we explained

above in finding petitioners liable for the negligence additions

to tax, petitioners' purported reliance on the offering materials

and their advisers was not reasonable.

        The offering materials for the Partnerships contained

numerous warnings and caveats, including the likelihood that the

value placed on the recyclers would be challenged by the IRS as

being in excess of fair market value.       Yet petitioners never

sought to resolve the numerous issues raised by the offering

materials.     Becker possessed no special qualifications or

professional skills in the recycling or plastics industries and
                                - 70 -

petitioners were not ignorant of his limitations.   According to

Grelsamer, the fact that Becker was not an engineer severely

handicapped his ability to evaluate the recyclers when he visited

PI.   Grelsamer did not even think that the PI personnel could

"talk to him [Becker]."   Despite these obvious limitations,

Becker and petitioners never hired or consulted any plastics

engineering or technical experts with respect to the Plastics

Recycling transactions.   Becker spoke with his client, Canno, who

apparently had some knowledge of the plastics industry, but the

substance of Canno's purported comments is doubtful and he had

only minimal information about the transaction.   At trial, Becker

confirmed that in the end he relied exclusively on PI, its

personnel, and the offering materials as to the value and

purported uniqueness of the machines.    With respect to Green and

petitioners' tax return preparers, the records in these cases are

wholly inadequate as to their purported qualifications,

investigations, if any, and advice regarding the Plastics

Recycling transactions.

      In support of their contention that they acted reasonably,

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

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

Mauerman case are distinctly different from the facts of these

cases.   In Mauerman, the Tenth Circuit Court of Appeals held that

the Commissioner had abused her discretion by not waiving a

section 6661 addition to tax.    Like section 6659, a section 6661
                              - 71 -

addition to tax may be waived by the Commissioner if the taxpayer

demonstrates that there was reasonable cause for his underpayment

and that he acted in good faith.   Sec. 6661(c).    The taxpayer in

Mauerman relied upon independent attorneys and accountants for

advice as to whether payments were properly deductible or

capitalized.   The advice relied upon by the taxpayer in Mauerman

was within the scope of the advisers' expertise, the

interpretation of the tax laws as applied to undisputed facts.

In these cases, particularly with respect to valuation,

petitioners relied upon advice that was outside the scope of

expertise and experience of their advisers.     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 tax returns

with respect to their investments in the Partnerships.     In these

cases, respondent could find that petitioners' respective

reliance on the offering materials, Becker, Green, and their tax

return preparers was unreasonable.     The records in these cases do

not establish an abuse of discretion on the part of respondent

but support respondent's position.     We hold that respondent's

refusal to waive the section 6659 addition to tax is not an abuse

of discretion.   Petitioners are liable for the respective section

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

underpayments of tax attributable to the disallowed tax benefits.

Respondent is sustained on this issue.
                               - 72 -

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

      Long after the trials of these cases, petitioners each filed

a Motion For Leave To File Motion for Decision Ordering Relief

From the Negligence Penalty and the Penalty Rate of Interest and

To File Supporting Memorandum of Law under Rule 50.   Petitioners

also lodged with the Court motions for decision ordering relief

from the additions to tax for negligence and from the increased

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

such motions.   Respondent filed objections, with attachments, and

memoranda in support thereof and petitioners thereafter filed

reply memoranda.   Petitioners argue that they should be afforded

the same settlement that was reached between other taxpayers and

the IRS in Miller v. Commissioner docket Nos. 10382-86 and 10383-

86.   See Farrell v. Commissioner, T.C. Memo. 1996-295 (denying a

motion similar to petitioners' motions); see also Zenkel v.

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

      Counsel for petitioners seek to raise a new issue long after

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

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

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

a case in one proceeding and to avoid piecemeal and protracted

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

see also Robin Haft Trust v. Commissioner, 62 T.C. 145, 147

(1974).   Consequently, under the circumstances here, at this late
                                - 73 -

date in the litigation proceedings, long after trial and briefing

and after the issuance of numerous opinions on issues and facts

closely analogous to those in these cases, petitioners' motions

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

     Even if petitioners' motions for leave were granted, the

arguments set forth in each of petitioners' motions for decision

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

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

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

be denied.

     Some of our discussion of background and circumstances

underlying petitioners' motions is drawn from documents submitted

by the parties and findings of this Court in two earlier

decisions.   Such matters are not disputed by the parties.     See

Estate of Satin v. Commissioner, T.C. Memo. 1994-435; Fisher v.

Commissioner, T.C. Memo. 1994-434.       The Estate of Satin and

Fisher cases involved Stipulation of Settlement agreements

(piggyback agreements) made available to taxpayers in the

Plastics Recycling project, whereby taxpayers could agree to be

bound by the results of three test cases:       Provizer v.

Commissioner, T.C. Memo. 1992-177, and the two Miller cases.         We

held in Estate of Satin and Fisher that the terms of the

piggyback agreement bound the parties to the results in all three

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

the piggyback agreement was extended to them, but they do not
                              - 74 -

claim to have accepted the offer timely, so they effectively

rejected it.   We discuss the background matters, apparently not

disputed by the parties, for the sake of completeness.    As we

have noted, granting petitioners' motions for leave would require

further proceedings.

     On or about February 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. 1994-484.7    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.   Petitioners assert that the Plastics Recycling

7
     Although the records do not include a settlement offer to
petitioners, petitioners have attached to their motions for
decision a copy of a settlement offer to another taxpayer with
respect to a plastics recycling case, and respondent has not
disputed the accuracy of the statement of the plastics recycling
settlement offer.
                               - 75 -

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

claim to have accepted the offer timely, so they effectively

rejected it.

     In December 1988, the Miller cases were disposed of by

settlement agreement between the taxpayers and respondent.8

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 sections 6661 and 6653(a).   The increased

interest under section 6621(c), premised solely upon Miller's

interest in the recyclers for the taxable years at issue, was not

applicable because Miller made payments prior to December 31,

1984, so no interest accrued after that time.   Respondent did not

notify petitioners or any other taxpayers of the disposition of

the Miller cases.    Estate of Satin v. Commissioner, supra; Fisher

v. Commissioner, supra.

     Petitioners argue that they are similarly situated to

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

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

same settlement agreement executed by respondent and Miller in


8
     Although it is not otherwise a part of the record in these
cases, 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.
                                - 76 -

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 opinion);

see Baker v. United States, 748 F.2d 1465 (11th Cir. 1984);

Farmers' & Merchants' Bank v. United States, 476 F.2d 406 (4th

Cir. 1973).    According to petitioners, the principle of equality

precludes the Commissioner from making arbitrary distinctions

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

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

     The different tax treatment accorded petitioners and Miller

was not arbitrary or irrational.     While petitioners and Miller

both invested in the Plastics Recycling project, their actions

with respect to such investments provide a rational basis for

treating them differently.    Miller foreclosed any potential

liability for increased interest in his cases by making payment

of the tax prior to December 31, 1984; no interest accrued after

that date.     In contrast, petitioners made no such payment and

they conceded that the increased rate of interest under section

6621(c) applies in their cases.     Liability for the increased rate

of interest is the principal difference between the settlement in
                              - 77 -

the Miller cases, which petitioners declined when they failed to

accept the piggyback agreement offer, and the settlement offer

that petitioners also failed to accept.

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

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

recites "That there is no increased interest due from the

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

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

"if the Millers were not otherwise subject to the penalty

interest provisions because of the particular timing of their tax

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

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

is entirely conjectural and is not supported by the documentation

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

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

express term of the settlement documents in those cases and

apparently included in the decisions for completeness and

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

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

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

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

that would indicate that the Millers were "otherwise subject to

the penalty interest provisions".   Petitioners' argument is based

on a false premise.
                              - 78 -

     We find that petitioners and Miller were treated equally to

the extent they were similarly situated, and differently to the

extent they were not.   Miller foreclosed the applicability of the

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

petitioners concede it applies in their cases.   Petitioners

failed to accept a piggyback settlement offer that would have

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

also did not enter into a settlement offer made to them prior to

trial of a test case.   In contrast, Miller negotiated and

accepted an offer that was essentially the same as the Plastics

Recycling project settlement offer rejected by petitioners prior

to trial.   Accordingly, petitioners' motions are not supported by

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

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

     In order to reflect the foregoing,


                                     Appropriate orders will be

                               issued denying petitioners'

                               motions, and decisions will be

                               entered under Rule 155.
