                         T.C. Memo. 1997-271




                       UNITED STATES TAX COURT



    ROBERT D. AND PATRICIA K. KALIBAN, ET AL.,1 Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos.    4252-89, 4253-89             Filed June 16, 1997.
                   10802-89, 10803-89
                   27659-89, 27660-89.



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

     Donald A. Glasel and Frances Ferrito Regan, for respondent

in docket Nos. 4252-89 and 27659-89.

     Wendy Sands and Frances Ferrito Regan, for respondent in

docket No. 4253-89.

1
     Cases of the following petitioners are consolidated for
opinion: Robert D. and Patricia K. Kaliban, docket Nos. 4252-89
and 27659-89; Estate of Karl Weber, Deceased, and Estate of
Marjorie Weber, Deceased, David Alter, Executor, docket No.
10802-89; Steve and Lispet Roland, docket No. 4253-89; and Lionel
and Betty Zimmer, docket Nos. 10803-89 and 27660-89.
                               - 2 -

     Mitchell B. Hausman and Frances Ferrito Regan, for

respondent in docket No. 10802-89.

     Jennifer J. Kohler and Frances Ferrito Regan, for respondent

in docket Nos. 10803-89 and 27660-89.

                             CONTENTS

                                                             Page
MEMORANDUM FINDINGS OF FACT AND OPINION....................... 2
OPINION OF THE SPECIAL TRIAL JUDGE............................ 3
FINDINGS OF FACT.............................................. 6
  A. The Plastics Recycling Transactions...................... 6
  B. The Partnerships......................................... 8
  C. David Alter and Martin Feinstein.........................11
  D. Petitioners and Their Introduction to the Partnership
     Transactions.............................................16
     1. Robert and Patricia Kaliban..........................17
     2. Steve and Lispet Roland..............................19
     3. Karl and Marjorie Weber..............................21
     4. Lionel and Betty Zimmer..............................23
OPINION.......................................................26
  A. Section 6653(a)--Negligence..............................28
     1.   The So-Called Oil Crisis............................29
     2.   Petitioners' Purported Reliance on Advisers.........32
     3.   Miscellaneous.......................................43
     4.   Conclusion as to Negligence.........................53
  B. Section 6659--Valuation Overstatement....................54
     1.   The Grounds for Petitioners' Underpayments..........55
     2.   Concession of the Deficiencies......................60
     3.   Section 6659(e).....................................64
  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........................................67

             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
                                     - 3 -

briefed separately but consolidated for purposes of opinion.2

All section references are to the Internal Revenue Code in effect

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

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

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

Judge, which is set forth below.

                   OPINION OF THE SPECIAL TRIAL JUDGE

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

Plastics Recycling group of cases.             For a detailed discussion of

the transactions involved in the Plastics Recycling cases, see

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

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

the underlying transactions and the Sentinel recyclers in these

cases are substantially identical to those considered in the

Provizer case.

      In four notices of deficiency, respondent determined the

following deficiencies in and additions to petitioners' 1981

Federal income taxes:

                                              Additions to Tax
                           1                    1
Petitioners   Deficiency   Sec. 6653(a)(1)       Sec. 6653(a)(2)     Sec. 6659
                                                          2           3
Kaliban        $26,571         $1,328.55                              $7,971.30
                                                          2           3
Roland          27,994          1,399.70                               8,398.20
                                                          2           3
Weber           27,642          1,382                                  8,293
                                                          2
Zimmer          27,303          1,365                                  8,191

      1
       Except for the notice of deficiency issued to the Webers, the notices
refer to section 6653(a)(1)(A) and (B). During 1981, the additions to tax for
negligence were provided for under section 6653(a)(1) and (2).



2
     By order dated Mar. 21, 1994, docket Nos. 4252-89 and 27659-
89 (the Kaliban cases) were consolidated for trial, briefing, and
opinion. By another order dated Mar. 21, 1994, docket Nos.
10803-89 and 27660-89 (the Zimmer cases) were also consolidated
for trial, briefing, and opinion.
                                     - 4 -
      2
       50 percent of the interest payable with respect to the portion of the
underpayment attributable to negligence.
      3
       In the alternative to the section 6659 addition to tax, respondent
determined an addition to tax under section 6661 for substantial understatement
of liability.



Respondent also determined that interest on the deficiencies

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

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

      In another two notices of deficiency, respondent determined

deficiencies in the 1982 Federal income taxes of the Kalibans and

the Zimmers in the amount of $204 each, plus additions to tax for

negligence under section 6653(a)(1) in the amount of $10.20 each,

and under section 6653(a)(2) on 50 percent of the interest

payable with respect to $204.3

      The parties in each of these cases filed Stipulations of

Settled Issues concerning the adjustments relating to

petitioners' participation in the Plastics Recycling Program.

The stipulations generally provide:4

      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.



3
     The notices of deficiency for 1982 refer to sec.
6653(a)(1)(A) and (B). During 1982, the additions to tax for
negligence were provided for under sec. 6653(a)(1) and (2).
4
     The stipulations of settled issues in the Kaliban cases
(docket Nos. 4252-89 and 27659-89) do not contain the fourth
stipulation. The stipulation of settled issues in the Weber case
(docket No. 10802-89) expressly refers to taxable year 1981.
                               - 5 -

      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).

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

      Long after the trials of these cases, in each case

petitioners 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 in October

and November of 1995.   Petitioners concurrently lodged with the

Court motions for decision ordering relief from the additions to

tax for negligence and the increased rate of interest, with

attachments and memoranda in support of the motions.

Subsequently, respondent filed objections, with attachments and

memoranda in support thereof, and petitioners thereafter filed
                                 - 6 -

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

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

1996-295, these motions shall be denied; see also Sann v.

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

Memo. 1996-558; Jaroff v. Commissioner, T.C. Memo. 1996-527;

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

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

Memo. 1996-398.

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

Whether petitioners are liable for the additions to tax for

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

petitioners are liable for the additions to tax under section

6659 for underpayments of tax attributable to valuation

overstatements.

                          FINDINGS OF FACT

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

so found.    The stipulated facts and attached exhibits are

incorporated in the respective cases by this reference.

A.   The Plastics Recycling Transactions

     These cases concern petitioners' investments in two limited

partnerships that leased Sentinel expanded polyethylene (EPE)

recyclers:    Clearwater Group (Clearwater) and Poly Reclamation

Associates (Poly Reclamation).    Petitioners Kaliban, Roland, and

Zimmer are limited partners in Poly Reclamation.    Petitioners
                                - 7 -

Weber were limited partners in Clearwater.    For convenience we

refer to these partnerships collectively as the Partnerships.

     The Clearwater partnership and the transactions involving

the Sentinel EPE Recyclers leased by Clearwater were considered

in Provizer v. Commissioner, supra.     The transactions involving

the Sentinel EPE recyclers purportedly leased by Poly Reclamation

are substantially identical to the Clearwater transactions.

Petitioners have stipulated substantially the same facts

concerning the underlying transactions as we found in the

Provizer case.

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

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

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

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

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

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

to ECI Corp. were financed with nonrecourse notes.    Approximately

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

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

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

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

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

     All of the monthly payments required among the entities in

the above transactions offset each other.    These transactions

were done simultaneously.    Although the recyclers were sold and
                               - 8 -

leased for the above amounts under the structure of simultaneous

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

1981 and up to the end of 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, Poly Reclamation leased Sentinel EPE

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

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

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

Partnerships do not differ in any substantive respects.

     For convenience, we refer to the series of transactions

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

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

the Partnership transactions, a number of other limited

partnerships entered into transactions similar to the Partnership

transactions, also involving Sentinel EPE recyclers and Sentinel

expanded polystyrene (EPS) recyclers.   We refer to these

collectively as the Plastics Recycling transactions.

B.   The Partnerships

     Clearwater and Poly Reclamation are New York limited

partnerships.   Both partnerships closed during the last few
                                - 9 -

months of 1981.    Samuel L. Winer (Winer) is the general partner

of both Clearwater and Poly Reclamation.

     With respect to each of the Partnerships, a private

placement memorandum was distributed to potential limited

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

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

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

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

Plymouth Equipment Associates and a 4.37-percent interest in

Taylor Recycling Associates, partnerships that leased Sentinel

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 Clearwater and Poly Reclamation

each state that the general partner will receive fees from those

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

offering memoranda provides that the general partner "may retain

as additional compensation all amounts not paid as sales

commissions or offeree representative fees".    According to the

offering memoranda, 10 percent of the proceeds from the offering

($80,000 in each case) was allocated to the payment of sales

commissions and offeree representative fees.    Winer therefore was
                               - 10 -

to receive a minimum of $60,000 and up to $140,000 from each

Partnership.

     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.

     Although the offering memoranda represented that the

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

Several machines capable of densifying low density materials were

already on the market in 1981.   Other plastics recycling machines

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

including the Foremost Densilator, Nelmor/Weiss Densification

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

Granulator.    See Provizer v. Commissioner, T.C. Memo. 1992-177.
                               - 11 -

C.   David Alter and Martin Feinstein

     David Alter (Alter) is a graduate of the Harvard Law School

and has been practicing law in New York since 1950.     He has been

a partner in several law firms since 1954:     From 1954 to 1966

Alter was a partner at the law firm of Squadron, Alter & Weinrib;

from 1966 to 1979 he was a partner at the law firm of Alter,

LeFevre, Raphael & Lowry (Alter, LeFevre);5 and from 1979 to 1989

he was a partner at the law firm of Shea & Gould.     Alter has been

engaged in the general practice of law with a concentration in

entertainment and labor law.   Among the services he provided to

his clients were the preparation and review of contracts, general

tax advice, estate planning, and administering and maintaining

financial records.   On occasion, some of Alter's clients asked

him to review offering materials for investment opportunities

that they had learned of elsewhere.     In the course of his

practice, Alter advised his clients as to the validity and merit

of such investments.

     Alter learned of the Plastics Recycling transactions from

one of the partners at Shea & Gould, Stuart Hirshfield

(Hirshfield), who in turn had been introduced to the transactions

by Winer, the general partner of the Partnerships.     Alter


5
     Alter, LeFevre underwent several name changes during the
time Alter was a partner. Apparently, Alter, LeFevre, Raphael &
Lowry was the name of the firm by 1978. For convenience,
references to "Alter, LeFevre" include its predecessor names
while Alter was a partner.
                              - 12 -

understood that Hirshfield had previously done business with

Winer and thought well of him.   Alter read the Poly Reclamation

offering memorandum and attended some meetings with other

partners who were considering an investment in the Plastics

Recycling transactions, including Hirshfield, Dan Carroll

(Carroll), Joseph Ferraro (Ferraro), Lonn Trost (Trost), and Alan

Parker (Parker), a tax partner at Shea & Gould.   He understood

that Carroll had a background in engineering, and that Ferraro,

who at the time represented British Petroleum, had worked at a

plastics company for one or more summers during law school.

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

reviewed the Plastics Recycling transactions for Alter and some

of Alter's clients.

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

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

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

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

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

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

Feinstein worked at an accounting firm.   He then was employed by

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

managed the finances of people primarily in the entertainment and

theatrical industry.   Feinstein specialized in tax matters and

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

Bill Cullen, who at the time also was represented by Alter in a
                              - 13 -

tax matter.   Feinstein subsequently became associated with Alter,

LeFevre sometime in 1969.

     Feinstein continued to advise individuals regarding

financial and tax matters at Alter, LeFevre.    The firm provided

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

maintained checking accounts, paid bills, and prepared weekly

statements showing the client's opening balance, deposits,

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

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

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

that same month Alter became a partner at Shea & Gould and

Feinstein also became associated with that firm.

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

Plastics Recycling transactions as a potential investment for

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

Partnership offering memorandum from Winer.    He spent

approximately 4 to 6 hours reviewing it, including the financial

projections and the tax opinion.   Feinstein understood that

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

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

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

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

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

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

the firm, Alan Parker," Feinstein did not speak to Parker.
                                - 14 -

     Feinstein relied on the offering memorandum for the value of

the Sentinel EPE recycler.    He understood that the purported

value of the Sentinel EPE recycler was based upon a projected

stream of future income.    Feinstein did not verify the

manufacturing cost of a Sentinel EPE recycler beyond speaking

with a friend and associate6 "about pricing and how things are

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

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

pricing equipment.    Feinstein reviewed the stream of income

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

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

or investigate the market for plastics recyclers or recycled

resin pellets.

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

a manufacturer's representative in the plastics packaging

industry.   He understood from Lauren that PI was a privately

owned company that made specialized machinery for companies

involved in the packaging industry.      Feinstein did not formally

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

Poly Reclamation offering memorandum.     Lauren did not prepare a

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

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

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

6
     Feinstein did not state who this friend and associate was or
what his or her credentials were.
                              - 15 -

else, whether any plastics recycling machines comparable to the

Sentinel recycling machines already were available on the market.

     Feinstein has no education or experience in plastics

materials or plastics recycling, and he was not under the

impression that Hirshfield, Trost, or Ferraro had any significant

education or experience in the plastics industry.   He did not

visit PI, and he did not indicate that he ever saw a Sentinel EPE

recycler.   Feinstein did not review any marketing plans or

research the market for plastics recyclers or recycled ground

resin pellets.   He was unaware that the Sentinel EPE recycler was

incapable of recycling expanded polyethylene by itself, and had

to be used in a system of grinders, extruders, and pelletizers.

Feinstein did not know how many other partnerships would be

leasing Sentinel recyclers.   Neither Feinstein nor Lauren

invested in any of the Plastics Recycling transactions.

     Feinstein told Alter about Lauren and his comments about PI.

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

investigated whether competitive machines existed, or made a

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

knew that neither Feinstein nor Lauren personally invested in a

Plastics Recycling transaction.    Alter accepted the fair market

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

Reclamation offering memorandum.   He had "no competence to"

confirm the value of the machines or "to do any comparison", and

did not hire anyone to value the machine.   Like Feinstein, Alter
                              - 16 -

did not know that the Sentinel EPE recycler did not recycle

plastic by itself, but had to be used in connection with other

machines.   Alter did not review any plastics industry trade

journals for competing recyclers or otherwise inquire as to

whether there were any comparable machines already on the market.

     Alter told certain of his clients that he was investing in a

Plastics Recycling transaction and that the investment was open

to them as well.   He informed them that he and other members of

Shea & Gould thought that the investment seemed sound.    Feinstein

and Alter met with these clients and explained the investment.

Alter did not advise his clients to read an offering memorandum,

but one was available for them to read.   He did not suggest that

they consult with any plastics experts.   A number of Alter's

clients, as well as Alter, invested in a Plastics Recycling

transaction in 1981.   Alter's knowledge of PI was limited to the

information in the offering materials, what he learned at

meetings with his partners at Shea & Gould, and what Feinstein

told him.   The warnings and caveats in the offering memoranda did

not concern him.   Alter knew that Feinstein did not have any

expertise in plastics materials or plastics recycling.

D. Petitioners and Their Introduction to the Partnership
Transactions

     Petitioners in these cases do not have any education or work

experience in plastics recycling or plastics materials.   They did

not read the offering materials distributed by the Partnerships
                                - 17 -

or independently investigate the Sentinel EPE recyclers.    None of

petitioners saw a Sentinel EPE recycler or any other type of

plastics recycler prior to participating in the recycling

ventures.    Petitioners never made a profit in any year from their

respective investments in the Partnerships.

     1.   Robert and Patricia Kaliban

     Petitioners Robert and Patricia Kaliban resided in Garden

City, New York, when their petitions were filed.7    Robert Kaliban

(Kaliban) earned a B.A. degree from Loras College in Dubuque,

Iowa, and an honors diploma from the Royal Academy of Dramatic

Art in London, England.    He then served in the Army before

becoming a professional actor.    Kaliban performed in touring

productions in Chicago, Milwaukee, Los Angeles, and San

Francisco.    In 1960 he moved to New York City and performed in

Broadway shows and reviews, and at the World's Fair.    Kaliban

then performed on-camera and did voice-overs for commercials.

     Sometime in the late 1960's Kaliban became a member of the

board of directors of the Screen Actors Guild.    In that capacity

he met Alter, who was counsel to the Screen Actors Guild.

Kaliban hired Alter to manage his personal finances in the early

1970's.     Alter and Feinstein collected income disbursements from

various employers of Kaliban and oversaw the payment of his

7
     Petitioner Patricia Kaliban is a party to the cases of
docket Nos. 4252-89 and 27659-89 solely because she filed a joint
Federal income tax return with her husband for the years in
issue.
                               - 18 -

bills.    They also prepared Kaliban's tax returns and reviewed

investment opportunities that had been suggested to him by

others.    Prior to 1981, Kaliban invested in two successful real

estate ventures in which Alter also participated.    On their joint

1981 Federal Income tax return, Robert and Patricia Kaliban

reported gross income from wages, interest, dividends, State and

local tax refunds, and capital gains in excess of $282,000.

     Kaliban acquired a 1.547-percent interest in Poly

Reclamation for $12,500 in 1981.    As a result of the investment

in Poly Reclamation, on their 1981 Federal income tax return

Kaliban and his wife Patricia claimed an operating loss in the

amount of $9,976 and an investment tax and business energy credit

in the amount of $21,584.8   The Kalibans also claimed an

operating loss from Poly Reclamation on their 1982 return in the

amount of $409.   Respondent disallowed the Kalibans' claimed

operating losses and credits related to Poly Reclamation in full.

     Kaliban learned of the Plastics Recycling transactions and

Poly Reclamation from Alter and Feinstein.    He understood that

members of Shea & Gould had looked into PI and that some of them,

including Alter, were investing in the Plastics Recycling

transactions.   Alter did not hold himself out as a plastics

expert, but Kaliban claims that he understood that Alter had

spoken to a member of Shea & Gould who apparently had been

8
     On their 1981 return, the Kalibans claimed a total of
$21,797 in credits.
                                - 19 -

involved in a plastics company.      Kaliban did not read the Poly

Reclamation offering memorandum or otherwise investigate or

analyze any aspect of the transactions.      He assumed that if Alter

was investing in the Plastics Recycling transactions, it was a

good investment.

     2.    Steve and Lispet Roland

     Petitioners Steve and Lispet Roland resided in New York, New

York, when their petition was filed.      After graduating from high

school, Steve Roland (Roland) pursued dramatic training for 2

years and then served in the Army.       Upon completing his military

service, Roland performed on Broadway, in night clubs, and on

radio.     His career eventually shifted to the commercial field

where he engaged in on camera performances and then concentrated

in voice-over work.     Roland's workload and earnings grew quickly,

and in 1968 he retained Alter's firm to manage his finances and

plan for taxes.     Alter and Feinstein received Roland's income and

paid his bills, such as his agent's commissions, maintained books

tracking Roland's investments and residuals, and prepared the

Rolands' tax returns.     They also reviewed investments that had

been suggested to Roland by others.      Roland incorporated his

professional services under the name Steve Roland, Inc. (SRI) in

1968.     SRI, whose only asset was its arrangement for the services

of Roland, filed a separate return from him.      Prior to 1981,

Roland invested in a profitable commercial real estate venture in

which Alter also invested.     On their joint 1981 Federal Income
                               - 20 -

tax return, the Rolands reported gross income from wages,

interest, dividends, State and local tax refunds, and capital

gains in excess of $236,000.

     Roland acquired a 1.547-percent interest in Poly Reclamation

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

Reclamation, on their 1981 Federal income tax return the Rolands

claimed an operating loss in the amount of $9,977 and an

investment tax and business energy credit in the amount of

$21,584.    Respondent disallowed the Rolands' claimed operating

losses and credits related to Poly Reclamation in full.

     Roland learned of the Plastics Recycling transactions and

Poly Reclamation from Alter.    Alter told Roland that he and

others at Shea & Gould were investing in a Plastics Recycling

transaction and that Roland could participate as well if he

wished.    Roland discussed the Plastics Recycling transactions

with Alter and Feinstein.    He understood that Feinstein had

conducted most of the research into the Plastics Recycling

transactions, but at trial Roland could not recall what research

Feinstein had done.    Roland did not know and did not ask what the

assets of Poly Reclamation were.    At trial, he could not recall

who manufactured the Sentinel recyclers or whether Feinstein or

Alter had investigated suitable end-users for the machines or had

inquired about existing competition.    Roland did not read the

Poly Reclamation offering memorandum or otherwise learn about the

investment apart from discussing it with Alter and Feinstein.      He
                              - 21 -

explained that he believed that if Alter and other members of

Shea & Gould were investing in a Plastics Recycling transaction,

then he should too.

     3.   Karl and Marjorie Weber

     Petitioners Karl and Marjorie Weber resided in Fort Meyers,

Florida, when their petition was filed.    Both of the Webers died

prior to the trial of their case.    The executor of their estates,

Alter, testified on their behalf.

     Each Weber earned a college degree.    Karl became a

successful voice-over performer and a member of the board of

directors of the Screen Actors Guild, and Marjorie managed their

finances.   They met Alter in approximately 1969 or 1970 and

retained his firm to prepare their tax returns and provide other

tax services.   Feinstein handled their tax matters and met with

the Webers approximately four times a year.    Alter represented

the Webers in some real estate transactions, and Feinstein on

occasion reviewed investments that had been suggested to them by

others.   Prior to 1981, Alter and the Webers both invested in a

successful nursing home venture.    On their joint 1981 Federal

Income tax return, the Webers reported gross income from wages,

interest, dividends, and capital gains in excess of $221,000.

     The Webers acquired a 1.547-percent interest in Clearwater

for $12,500 in 1981.9   As a result of their investment in

9
     The parties stipulated that the Webers owned a one-quarter
                                                   (continued...)
                               - 22 -

Clearwater, on their 1981 Federal income tax return the Webers

claimed an operating loss in the amount of $10,002 and an

investment tax and business energy credit in the amount of

$21,584.10   Respondent disallowed the Webers' claimed operating

losses and credits related to Clearwater in full.

     Alter introduced the Plastics Recycling transactions and

Clearwater to the Webers in 1981.    As he recalled:    "I informed

them of its availability and told them that I was investing in it

and if they were interested they could participate as well."       The

Webers decided to invest in Clearwater after discussing it with

Alter and Feinstein.   Alter specifically recalled that he

explained to the Webers the nature of the investment and what

might come out of this investment.      Aside from speaking with

Alter, the Webers did not conduct any personal investigation with

respect to Clearwater.




9
 (...continued)
interest in the profits, losses, and capital of Clearwater during
taxable year 1981. However, in their petition, the Webers stated
that they owned a one-quarter interest in a partnership unit, and
several of the 1981 Schedules K-1, Partner's Share of Income,
Credits, Deductions, etc. attached to Clearwater's 1981
partnership return (the Webers' 1981 Schedule K-1 was not among
them), indicate that an investment of $12,500 yielded a 1.547-
percent interest in Clearwater.
10
     On their 1981 return, the Webers claimed total credits in
the amount of $21,655.
                               - 23 -

     4.    Lionel and Betty Zimmer

     Petitioners Lionel and Betty Zimmer resided in New York, New

York, when their petitions were filed.     Lionel Zimmer (Zimmer)

earned a B.A. degree in political science from the University of

North Carolina (UNC).    While pursuing his undergraduate degree,

Zimmer joined the Naval ROTC, was commissioned, placed on active

duty, and served overseas.    After completing his military service

Zimmer returned to UNC to finish his degree and then moved to Los

Angeles and worked for 2-1/2 years as a disk jockey at a radio

station.    Then he went to Paris in 1949 to attend a film school.

Upon learning that the film school was not covered by the GI

Bill, Zimmer enrolled in a language school to learn French.

After several months he transferred to the Sorbonne and began a

course in French civilization.

     Zimmer also pursued work as an actor in Paris.     When his

career quickly flourished, he ended his schooling.     Zimmer worked

as master of ceremonies of a radio program that was broadcast

weekly to the United States, worked with Orson Welles for much of

a year, and worked on a few movies.     At the end of 1951 Zimmer

moved back to the United States and became a staff announcer in

Hollywood for the American Broadcasting Company (ABC).     Nine

years later he left ABC and began freelancing.     In 1967 he moved

to New York City and performed voice-overs for commercials.       He

became active in the Screen Actors Guild and was elected to its

board of directors.
                               - 24 -

     Zimmer met Alter through the Screen Actors Guild.       He was

impressed with Alter's work and retained his firm in

approximately 1970 to manage his finances.    Alter's firm

deposited Zimmer's receipts into various accounts and oversaw the

payment of his bills.    Feinstein prepared the Zimmers' tax

returns and on occasion reviewed tax shelters and other

investments that had been suggested to Zimmer by others.11

Zimmer met with Feinstein on a weekly basis and met with Alter

several times each year.    Alter rarely recommended investments to

Zimmer.    Zimmer recalled making just one investment involving

Alter prior to 1981.    They both invested in a profitable

commercial real estate venture.    On their joint 1981 Federal

Income tax return, the Zimmers reported gross income from wages,

interest, dividends, State and local tax refunds, and capital

gains in excess of $139,500.

     Zimmer acquired a 1.547-percent interest in Poly Reclamation

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

Reclamation, on their 1981 Federal income tax return the Zimmers

claimed an operating loss in the amount of $9,976 and an

investment tax and business energy credit in the amount of

$21,584.    The Zimmers also claimed an operating loss from Poly


11
     Zimmer recalled: "I used to belong to a men's club at the
Vanderbilt YMCA and there was a chap there that used to sell tax
shelters, investments. He was always telling me I was a damn
fool, why don't you buy something, why don't you take advantage
of these things."
                                - 25 -

Reclamation on their 1982 return in the amount of $409.

Respondent disallowed the Zimmers' claimed operating losses and

credits related to Poly Reclamation in full.

     Zimmer learned of the Plastics Recycling transactions and

Poly Reclamation at a meeting with Alter and Feinstein.     Alter

and Feinstein explained the transactions to him.     Zimmer recalled

that Alter and/or Feinstein had investigated the Plastics

Recycling transactions and PI, and had inspected the recyclers.

He understood that the investment would generate additional tax

credits because it purportedly saved energy.     However, Zimmer

could not recall learning about the relationship between the

price of oil and the value of the recycled pellets.     He was

encouraged that Alter and other members of Shea & Gould were

investing in a Plastics Recycling transaction.

     Zimmer never read the Poly Reclamation offering memorandum

and never asked to see it.     He claims that he expected to receive

royalty payments, but he did not independently investigate

whether the recycled pellets had any value.     When asked if he was

aware that the first-year tax benefits would exceed the amount of

his investment, Zimmer stated:     "I don't know that I was aware of

that.    Yes, I am now.   I knew it had a certain advantage.   The

monetary, I honestly--it never made any impression upon me.      No

one--if it was explained to me, it went by me, it went over my

head."    Zimmer decided to invest in Poly Reclamation based on his

meeting with Alter and Feinstein.     He recalled receiving progress
                               - 26 -

reports regarding Poly Reclamation from Alter's office.     As he

recalled:   "To be honest with you, I didn't pay that much

attention to anything I got but I know that I got very infrequent

reports * * *.    It was minuscule."

                               OPINION

     We have decided a large number of the Plastics Recycling

group of cases.    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.    See also Sann v. Commissioner, T.C. Memo

1997-259 and cases cited therein.      The majority of these cases,

like the present cases, raised issues regarding additions to tax

for negligence and valuation overstatement.     We have found the

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

opinions to date on these issues.

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

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

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

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

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

upheld the section 6659 addition to tax for valuation

overstatement since the underpayment of taxes was directly

related to the overstatement of the value of the Sentinel EPE

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

respect to Clearwater were attributable to tax-motivated
                              - 27 -

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

the conclusion that the transaction lacked economic substance and

a business purpose, this Court relied heavily upon the

overvaluation of the Sentinel EPE recyclers.

     Although petitioners have not agreed to be bound by the

Provizer opinion, the Clearwater transaction was considered in

Provizer v. Commissioner, supra, and petitioners Kaliban, Roland,

and Zimmer each stipulated that the Poly Reclamation transaction

is substantially identical to the Clearwater transaction.    The

underlying transactions in these cases, and the Sentinel EPE

recyclers purportedly leased by the Partnerships, are the same

type of transaction and same type of machines considered in

Provizer v. Commissioner, supra.

     Based on the entire records in these cases, including the

extensive stipulations, testimony of respondent's experts, and

petitioners' testimony, we hold that each of the Partnership

transactions herein was a sham and lacked economic substance.      In

reaching this conclusion, we rely heavily upon the overvaluation

of the Sentinel EPE recyclers.   Respondent is sustained on the

question of the underlying deficiencies.   We note that

petitioners have explicitly conceded this issue in the

stipulations of settled issues filed shortly before trial.     The

records plainly support respondent's determinations regardless of

such concessions.   For a detailed discussion of the facts and the
                               - 28 -

applicable law in a substantially identical case that also

involved Clearwater, see Provizer v. Commissioner, supra.

A.   Section 6653(a)--Negligence

     In notices of deficiency, respondent determined that each of

petitioners was liable for the additions to tax for negligence

under section 6653(a)(1) and (2) for 1981, and that petitioners

Kaliban and Zimmer were liable for the negligence additions to

tax for 1982.12   Petitioners have the burden of proving that

respondent's determinations of these additions to tax are

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

861 (1982).

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

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

is due to negligence or intentional disregard of rules or

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



12
     As noted, in all but one of the notices of deficiency
respondent referred to sec. 6653(a)(1)(A) and (B). During 1981
and 1982, the negligence additions to tax were provided for under
sec. 6653(a)(1) and (2).
                                 - 29 -

in connection with the transactions were reasonable in light of

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

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

When considering the negligence addition to tax, we evaluate the

particular facts of each case, judging the relative

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

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

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

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

        Petitioners maintain that they were reasonable in claiming

deductions and credits with respect to the Partnerships.      They

argue that they expected an economic profit in light of the so-

called oil crisis in the United States in 1981 and that they

reasonably relied upon Alter and Feinstein as qualified advisers

on this matter.

        1.   The So-Called Oil Crisis

     Petitioners in their posttrial briefs each contend that they

reasonably expected to make an economic profit from the

Partnerships because plastic is an oil derivative and the United

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

1981.     Based upon our review of the records, we find petitioners'

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

Moreover, testimony by one of respondent's experts establishes

that the oil pricing changes during the late 1970's and early

1980's did not justify petitioners' claiming excessive investment
                               - 30 -

credits and purported losses based on vastly exaggerated

valuations of recycling machinery.

       Petitioners did not educate themselves in, or personally

investigate, the Plastics Recycling transactions.    They did

nothing more than discuss the transactions with Alter and

Feinstein.    Petitioners did not even read the offering materials.

Asked during his direct examination if he had any recollection of

the relationship between the projected profitability of Poly

Reclamation and the price of oil, and whether it was described to

him by Alter and Feinstein, Zimmer replied:    "I don't believe

so."    Based upon the records in these cases, we are not convinced

that petitioners gave due consideration to any business aspects

of the Partnerships.    Petitioners have failed to show that they

intended and reasonably expected to make an economic profit from

the transactions, except from tax benefits.

       Moreover, petitioners did not adequately explain how the so-

called oil crisis provided a reasonable basis for them to invest

in the Partnerships and claim the associated tax deductions and

credits.    Although petitioners chose not to read them, the

offering memoranda warned that there could be no assurances that

prices for new resin pellets would remain at their then-current

level.    Also, 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
                              - 31 -

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

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

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

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

was "extensive continuing press coverage of questionable tax

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

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

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

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

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

distinctly different from the facts of these cases.   In the

Krause case, the taxpayers invested in limited partnerships whose

investment objectives concerned enhanced oil recovery (EOR)

technology.   The Krause opinion states that during the late

1970's and early 1980's, the Federal Government adopted specific

programs to aid research and development of EOR technology.      Id.

at 135-136.   In holding that the taxpayers in the Krause case

were not liable for the negligence additions to tax, this Court

noted that one of the Government's expert witnesses acknowledged

that "investors may have been significantly and reasonably

influenced by the energy price hysteria that existed in the late

1970s and early 1980s 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
                                - 32 -

persuasive evidence that the so-called oil crisis had a

substantial bearing on petitioners' decisions to invest.    While

EOR was, according to our Krause opinion, in the forefront of

national policy and the media during the late 1970's and 1980's,

there is no showing in these records that the so-called energy

crisis would provide a reasonable basis for petitioners'

investing in recycling of polyethylene, particularly in the

machinery here in question.

     In addition, the taxpayers in the Krause case were

experienced in or investigated the oil industry and EOR

technology specifically.   One of the taxpayers in the Krause case

undertook significant investigation of the proposed investment

including researching EOR technology.    The other taxpayer was a

geological and mining engineer whose work included research of

oil recovery methods and who hired an independent geologic

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

present cases, petitioners were not experienced or educated in

plastics recycling, and they did not independently investigate

the Sentinel recyclers or hire an expert in plastics to evaluate

the Partnership transactions.    We consider petitioners' arguments

with respect to the Krause case inapplicable.

     2.   Petitioners' Purported Reliance on Advisers

     Petitioners contend that they reasonably relied upon Alter

and Feinstein as qualified advisers on this matter.
                              - 33 -

     A taxpayer may avoid liability for the additions to tax

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

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

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

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

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

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

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

professional advice to excuse a taxpayer from the negligence

additions to tax, the taxpayer must show that such professional

had the expertise and knowledge of the pertinent facts to provide

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

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

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

Memo. 1993-480; Freytag v. Commissioner, supra; Buck v.

Commissioner, T.C. Memo. 1997-191; Sacks v. Commissioner, T.C.

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

Commissioner, T.C. Memo. 1993-430, affd. without published

opinion 70 F.3d 1279 (9th Cir. 1995); see also Friedman v.

Commissioner, T.C. Memo. 1996-558; Gollin v. Commissioner, T.C.

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

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

     Reliance on representations by insiders, promoters, or

offering materials has been held an inadequate defense to

negligence.   Goldman v. Commissioner, supra; Pasternak v.
                               - 34 -

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

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

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

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

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

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

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

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

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

when neither the taxpayer nor the advisers purportedly relied

upon by the taxpayer knew anything about the nontax business

aspects of the contemplated venture.    David v. Commissioner,

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

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

Commissioner, supra; Lax v. Commissioner, T.C. Memo. 1994-329,

affd. without published opinion 72 F.3d 123 (3d Cir. 1995); Sacks

v. Commissioner, supra; Steerman v. Commissioner, T.C. Memo.

1993-447; Rogers v. Commissioner, T.C. Memo. 1990-619; see Sann

v. Commissioner, T.C. Memo. 1997-259 and the Plastics Recycling

cases cited therein.

     Alter and Feinstein did not actively seek prospective

investments for petitioners.   In addition to legal services, they

provided a bookkeeping and cash management service.   They

received   petitioners' income and paid their bills (except for

the Webers) and provided periodic financial statements.
                              - 35 -

Feinstein also prepared all of petitioners' tax returns.   Alter

explained his and Feinstein's limited involvement in petitioners'

investment activity as follows:

          The clients in almost all cases when they had an
     investment proposal presented to them asked for our
     opinion as to its validity and merit, and to the extent
     that we were able to give advice, we gave advice.

                *    *    *    *    *    *    *

          Of course you should understand that many of these
     clients were high income performers. They had
     presented to them very frequently from other performers
     proposals that involved * * * tax shelters, and they
     brought them into our office for review.
          Under my review or at my direction, Mr. Feinstein
     reviewed these proposals and they involved all sorts of
     * * * tax shelters and invariably these proposals were
     rejected as being without merit. [Emphasis added.]

Feinstein explained that petitioners "would come in and say, I

spoke with so-and-so, he's got a terrific thing that was going to

make a lot of money or something and why don't you find out

something about it and let us know--let me know what you find

out."

     Alter mentioned a few investments to petitioners for their

consideration, such as the Plastics Recycling transactions.    He

did not, however, recommend that petitioners invest in the

Partnerships.   Asked if, "in connection with the making of this

investment yourself, and in recommending" the investment to his

clients, he earned a commission, Alter replied:   "No, I did not,

and I would like to correct your use of the word 'recommend.'       I

told them I was going into it and it seemed sound, and if they
                                 - 36 -

were interested they could participate as well."      (Emphasis

added.)    Alter reiterated this point on cross-examination in the

following exchange:

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

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

     Q    Did you recommend the investment?

     A    To the extent that I just stated.

Feinstein recalled Alter's presentation of the transactions as

follows:    "It is my recollection and based on how I was and he

was with clients, that it was a possible investment.      He thought

it would work for them and would work as an investment with no--

no pressure at all.     * * *   Most certainly not pressure."   With

respect to what Feinstein himself advised petitioners, Feinstein

could not recall if he was asked for a recommendation, and could

only venture that "I probably would have said that it's--it's a

type of situation".13

     Petitioners maintain that they reasonably inferred that

Alter's personal decision to invest was a tacit recommendation of

the Plastics Recycling transactions, particularly given his

history of rejecting tax shelters that had been suggested to them

13
     In answers to interrogatories, incorporated into a
stipulation, petitioner Zimmer indicated that in his view Alter
and Feinstein had recommended the Plastics Recycling investment
to him. The testimony of Alter and Feinstein clarifies this
limited and qualified stipulation.
                              - 37 -

by others.   However, petitioners failed to take adequately into

account Alter's lack of education and experience in plastics

materials and plastics recycling, and the limited nature of his

investigation of the Plastics Recycling transactions.   Moreover,

it was Feinstein who reviewed the other tax shelters for

petitioners, not Alter, and Feinstein was primarily responsible

for reviewing the Plastics Recycling transactions.   Petitioners

were well aware that Feinstein handled such work for Alter.    In

their posttrial briefs, petitioners state that they "came to

value Feinstein's wisdom and ability to analyze financial data

and appraise the economic potential of a prospective investment."

Unlike Alter, however, Feinstein did not invest in the Plastics

Recycling transactions.   In any event, under the circumstances of

these cases, petitioners' characterization of how Alter and/or

Feinstein presented the Plastics Recycling transactions to them

is not dispositive of the issue.   See Buck v. Commissioner, T.C.

Memo. 1997-191.

     Alter and Feinstein conducted a limited investigation of the

Plastics Recycling transactions.   Alter read the offering

materials, discussed the investment with others at Shea & Gould,

and spoke to Winer.   The colleagues he spoke to included

Hirshfield, Carroll, Parker, and Ferraro, but he primarily relied

upon Feinstein, in whom Alter indicated he reposed particular

confidence based upon their long professional association.    Alter

recalled the investigation by his colleagues at Shea & Gould in
                              - 38 -

general terms, and portions of his testimony were different from

Feinstein's recollection of events.    For example, Alter testified

that he asked Feinstein to speak with Parker, but Feinstein

testified that Parker "didn't speak to me."   Also, Alter was

under the impression that "Feinstein's friend" (Lauren) had read

the Poly Reclamation offering memorandum, but Feinstein testified

that Lauren had not seen an offering memorandum.   With respect to

Winer, Alter believed that he indicated that end-users had been

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

     Alter accepted at face value all of the representations made

in the offering materials, including the value of the Sentinel

EPE recycler.   During the course of his testimony, he was asked

what made the Sentinel EPE recycler unique.   He replied:

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

In Provizer v. Commissioner, T.C. Memo. 1992-177, PI's vice

president of manufacturing and a developer of PI's prototype

recycler, William Strlzelewicz,

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

Asked what he did to confirm the value of the machine, Alter

testified:   "I had no competence to do that, to do any
                              - 39 -

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

EPE recycler, and he knew that Feinstein and Lauren had not made

a judgment as to the value of the machine.

     Feinstein's investigation of the Plastics Recycling

transactions was similarly limited.    He spoke with Lauren, who

may have had some insight into plastics materials, but Feinstein

only asked Lauren about PI's reputation.    Feinstein did not

provide Lauren with a copy of an offering memorandum, or ask him

about the prospects for a Sentinel EPE recycler, or inquire as to

whether there were any competing machines already on the market.

He accepted the purported value of the Sentinel EPE recycler

after speaking with a friend and associate "about pricing and how

things are priced in * * * [the plastics] industry."    The friend

and associate--unidentified by Feinstein--did nothing more than

confirm that the stream-of-income method of valuation was

commonly used.   Feinstein did not verify any of the underlying

assumptions upon which the income projections in the offering

materials were based.

     Neither Feinstein nor Lauren visited PI to see a Sentinel

EPE recycler, or investigated whether competitive machines

existed, or made a judgment as to the value of the machine.

Feinstein testified that he had telephone conversations with

Winer, but Feinstein did not explain the substance of Winer's

comments.   See Howard v. Commissioner, 931 F.2d 578, 582 (9th

Cir. 1991), affg. T.C. Memo. 1988-531; Patin v. Commissioner, 88
                               - 40 -

T.C. 1086, 1131 (1987), affd. without published opinion 865 F.2d

1264 (5th Cir. 1989), affd. without published opinion sub nom.

Hatheway v. Commissioner, 856 F.2d 186 (4th Cir. 1988), affd. sub

nom. Skeen v. Commissioner, 864 F.2d 93 (9th Cir. 1989), affd.

sub nom. Gomberg v. Commissioner, 868 F.2d 865 (6th Cir. 1989),

sustaining negligence determinations despite claims by taxpayers

that they relied on advisers, where such advisers lacked relevant

expertise or knowledge of underlying transactions.   Feinstein

claimed that he came to a positive conclusion with respect to the

soundness of the Plastics Recycling transactions, and that he

communicated this conclusion to Alter.   However, Feinstein did

not personally invest in a Plastics Recycling transaction; nor

did his friend Lauren.    In the end, Alter and Feinstein relied on

the offering materials and representations by insiders for the

value of the machines and the economic viability of the Plastics

Recycling transactions.   See Vojticek v. Commissioner, T.C. Memo.

1995-444, to the effect that advice from such persons "is better

classified as sales promotion."

     We hold that petitioners' purported reliance on Alter and

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

full disclosure.   Petitioners' testimony in these cases was self-

serving and in significant respects not credible, and this Court

is not required to accept it as true.    Wood v. Commissioner, 338

F.2d 602, 605 (9th Cir. 1964), affg. 41 T.C. 593 (1964);

Niedringhaus v. Commissioner, 99 T.C. 202, 212 (1992); Tokarski
                               - 41 -

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

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

We find petitioners' claims of financial naivete and ignorance,

particularly with respect to the nature and amount of the tax

benefits, disingenuous.14   The direct reductions claimed on

petitioners' 1981 tax returns, from the investment tax credits

alone, equaled 173 percent of their cash investments.    Therefore,

like the taxpayers in Provizer v. Commissioner, supra, "except

for a few weeks at the beginning, petitioners [Kaliban, Roland,

Weber, and Zimmer] never had any money in the * * * [Partnership

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

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

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

     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.   Petitioners chose not

to read the offering materials, but Alter and Feinstein did read

them.   Certainly Feinstein recognized and understood the nature

of the tax benefits, and he discussed it with Alter.    Together

they met with each of petitioners and, as Feinstein recalled:

14
     In their posttrial briefs, petitioners claim that they "had
no knowledge of the extent of the tax benefits available to
investors in" the Partnerships or that "the tax benefits in the
first year would exceed" their respective investments. However,
the majority of the previous investments they had asked Alter and
Feinstein to review, if not all of them, were tax shelters. The
notion that Alter and Feinstein failed to highlight the amounts
of the tax benefits generated by the Partnerships is incredible.
                               - 42 -

"touched on what we had all learned about the background of the

people, what I had learned by my discussions with people, what

the other partners had learned about the venture and conveyed to

me."    As a result of these meetings, petitioners learned about

the nature of the tax benefits, as well as Alter's and

Feinstein's reliance on the offering materials and

representations by insiders for the value of the machines and the

economic viability of the Plastics Recycling transactions.

       Neither Alter nor Feinstein had any expertise or experience

in plastics materials or plastics recycling, and petitioners had

no reason to believe otherwise.    Alter had no competence to value

the machines, and neither he nor Feinstein independently

confirmed their value or the economic viability of the Plastics

Recycling transactions.    The records in these cases show that

petitioners clearly possessed the intelligence and background to

recognize that further investigation was required.    A taxpayer

may rely upon his adviser's expertise, but it is not reasonable

or prudent for a taxpayer to rely upon an adviser regarding

matters outside of his field of expertise or with respect to

facts that he does not verify.    See David v. Commissioner, 43

F.3d at 789-790; Goldman v. Commissioner, 39 F.3d at 408; Skeen

v. Commissioner, supra; Lax v. Commissioner, T.C. Memo. 1994-329;

Sacks v. Commissioner, supra; Rogers v. Commissioner, T.C. Memo.

1990-619.
                               - 43 -

     3.   Miscellaneous

     The parties in these consolidated cases stipulated that the

fair market value of a Sentinel EPE recycler in 1981 and up to

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

position, petitioners submitted into evidence preliminary reports

prepared for respondent by Ernest D. Carmagnola (Carmagnola), the

president of Professional Plastic Associates.      Carmagnola had

been retained by the IRS in 1984 to evaluate the Sentinel EPE and

EPS recyclers in light of what he described as "the fantastic

values placed on the * * * [recyclers] by the owners."      Based on

limited information available to him at that time, Carmagnola

preliminarily estimated that the value of the Sentinel EPE

recycler was $250,000.    However, after additional information

became available to him, Carmagnola concluded in a signed

affidavit, dated March 16, 1993, that the machines actually had a

fair market value of not more than $50,000 each in the fall of

1981.

     We accord no weight to the Carmagnola reports submitted by

petitioners.   The projected valuations therein were based on

inadequate information, research, and investigation, and were

subsequently rejected and discredited by their author.      In one
                              - 44 -

preliminary report, Carmagnola states that he has "a serious

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

determine whether the machines actually could be profitable, he

required additional information from PI.   Carmagnola also

indicates that in preparing the report, he did not have

information available concerning research and development costs

of the machines and that he estimated those costs in his

valuations of the machines.

     Respondent rejected the Carmagnola reports and considered

them unsatisfactory for any purpose, and there is no indication

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

determinations in the notices of deficiency.   Even so, counsel

for petitioners obtained copies of these reports and urge that

they support the reasonableness of the values reported on

petitioners' returns.   Not surprisingly, petitioners' counsel did

not call Carmagnola to testify in these cases, but preferred

instead to rely solely upon his preliminary ill-founded valuation

estimates.   (Carmagnola has not been called to testify in any of

the Plastics Recycling cases before us.)   The Carmagnola reports

were a part of the record considered by this Court and reviewed

by the Court of Appeals for the Sixth Circuit in the Provizer

case, where we held the taxpayers negligent.   Consistent

therewith, we find in these cases, as we have found previously,

that the reports prepared by Carmagnola are unreliable and of no
                                - 45 -

consequence.     Petitioners are not relieved of the negligence

additions to tax based on the preliminary reports prepared by

Carmagnola.

     Petitioners also submitted several documents into the

records of their cases as evidence that they monitored their

investments.     Of those documents, just one concerned Poly

Reclamation and none concerned Clearwater.      The one that

concerned Poly Reclamation, dated September 30, 1982, indicated

that three of its Sentinel EPE recyclers had been placed and were

running.15    The remaining documents included two financial

statements for another Plastics Recycling partnership, Stevens

Recycling Associates (Stevens), for the years ended 1982, 1983,

and 1984; two reports regarding the placement of the Sentinel EPS

recyclers owned by Stevens; and an August 29, 1985, letter that

discussed "the impossible pricing situation that continues in the

polystyrene market."    On the subject of the progress reports,

Zimmer testified:    "To be honest with you, I didn't pay that much

attention to anything I got but I know that I got very infrequent

reports * * *.    It was minuscule."     We are not convinced from the

lone Poly Reclamation progress report that petitioners monitored

or took an active interest in their investments in the



15
     The Sept. 30, 1982 update concerning Poly Reclamation was
not made a part of the record in docket No. 10802-89 (the Weber
case).
                              - 46 -

Partnerships, particularly in view of their lack of effort to

learn about or independently investigate the Plastics Recycling

transactions prior to investing in them.

     Petitioners cite a number of cases in support of their

positions, but primarily rely on Balboa Energy Fund 1981 v.

Commissioner, 85 F.3d 634 (9th Cir. 1996), affg. in part and

revg. in part without published opinion Osterhout v.

Commissioner, T.C. Memo. 1993-251; Durrett v. Commissioner, 71

F.3d 515 (5th Cir. 1996), affg. in part and revg. in part T.C.

Memo. 1994-179; Chamberlain v. Commissioner, 66 F.3d 729 (5th

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

Wright v. Commissioner, T.C. Memo. 1994-288; Wood v.

Commissioner, T.C. Memo. 1991-205; Davis v. Commissioner, T.C.

Memo. 1989-607; Mollen v. United States, 72 AFTR 2d 93-6443, 93-2

USTC par. 50,585 (D. Ariz. 1993).

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

wherein this Court declined to sustain the negligence additions

to tax, is misplaced.   In the Wright case, the taxpayers, who

suddenly had acquired wealth after a lifetime of modest earnings,

relied upon a well-recommended financial planner who expressly

recommended the subject investment as part of an overall plan

that included a variety of investments.    The taxpayers reviewed

the offering memorandum and were advised that the investment

partnership already had been audited by the IRS and that the
                                - 47 -

audit had resulted in no change.     They agreed to the overall plan

with the objective of making a profit and personally monitored

the investment.    In Wood, a group of consolidated cases, a

financial planner recommended the investment, all of the

taxpayers had profit objectives, the transactions were not sham

transactions, and one pair of taxpayers inspected the equipment

at issue.   In the Davis case, the taxpayers relied in part upon

the express recommendation of a "trusted and long-term adviser",

and in part upon their review of the offering materials, which

did not reflect that the principals in the venture lacked

experience in the pertinent line of business.

     The facts of petitioners' cases differ in several key

respects from the Wright, Wood, and Davis cases.     Unlike the

Wright and Wood cases, petitioners' purported advisers were not

financial planners actively seeking out investment opportunities

for them.   In contrast to all three cases, petitioners' purported

advisers did not expressly recommend that they invest in the

Partnerships.     Also, none of petitioners read the offering

memoranda, saw a Sentinel EPE recycler, or made any effort to

learn about the Plastics Recycling transactions beyond discussing

them with Alter and Feinstein.     In addition, the Partnership

transactions are shams lacking economic substance, and we are not

convinced that any of petitioners had an honest objective of
                              - 48 -

making an economic profit.   Accordingly, we consider petitioners'

reliance on the Wright, Wood, and Davis cases misplaced.

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

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

the Arizona Medical Association, led a continuing medical

education (CME) accreditation program for local hospitals.     The

underlying tax matter involved the taxpayer's investment in

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

the production, marketing, and distribution of medical

educational video tapes.   The District Court found that the

taxpayer's personal expertise and insight in the underlying

investment gave him reason to believe it would be economically

profitable.   Although the taxpayer was not experienced in

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

tax lawyer regarding those matters.    Moreover, the District Court

noted that the propriety of the taxpayer's disallowed deduction

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

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

1996-167.

     In contrast, in these cases neither petitioners nor their

purported advisers had any personal insight or industry know-how

in plastics recycling that would reasonably lead them to believe

that the Plastics Recycling transactions would be economically
                               - 49 -

profitable.16   Feinstein spoke to Lauren, but their discussion

was limited to Lauren's impression of PI.     Lauren did not read an

offering memorandum, see a Sentinel EPE recycler, or do any type

of investigation into the plastics recycling market.     Neither

petitioners nor their purported advisers hired any independent

experts in the field of plastic materials or plastics recycling.

They relied upon the offering materials and representations by

insiders to the Plastics Recycling transactions.     Accordingly, we

consider petitioners' arguments with respect to the Mollen case

inapplicable under the circumstances of these cases.

     Petitioners' reliance upon the Court of Appeals for the

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

Commissioner, supra, is misplaced.      In Osterhout, we found that

certain oil and gas partnerships were not engaged in a trade or

business and sustained the Commissioner's imposition of the

negligence additions to tax with respect to one of the partners

therein.17   The Court of Appeals for the Ninth Circuit reversed


16
     Alter claimed that he spoke to Ferraro, who apparently
worked for one or more summers at a plastics company, and
Carroll, who purportedly had an engineering background. However,
neither Ferraro nor Carroll testified in these cases, and the
records fail to establish that they were qualified to analyze the
Sentinel EPE recycler or the Plastics Recycling transactions.
Further, Feinstein testified that he did not believe Ferraro or
any of the other members of Shea & Gould that he spoke with had
any education or experience in the plastics industry.
17
     Osterhout v. Commissioner, T.C. Memo. 1993-251, affd. in
                                                   (continued...)
                             - 50 -

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, none

of petitioners in the cases before us read the Poly Reclamation

or Clearwater offering memoranda, let alone the tax opinions

appended thereto.

     Moreover, the offering memoranda for the Partnerships herein

warned prospective investors that the accompanying tax opinion

letters were not in final form, and were prepared for the general

partner, and that prospective investors should consult their own

professional advisers with respect to the tax benefits and tax

risks associated with the Partnerships.   The tax opinion letters

accompanying the Clearwater and Poly Reclamation offering

memoranda were addressed solely to the general partner and began

with the following opening disclaimer:

     This opinion is provided to you for your individual
     guidance. We expect that prospective investors will
     rely upon their own professional advisors with respect
     to all tax issues arising in connection with their
     investment in the Partnership and the operations
     thereof. We recognize that you intend to include this


17
 (...continued)
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 -

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

Accordingly, the tax opinion letters expressly indicated that

prospective investors such as petitioners were not to rely upon

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

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

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

expressed in these letters was not designed as advice upon which

taxpayers might rely, and the opinion of counsel itself so

states.

     Petitioners' reliance on the Durrett and Chamberlain cases

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

Fifth Circuit reversed this Court's imposition of the negligence

additions to tax in two nonplastics recycling cases.   The

taxpayers in the Durrett and Chamberlain cases were among

thousands who invested in the First Western tax shelter program

involving alleged straddle transactions of forward contracts.     In

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

Fifth Circuit concluded that the taxpayers reasonably relied upon

professional advice concerning tax matters.   In other First

Western cases, however, the Courts of Appeals have affirmed

decisions of the Tax Court imposing negligence additions to tax.
                               - 52 -

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

educated taxpayer failed to establish the substance of advice,

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

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

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

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

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

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

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

showing that the adviser understood the transaction and was

qualified to give an opinion whether it was bona fide), affd.

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

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

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

the taxpayers consulted any experts regarding the bona fides of

the transactions).   The records in the cases before us establish

that Alter and Feinstein did not possess sufficient knowledge of

the plastics or recycling industries to render a competent

opinion.18   See Friedman v. Commissioner, T.C. Memo. 1996-558.


18
     This fact has been deemed relevant by the Court of Appeals
for the Second Circuit. 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), affg. T.C. Memo. 1993-621; Goldman v.
Commissioner, 39 F.3d 402, 408 (2d Cir. 1994) (same), affg. T.C.
Memo. 1993-480. The Court of Appeals for the Second Circuit is
                                                   (continued...)
                              - 53 -

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.   Conclusion as to Negligence

     Under the circumstances of these consolidated cases,

petitioners failed to exercise due care in claiming large

deductions and tax credits with respect to the Partnerships on

their Federal income tax returns.    Petitioners did not read the

offering materials or otherwise learn about or independently

investigate the Plastics Recycling transactions aside from

speaking with Alter and Feinstein.     Alter and Feinstein are not

investment planners and they did not perform such services for

petitioners.   Petitioners' purported advisers had no education or

experience in plastics materials or plastics recycling and

ultimately relied upon the offering materials with respect to the

capabilities and market demand for the machines.    We hold that

petitioners did not reasonably rely upon Alter and Feinstein.

The records in these cases indicate that Alter and Feinstein knew

that the tax benefits were contingent upon the purported value of

the Sentinel EPE recycler, and that they explained all that they

had learned to petitioners.   Yet neither petitioners nor their


18
 (...continued)
the court to which appeal in the Kaliban, Roland, and Zimmer
cases lies. See Golsen v. Commissioner, 54 T.C. 742, 756-758
(1970), affd. 445 F.2d 985 (10th Cir. 1971).
                                - 54 -

purported advisers in good faith investigated the fair market

value of a Sentinel EPE recycler, or the underlying viability,

financial structure, and economics of the Partnership

transactions.   We hold, upon consideration of the entire records,

that petitioners are liable for the negligence additions to tax

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

Respondent is sustained on this issue.

B.   Section 6659--Valuation Overstatement

      In the notices of deficiency for 1981, respondent determined

that petitioners were each liable for the section 6659 addition

to tax on the portions of their respective underpayments

attributable to valuation overstatement.     Petitioners have the

burden of proving that respondent's determinations of the section

6659 additions to tax in their cases are erroneous.     Rule 142(a);

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

      A graduated addition to tax is imposed when an individual

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

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

A valuation overstatement exists if the fair market value (or

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

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

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

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

underpayment.   Sec. 6659(b).
                              - 55 -

     Petitioners claimed tax benefits, including investment tax

credits and business energy credits, based on purported values of

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

that the fair market value of a Sentinel EPE recycler in 1981 was

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

petitioners' claimed tax benefits is attributable to such

valuation overstatements, petitioners are liable for the section

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

underpayments of tax attributable to the tax benefits claimed

with respect to the Partnerships.

     Petitioners contend that section 6659 does not apply in

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

the claimed tax benefits was attributable to other than a

valuation overstatement; (2) petitioners' concessions of the

claimed tax benefits preclude imposition of the section 6659

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

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

arguments for reasons set forth below.

     1.   The Grounds for Petitioners' Underpayments

     Section 6659 does not apply to underpayments of tax that are

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

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

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

taxpayers claim tax benefits that are disallowed on grounds
                              - 56 -

separate and independent from alleged valuation overstatements,

the resulting underpayments of tax are not regarded as

attributable to valuation overstatements.    Krause v.

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

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

disallowing deductions and credits, section 6659 is applicable.

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

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

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

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

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

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

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

T.C. Memo. 1991-321.

     Petitioners argue that the disallowance of the claimed tax

benefits was not "attributable to" a valuation overstatement.

According to petitioners, the tax benefits were disallowed

because the Partnership transactions lacked economic substance,

not because of any valuation overstatements.    It follows,

petitioners reason, that because the "attributable to" language

of section 6659 requires a direct causative relationship between

a valuation overstatement and an underpayment in tax, section

6659 cannot apply to their deficiencies.    Petitioners cite the

following cases to support this argument:    Heasley v.
                               - 57 -

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

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

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

Todd v. Commissioner, supra.

     Petitioners' argument rests on the mistaken premise that our

holding herein that the Partnership transactions lacked economic

substance was separate and independent from the overvaluation of

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

Partnership transactions lacked economic substance, we relied

heavily upon the overvaluation of the recyclers.   Overvaluation

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

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

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

transactions lacked economic substance.

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

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

economic substance for reasons independent of the valuation

reported in that case.   According to petitioners, the purported

value of the recyclers in the Clearwater transaction was

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
                               - 58 -

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

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.'"
                                - 59 -

Id. at 151 (quoting Massengill v. Commissioner, 876 F.2d 616,

619-620 (8th Cir. 1989), affg. T.C. Memo. 1988-427); see also

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

Commissioner, 87 T.C. 970, 978-979 (1986); Donahue v.

Commissioner, T.C. Memo. 1991-181, affd. without published

opinion 959 F.2d 234 (6th Cir. 1992), affd. sub nom. Pasternak v.

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

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

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

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

consolidated cases herein, it was found that a valuation

overstatement did not contribute to an underpayment of taxes.      In

the Todd and Gainer cases, the underpayments were due exclusively

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

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

result from a concession that the agreement at issue was a

license and not a lease.    Although property was overvalued in

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

which the taxpayers' liability was sustained.    In contrast, "a

different situation exists where a valuation overstatement * * *

is an integral part of or is inseparable from the ground found

for disallowance of an item."    McCrary v. Commissioner, supra at

859.    Petitioners' cases present just such a "different

situation":    overvaluation of the recyclers was integral to and
                              - 60 -

inseparable from petitioners' claimed tax benefits and our

holding that the Partnership transactions lacked economic

substance.19

     2.   Concession of the Deficiencies

     Petitioners argue that their concessions of the deficiencies

preclude imposition of the section 6659 additions to tax.

Petitioners contend that their concessions render any inquiry

into the grounds for such deficiencies moot.   Absent such

inquiry, petitioners argue that it cannot be known whether their

underpayments were attributable to a valuation overstatement or

another discrepancy.   Without a finding that a valuation

overstatement contributed to an underpayment, according to

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

of reasoning, petitioners rely heavily upon Heasley v.

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

Commissioner, supra.



19
     To the extent that Heasley v. Commissioner, 902 F.2d 380
(5th Cir. 1990), revg. T.C. Memo. 1988-408, merely represents an
application of Todd v. Commissioner, 89 T.C. 912 (1987), affd.
862 F.2d 540 (5th Cir. 1988), we consider it distinguishable. To
the extent that the reversal in the Heasley case is based on a
concept that where an underpayment derives from the disallowance
of a transaction for lack of economic substance, the underpayment
cannot be attributable to an overvaluation, this Court and the
Court of Appeals for the Second Circuit have disagreed. See
Gilman v. Commissioner, 933 F.2d 143, 151 (2d Cir. 1991) (The
lack of economic substance was due in part to the overvaluation,
and thus the underpayment was attributable to the valuation
overstatement), affg. T.C. Memo. 1989-684.
                              - 61 -

     Petitioners' open-ended concessions do not obviate our

finding that the Partnership transactions lacked economic

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

situation where we have "to decide difficult valuation questions

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

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

Sentinel EPE recycler was established in Provizer v.

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

As a consequence of the inflated value assigned to the recyclers

by the Partnerships, petitioners claimed deductions and credits

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

Partnership transactions lacked economic substance.    Regardless

of petitioners' concessions, in these cases the underpayments of

tax were attributable to the valuation overstatements.

     Moreover, concession of the investment tax credit in and of

itself does not relieve taxpayers of liability for the section

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

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

the ground upon which the investment tax credit is disallowed or

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

in situations in which there are arguably two grounds to support

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

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

addition to tax.   Gainer v. Commissioner, 893 F.2d at 228; Irom
                               - 62 -

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

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

1991-321.

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

was presented to the Court to prove that disallowance and

concession of the claimed investment tax credits and other tax

benefits related to anything other than a valuation

overstatement.   To the contrary, petitioners each stipulated

substantially the same facts concerning the Partnership

transactions as we found in Provizer v. Commissioner, T.C. Memo.

1992-177.    In the Provizer case, we held that the taxpayers were

liable for the section 6659 addition to tax because the

underpayment of taxes was directly related to the overvaluation

of the Sentinel EPE recyclers.   The overvaluation of the

recyclers, exceeding 2,325 percent, was an integral part of our

findings in Provizer that the transaction was a sham and lacked

economic substance.   Similarly, the records in these cases

plainly show that the overvaluation of the recyclers is integral

to and is the core of our holding that the underlying

transactions here were shams and lacked economic substance.

     Petitioners reliance on McCrary v. Commissioner, supra, is

misplaced.   In that case, the taxpayers conceded disentitlement

to their claimed tax benefits and the section 6659 addition to

tax was held inapplicable.   However, the taxpayers' concession of
                                - 63 -

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

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

Commissioner, supra, the section 6659 addition to tax was

disallowed because the agreement at issue was conceded to be a

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

petitioners' cases plainly show that petitioners' underpayments

were attributable to overvaluation of the Sentinel EPE recyclers.

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

supra, is inappropriate.20

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

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

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

had been overvalued was integral to and inseparable from our

holding of a lack of economic substance.     Petitioners stipulated

that the Partnership transactions were similar to the Clearwater

transaction described in the Provizer case, and that the fair

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

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

records here plainly show that the overvaluations of the



20
     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
19 to the effect that the Court of Appeals for the Second Circuit
and this Court have not followed the Heasley opinion with respect
to the application of sec. 6659.
                                - 64 -

recyclers was the only reason for the disallowance of the claimed

tax benefits, we conclude that the deficiencies were attributable

to overvaluation of the Sentinel EPE recyclers.

     3.   Section 6659(e)

     Petitioners argue that respondent erroneously failed to

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

authorizes the Commissioner to waive all or part of the addition

to tax for valuation overstatement if taxpayers establish that

there was a reasonable basis for the adjusted bases or valuations

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

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

addition to tax is reviewable by this Court for abuse of

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

discretion has been found in situations where the Commissioner's

refusal to exercise discretion is arbitrary, capricious, or

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

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

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

     We note initially that petitioners did not request

respondent to waive the section 6659 additions to tax until well

after the trials of these cases.    Petitioners each made their

requests approximately 4 months after the trials of their cases.

We are reluctant to find that respondent abused discretion in

these cases when respondent was not timely requested to exercise
                               - 65 -

it and there is no direct evidence of any abuse of administrative

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

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

Memo. 1992-734.

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

failure timely to request waivers, but instead we have considered

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

Alter and Feinstein 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.21    However, as we explained

above in finding petitioners liable for the negligence additions

to tax, petitioners' purported reliance on Alter and Feinstein

under the circumstances here was not reasonable.

     Neither Alter nor Feinstein had any education or experience

in plastics materials or plastics recycling.    They did not visit

PI or see a Sentinel EPE recycler or any competing machines in

their review of the transactions.   Alter acknowledged that he had

no competence to confirm the value of the Sentinel EPE recycler

or to conduct a comparison, and he and Feinstein ultimately



21
     In their posttrial briefs, petitioners referenced the
reports prepared by Carmagnola in support of the reasonableness
of the claimed valuations. For reasons discussed supra, we
consider the reports prepared by Carmagnola to be unreliable and
of no consequence.
                               - 66 -

relied upon the offering memoranda for the value of the machine.

In their meetings with petitioners, Alter and Feinstein explained

all that they had learned of the Plastics Recycling transactions,

including the nature and amounts of the tax benefits.   In the

end, neither petitioners nor their purported advisers in good

faith investigated the fair market value of a Sentinel EPE

recycler, or the underlying viability, financial structure, and

economics of the Partnership 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 Court of Appeals for the Tenth Circuit

held that the Commissioner had abused discretion by failing to

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

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

Commissioner if the taxpayer demonstrates that there was

reasonable cause for his underpayment and that he acted in good

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

independent attorneys and accountants for advice as to whether

payments were properly deductible or capitalized.   The advice

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

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

applied to undisputed facts.   In petitioners' cases, however,
                               - 67 -

particularly with respect to valuation, petitioners relied upon

advice that was outside the scope of expertise and experience of

their purported advisers.   Alter and Feinstein had no education,

special qualifications, or professional skills or experience in

plastics engineering, plastics recycling, or plastics materials.

Consequently, we consider petitioners' reliance on the Mauerman

case inappropriate.

     We hold that petitioners did not have a reasonable basis for

the adjusted bases or valuations claimed on their tax returns

with respect to their investments in the Partnerships.    In these

cases, respondent could find that petitioners' respective

reliance on Alter and Feinstein was unreasonable.    The records in

these cases do not establish an abuse of discretion on the part

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

respondent's refusal to waive the section 6659 additions to tax

in these cases is not an abuse of discretion.   Petitioners are

liable for the respective section 6659 additions to tax at the

rate of 30 percent of the underpayments of tax attributable to

the disallowed tax benefits.   Respondent is sustained on this

issue.
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
                              - 68 -

From the Negligence Penalty and the Penalty Rate of Interest and

To File Supporting Memorandum of Law under Rule 50.   Petitioners

also lodged with the Court motions for decision ordering relief

from the additions to tax for negligence and from the increased

rate of interest, with attachments and memoranda in support of

the motions.   Respondent filed objections, with attachments and

memoranda in support thereof and petitioners thereafter filed

reply memoranda.   Petitioners argue that they should be afforded

the same settlement that was reached between other taxpayers and

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

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

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

motions); see also Sann v. Commissioner, T.C. Memo. 1997-259;

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

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

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

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

     Counsel for petitioners seek to raise a new issue long after

the 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 Haft Trust v. Commissioner, 62 T.C. 145, 147 (1974).
                               - 69 -

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

the litigation proceedings, long after trial and briefing and

after the issuance of numerous opinions on issues and facts

closely analogous to those in these cases, petitioners' motions

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

     Even if petitioners' motions for leave were granted, the

arguments set forth in each of petitioners' motions for decision

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

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

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

be denied.

     Some of our discussion of background and circumstances

underlying petitioners' motions is drawn from documents submitted

by the parties and findings of this Court in two earlier

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

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

are not disputed by the parties.   We discuss the background

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

petitioners' motions for leave would require further proceedings.

     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
                              - 70 -

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

the piggyback agreement bound the parties to the results in all

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

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

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

rejected it.22

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

Plastics Recycling project settlement offer or the offer) was

made available by respondent in all docketed Plastics Recycling

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

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

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

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

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

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

substantial understatement of tax penalties under section 6661

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

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

for valuation overstatement and the increased rate of interest

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


22
     In each of their motions for decision, petitioners state:
"After the lead counsel for taxpayers and Respondent had agreed
upon the designation of the lead cases, Respondent's counsel
prepared piggyback agreements and offered them to counsel for the
taxpayers in this case and to other taxpayers." (Emphasis
added.)
                               - 71 -

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

for all years.23   Petitioners assert that the Plastics Recycling

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

claim to have accepted the offer timely, so they effectively

rejected it.24

     In December 1988, the Miller cases were disposed of by

settlement agreement between the taxpayers and respondent.25

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



23
     The records do not include a settlement offer to
petitioners. However, petitioners in each case 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.
24
     In each of their motions for decision, petitioners state,
"Respondent formulated a standard settlement position which was
extended to all taxpayers having docketed or non-docketed cases
in the plastics recycling group, including Petitioner."
(Emphasis added.)
     In docket No. 10802-89 (the Weber case), respondent attached
to the objection to the Webers' motion for leave a copy of a Form
5402, Appeals Transmittal Memorandum and Supporting Statement,
which states that the Webers refused a settlement offer with
respect to Clearwater.
25
     Although it is not otherwise a part of the records in these
cases, respondent attached copies of the Miller closing agreement
and disclosure waiver to respondent's objections to petitioners'
motions for leave, and petitioners do not dispute the accuracy of
the document.
                                - 72 -

additions to tax under the provisions of section 6661 and section

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

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

years at issue, was not applicable because Miller made payments

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

time.     Respondent did not notify petitioners or any other

taxpayers of the disposition of the Miller cases.     Estate of

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

        Petitioners argue that they are similarly situated to

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

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

same settlement agreement executed by respondent and Miller in

those cases.     In effect, petitioners seek to resurrect the

piggyback agreement offer and/or the settlement offer they

previously failed to accept.

        Petitioners contend that under the principle of "equality,"

the Commissioner has a duty of consistency toward similarly

situated taxpayers and cannot tax one and not tax another without

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

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

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

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

According to petitioners, the principle of equality precludes the

Commissioner from making arbitrary distinctions between like
                              - 73 -

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

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

     The different tax treatment accorded petitioners and Miller

was not arbitrary or irrational.     While petitioners and Miller

both invested in the Plastics Recycling transactions, their

actions with respect to such investments provide a rational basis

for treating them differently.   Miller foreclosed any potential

liability for increased interest in his cases by making payments

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

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

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

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

the principal difference between the settlement in the Miller

cases, which petitioners declined when they failed to accept the

piggyback agreement offer, and the settlement offer that

petitioners also failed to accept.

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

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

recites "That there is no increased interest due from the

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

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

"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
                               - 74 -

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.

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

test case.   In contrast, Miller negotiated for himself and

accepted an offer that was essentially the same as the Plastics

Recycling project settlement offer rejected by petitioners prior
                               - 75 -

to trial of their cases.   Accordingly, petitioners' motions are

not supported by the principle of equality on which they rely.

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

     To reflect the foregoing,


                                 Appropriate orders will be

                           issued denying petitioners' motions,

                           and decisions will be entered for

                           respondent.
