                       T.C. Memo. 1997-296



                     UNITED STATES TAX COURT



       IRA S. GREENE AND ROBIN C. GREENE, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



    Docket No. 32552-85.                       Filed June 30, 1997.



    Lanny M. Sagal, for petitioners.

     Barry J. Laterman, for respondent.



                            CONTENTS
                                                            Page
MEMORANDUM FINDINGS OF FACT AND OPINION....................... 2
OPINION OF THE SPECIAL TRIAL JUDGE............................ 2
FINDINGS OF FACT.............................................. 4
  A. The Plastics Recycling Transactions...................... 5
  B. Resource Reclamation Associates.......................... 7
  C. Richard Roberts.......................................... 9
  D. Petitioners and Their Introduction to Resource
     Reclamation Associates...................................10
OPINION.......................................................14
  A. Section 6653(a)--Negligence..............................16
     1. The Private Offering Memorandum.......................17
                               - 2 -

     2. Petitioner's Purported Reliance on Advisers...........21
     3. Miscellaneous.........................................26
     4. Conclusion as to Negligence...........................29
  B. Section 6659--Valuation Overstatement....................30
     1. Concession of the Deficiency..........................32
     2. Section 6659(e).......................................36

             MEMORANDUM FINDINGS OF FACT AND OPINION

     DAWSON, Judge:   This case was assigned to Special Trial

Judge Norman H. Wolfe pursuant to the provisions of section

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

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

issue, unless otherwise indicated.     All Rule references are to

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

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

set forth below.

                 OPINION OF THE SPECIAL TRIAL JUDGE

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

Plastics Recycling group of cases.     For a detailed discussion of

the transactions involved in the Plastics Recycling cases, see

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

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

the underlying transactions and the Sentinel recyclers in this

case are substantially identical to those considered in the

Provizer case.   In a separate, earlier opinion, this Court denied

petitioners' motion for summary judgment.     See Greene v.

Commissioner, 88 T.C. 376 (1987).
                               - 3 -

     In a notice of deficiency dated June 21, 1985, respondent

determined a deficiency in petitioners' 1981 joint Federal income

tax in the amount of $53,202.25.   In an answer to the petition,

respondent asserted that petitioners are liable for increased

interest on the deficiency accruing after December 31, 1984,

calculated at 120 percent of the statutory rate under section

6621(c).1   In an amendment to answer, respondent asserted

additions to tax for that year pursuant to section 6659 at the

30-percent rate for valuation overstatement, in the amount of

$2,660 under section 6653(a)(1) for negligence, and under section

6653(a)(2) in the amount of 50 percent of the interest due on the

underpayment attributable to negligence.

     The parties filed a Stipulation of Settled Issues concerning

the adjustments relating to petitioners' participation in the

Plastics Recycling Program.   The stipulation provides:

     1. Petitioners are not entitled to any deductions,
     losses, investment credits, business energy investment
     credits or any other tax benefits claimed on their 1981
     tax return as a result of petitioner's participation in
     Resource Reclamation Associates.

1
     The answer refers to sec. 6621(d). This section was
redesignated as sec. 6621(c) by sec. 1511(c)(1)(A) of the Tax
Reform Act of 1986, Pub. L. 99-514, 100 Stat. 2085, 2744, and
repealed by sec. 7721(b) of the Omnibus Budget Reconciliation Act
of 1989 (OBRA 89), Pub. L. 101-239, 103 Stat. 2106, 2399,
effective for tax returns due after Dec. 31, 1989, OBRA 89 sec.
7721(d), 103 Stat. 2400. The repeal does not affect the instant
case. For simplicity, we will refer to this section as sec.
6621(c). The annual rate of interest under sec. 6621(c) for
interest accruing after Dec. 31, 1984, equals 120 percent of the
interest payable under sec. 6601 with respect to any substantial
underpayment attributable to tax-motivated transactions.
                              - 4 -


     2. The underpayment in income tax attributable to
     petitioner's participation in Resource Reclamation
     Associates is a substantial underpayment attributable
     to a tax motivated transaction, subject to the
     increased rate of interest established under I.R.C.
     §6621(c), formerly section 6621(d).

     3. This stipulation resolves all issues that relate to
     the items claimed on petitioners' 1981 tax return
     resulting from petitioner's participation in Resource
     Reclamation Associates, with the exception of
     petitioners' potential liability for additions to the
     tax for a valuation overstatement under I.R.C. §6659
     and for negligence under the applicable provisions of
     I.R.C. §6653(a).

     4. With respect to the issue of the addition to the
     tax under I.R.C. §6659, petitioners do not intend to
     contest the issue of the value of the Sentinel Recycler
     or the existence of a valuation overstatement on the
     petitioners' return; however, petitioners preserve
     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 even if
     I.R.C. §6659 is applicable, the Secretary should have
     waived the addition to tax pursuant to the provisions
     of I.R.C. §6659(e).

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

petitioners are liable for the additions to tax for negligence

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

liable for the addition to tax under section 6659 for

underpayment of tax attributable to a valuation overstatement.

                        FINDINGS OF FACT

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

The stipulated facts and attached exhibits are incorporated

herein by this reference.
                               - 5 -

A.   The Plastics Recycling Transactions

     This case concerns petitioners' investment in Resource

Reclamation Associates (Resource), a limited partnership that

leased Sentinel expanded polyethylene (EPE) recyclers.    The

transactions involving the Sentinel EPE recyclers leased by

Resource are substantially identical to those in the Clearwater

Group limited partnership (Clearwater), the partnership

considered in Provizer v. Commissioner, supra.   Petitioners have

stipulated substantially the same facts concerning the underlying

transactions as we found in the Provizer case.

     In transactions closely resembling those in the Provizer

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

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

Corp., in turn, resold the recyclers to F & G Corp. for

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

Resource, 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 sale 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.
                                - 6 -

     All of the monthly payments required among the entities in

the above transactions offset each other.    These transactions

were done simultaneously.    Although the recyclers were sold and

leased for the above amounts under the structure of simultaneous

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

1981 was not in excess of $50,000.

     PI allegedly sublicensed the recyclers to entities that

would use them to recycle plastic scrap.    The sublicense

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

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

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

     Both Clearwater and Resource leased Sentinel EPE recyclers

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

Apart from leasing and licensing seven recyclers instead of six,

the underlying transactions involving Resource do not differ in

any substantive respect from the Clearwater transactions

considered in the Provizer case.

     For convenience, we refer to the series of transactions

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

the Resource transactions.   In addition to the Resource

transactions, a number of other limited partnerships entered into

transactions similar to the Resource transactions, also involving

Sentinel EPE recyclers and Sentinel expanded polystyrene (EPS)
                                 - 7 -

recyclers.   We refer to these collectively as the Plastics

Recycling transactions.

B.   Resource Reclamation Associates

     Resource is a New York limited partnership that closed on

October 15, 1981.   Richard Roberts (Roberts) is the general

partner of Resource.

     A private placement memorandum for Resource was distributed

to potential limited partners.    Reports by F & G Corp.'s

evaluators, Dr. Stanley M. Ulanoff (Ulanoff), a marketing

consultant, and Dr. Samuel Z. Burstein (Burstein), a mathematics

professor, were appended to the offering memorandum.    Both

Ulanoff and Burstein invested in the Plastics Recycling

transactions.   Burstein also was a client and business associate

of Elliot I. Miller (Miller), the corporate counsel to PI.

     The Resource offering memorandum states that the general

partner will receive fees from Resource in the amount of $40,000.

In addition, the offering memorandum 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 memorandum, it was anticipated that 10

percent of the proceeds from the offering--$95,000--would be

allocated to the payment of sales commissions and offeree

representative fees.   Roberts therefore was to receive a minimum

of $40,000 and up to $135,000 from Resource.
                               - 8 -

     The offering memorandum lists significant business and tax

risk factors associated with an investment in Resource.

Specifically, the offering memorandum states:   (1) There is a

substantial likelihood of audit by the Internal Revenue Service

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

probably will be challenged as being in excess of fair market

value; (2) Resource has no prior operating history; (3) the

general partner has no prior experience in marketing recycling or

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

the conduct of Resource's 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 memorandum represented that the

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

machines capable of densifying low-density materials were already

on the market in 1981.   Other plastics recycling machines

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

including the Foremost Densilator, Nelmor/Weiss Densification

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

Granulator.   See Provizer v. Commissioner, T.C. Memo. 1992-177.
                                 - 9 -

C.   Richard Roberts

     Roberts is a businessman and the general partner in

Resource and many other limited partnerships that leased and

licensed Sentinel EPE recyclers.    He also is a 9-percent

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

recyclers to Resource.    From 1982 through 1985, Roberts

maintained the following office address with Raymond Grant

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

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

Grant was instrumental in the hiring of Ulanoff as an evaluator

of the Plastics Recycling transactions.    The two had met on a

cruise.   Roberts and Grant together have been general partners in

other investments.

     Prior to the Resource transactions, Roberts and Grant were

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

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

accountant and the named partner in Freedman & Co., was the

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

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

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

It also provided tax services to John D. Bambara (Bambara).
                              - 10 -

Bambara is the 100-percent owner of FMEC Corp., as well as its

president, treasurer, clerk, and director.    He, his wife, and his

daughter also owned directly or indirectly 100 percent of the

stock of PI.

D. Petitioners and Their Introduction to Resource Reclamation
Associates

     Petitioners resided in New York, New York, at the time their

petition was filed.   Hereafter, reference to petitioner denotes

Ira S. Greene.

     Petitioner graduated from Syracuse University in 1968 with a

B.A. degree in political science.   Three years later he earned a

law degree from the New York University (NYU) Law School.

Petitioner specializes in bankruptcy law.    The bulk of his

practice prior to the time he invested in Resource involved the

liquidation of assets of individuals and small businesses under

chapter 7 of the Bankruptcy Code.   Petitioner's wife Robin

graduated from the Temple University Law School and specialized

in general litigation prior to the time of the investment in

Resource.   She was a fourth- or fifth-year associate in the law

firm of White & Case in New York City in 1981.

     In 1981 petitioner earned in excess of $100,000 for the

first time in his career.   On the Schedule C, Profit or Loss From

Business or Profession, attached to petitioners' 1981 joint

return, petitioner reported gross receipts from his business,
                               - 11 -

designated "Ira S. Greene", in the amount of $206,332 and a net

profit in the amount of $120,185.    On a supplemental schedule to

Form 4726, Maximum Tax on Personal Service Income, petitioner

reported total wages earned for 1981 in the amount of $6,000; his

wife Robin reported total wages earned in the amount of $40,594.

Petitioners' combined wages and Schedule C net earned income for

1981 totaled $166,779.

       Petitioner acquired a 2.605-percent limited partnership

interest in Resource for $25,000 in 1981.    As a result of his

investment in Resource, on their 1981 joint Federal income tax

return petitioners claimed an operating loss in the amount of

$20,533 and investment tax and business energy credits totaling

$42,402.    Respondent disallowed in full petitioners' claimed loss

and investment tax and business energy credits related to

Resource.

       Petitioner learned of the Plastics Recycling transactions

and Resource in 1981 from another bankruptcy attorney, Leon

Marcus (Marcus).    Marcus informed petitioner that Resource was a

tax-advantaged investment or tax shelter and that he was

investing in a Plastics Recycling transaction.    Petitioner was

"flattered" to be approached by Marcus.    He described Marcus as

the senior partner in a "small law firm * * * [petitioner] was

at".    Petitioner claims that Marcus "had a reputation of a very
                              - 12 -

high business acumen who could perceive value in businesses,

value in deals, * * * [and] value in future businesses".      Marcus

informed petitioner that offering materials were available for

review and that a limited partnership unit sold for $50,000.

Petitioner told Marcus that he was unwilling to invest $50,000.

A few days later Marcus again approached petitioner and informed

him that he could purchase half of a limited partnership unit for

$25,000.

     Petitioner reviewed the Resource offering memorandum over

the course of several days.   He testified that he did not

understand certain portions of it and did not thoroughly review

the section disclosing potential conflicts of interest.      The

credentials of F & G Corp.'s evaluators, Ulanoff and Burstein,

allegedly impressed petitioner.   When he read Burstein's report,

petitioner recalled:   "I didn't really understand what he was

talking about most of the time, but I could read the

conclusions."   Petitioner claims he thought that Ulanoff and

Burstein were independent experts.     He could not recall reading

the disclosure in the offering memorandum that Burstein was a

client and business associate of Miller's.    The offering

memorandum disclosed that Miller was the General Counsel for PI

and a 9.1-percent shareholder of F & G Corp., and that he

represented Grant, Roberts, and several shareholders of F & G
                              - 13 -

Corp.   In addition, the offering memorandum disclosed that Miller

"will receive substantial additional compensation for

representing PI and FMEC in connection with this transaction."

      Petitioner understood that the law firm that authored the

tax opinion appended to the offering memorandum had a good

reputation.   He also recognized the name of a former tax

professor from the NYU Law School in the firm's letterhead.

Petitioner says he assumed that the law firm had performed

significant due diligence.

      After reviewing the offering memorandum, petitioner asked

his certified public accountant, Robert Hefter (Hefter) of Mac

Albert Bank & Co. CPA's, to review it as well.   Petitioner

testified that Hefter told him that "it appeared to be sound",

that the tax opinion "appeared to be accurate", and that "it

appeared to be a valid investment based on the documents."

Petitioner proceeded to invest in Resource without further

investigation.   He could not recall whether he discussed the

investment with his wife Robin, or even when she became aware of

it.   Petitioner could only suggest that his wife "would have been

aware" of the investment sometime prior to signing their 1981 tax

return, which was prepared by Hefter.

      Petitioner and his wife Robin do not have any education or

experience in plastics materials or plastics recycling.     He did
                                - 14 -

not personally investigate the value or uniqueness of the

Sentinel EPE recycler.    Petitioner did not believe he was

qualified to do so and "wouldn't know where to start."     He did

not retain an independent plastics recycling expert to conduct

such an investigation.    Petitioner did not learn whether Marcus

had any expertise or experience in plastics materials or plastics

recycling; or how Marcus became aware of the Plastics Recycling

transactions; or what Marcus did, if anything, to investigate

Resource or the Plastics Recycling transactions; or whether

Marcus received a commission as a result of petitioner's

investment.    Petitioner never made a profit from his investment

in Resource.   Neither Marcus, Hefter, nor petitioner's wife Robin

testified at the trial of this case.

                                OPINION

     We have decided a large number of the Plastics Recycling

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

concerned the substance of the partnership transaction and also

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

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

cases cited therein.     The majority of these cases, like the

present case, raised issues regarding additions to tax for

negligence and valuation overstatement.     We have found the
                             - 15 -

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

opinions to date on these issues.

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

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

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

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

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

upheld the section 6659 addition to tax for valuation

overstatement since the underpayment of taxes was directly

related to the overstatement of the value of the Sentinel EPE

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

respect to Clearwater were attributable to tax-motivated

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

the conclusion that the Clearwater transaction lacked economic

substance and a business purpose, this Court relied heavily upon

the overvaluation of the Sentinel EPE recyclers.

     Although petitioners have not agreed to be bound by the

Provizer opinion, they have stipulated that the investment in the

Sentinel EPE recyclers in this case is similar to the investment

described in Provizer v. Commissioner, supra.   The underlying

transactions in this case, and the Sentinel EPE recyclers

purportedly leased by Resource, are the same type of transactions

and same type of machines considered in Provizer v. Commissioner,

supra.
                                - 16 -

     Based on the entire record in this case, including the

extensive stipulations, testimony of respondent's experts, and

petitioner's testimony, we hold that the Resource transaction

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 deficiency.    We note that petitioners have

explicitly conceded this issue in the stipulation of settled

issues filed shortly before trial.       The record plainly supports

respondent's determination regardless of that concession.      For a

detailed discussion of the facts and the applicable law in a

substantially identical case, see Provizer v. Commissioner,

supra.

A.   Section 6653(a)--Negligence

     Respondent asserted the additions to tax for negligence

under section 6653(a)(1) and (2) for 1981 in the first amendment

to answer.   Because these additions to tax were raised for the

first time in the amended answer, respondent has the burden of

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

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

     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
                               - 17 -

of the underpayment attributable to negligence or intentional

disregard of rules or regulations.

     Negligence is defined as the failure to exercise the due

care that a reasonable and ordinarily prudent person would employ

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

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

in connection with the transactions were reasonable in light of

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

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

When considering the negligence addition to tax, we evaluate the

particular facts of each case, judging the relative

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

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

Memo. 1996-46.   Compare 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 a

loss deduction and investment tax and business energy credits

with respect to Resource.   Petitioner argues that he reasonably

relied upon the offering memorandum as well as Marcus and Hefter

as qualified advisers on this matter.

     1.   The Private Offering Memorandum

     Petitioner contends that he "carefully reviewed" and relied

upon the Resource offering memorandum, particularly the reports

of F & G Corp.'s evaluators and the tax opinion appended to the

offering memorandum.   However, in view of petitioner's failure to
                              - 18 -

learn or properly evaluate important facts about Resource or the

Plastics Recycling transactions in general that were disclosed in

the offering memorandum, we are not convinced that he carefully

reviewed the offering memorandum, or that he placed a great deal

of reliance, if any, upon the representations therein.

     The Resource offering memorandum disclosed 8 tax and 12

business risk factors associated with an investment in Resource.

With respect to the opinion letter of counsel, the offering

memorandum stressed that "prospective investors are not permitted

to rely upon the advice contained therein", and that "OFFEREES

MUST RELY UPON THEIR OWN PROFESSIONAL ADVISERS WITH RESPECT TO

THE TAX BENEFITS AND TAX RISKS RELATING TO AN INVESTMENT IN THE

PARTNERSHIP."   The offering memorandum also warned that there was

a substantial likelihood of audit and that "THE PURCHASE PRICE OF

THE SENTINEL RECYCLERS TO BE PAID BY F & G [CORP.] * * * WILL

PROBABLY BE CHALLENGED * * * AS BEING IN EXCESS OF THE FAIR

MARKET VALUE THEREOF".   The import of this particular tax risk

factor was explained in the next paragraph as follows:    "Such

purchase price is the basis for computing the regular investment

and energy tax credits to be claimed by the Partnership."

     Among the disclosed business risk factors were the

following:   (1) The Partnership had no operating history; (2)

management of the Partnership's business was dependent upon the

general partner, who had no experience in marketing recycling

equipment and who was required to devote only such time to the
                              - 19 -

Partnership as he deemed necessary; (3) the limited partners had

no right to take part in, or interfere in any manner with, the

management or conduct of the business of the Partnership; (4)

there was no established market for the Sentinel recyclers; (5)

although competitors were purportedly not marketing comparable

equipment, and the Sentinel recyclers purportedly involved

"carefully guarded trade secrets", PI did "not intend to apply

for a patent for protection against appropriation and use by

others."

      Petitioner testified that he did not understand portions of

the offering memorandum and that he "didn't really understand

what * * * [Burstein] was talking about most of the time" in his

report appended thereto.   He also testified that he could not

recall reading that Burstein was a business associate and client

of Miller, the corporate counsel to PI.   Petitioner denied

focusing on the section of the offering memorandum detailing the

various conflicts of interest.   Petitioner did not discuss the

offering memorandum with Marcus.   Instead, petitioner asked his

accountant to review the offering memorandum.   However, the

record does not disclose how thoroughly the accountant reviewed

the offering memorandum or whether he did anything beyond reading

it.   The record includes no information concerning the extent and

nature of the accountant's tax background or whether he had any

experience with tax-advantaged investments, tax shelters,

partnerships, or the plastics industry.   Petitioner failed to
                               - 20 -

provide significant information about his accountant's

qualifications as an adviser concerning the transaction in issue.

     The projected tax benefits in the offering memorandum

exceeded petitioners' investment.   According to the offering

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

tax benefits were investment tax credits in the amount of

$84,813, plus deductions in the amount of $40,586.   As a result

of petitioners' $25,000 investment in Resource, petitioners

claimed an operating loss in the amount of $20,533 and investment

tax and business energy credits totaling $42,402 on their 1981

return.   The direct reduction in petitioners' 1981 Federal income

tax, from the investment tax credits alone, was 170 percent of

their cash investment.   Therefore, like the taxpayers in Provizer

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

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

[Resource]."

     Petitioner's failure to seek explanations of the portions of

the offering memorandum that he did not understand, and his

indifference to the warnings and caveats contained therein,

indicate that he did not rely upon the offering memorandum to any

significant extent.   Particularly in view of the

disproportionately large tax benefits claimed on petitioners'

1981 Federal income tax return, relative to the dollar amount

invested, further investigation of the Resource transaction

clearly was required.    A careful consideration of the materials
                               - 21 -

in the offering memorandum, especially the discussions of high

writeoffs and risk of audit, should have alerted a prudent and

reasonable investor to the questionable nature of the promised

deductions and credits.   See Collins v. Commissioner, 857 F.2d

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

Memo. 1987-217; Sacks v. Commissioner, T.C. Memo. 1994-217, affd.

82 F.3d 918 (9th Cir. 1996).   A reasonably prudent person would

not conclude without substantial investigation that the

Government was providing tax benefits so disproportionate to the

taxpayers' investment of their own capital.

     2.   Petitioner's Purported Reliance on Advisers

     Petitioner contends that he reasonably relied upon Marcus

and Hefter as qualified advisers on this matter.

     A taxpayer may avoid liability for the additions to tax

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

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

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

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

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

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

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

professional advice to excuse a taxpayer from the negligence

additions to tax, the taxpayer must show that the professional

had the expertise and knowledge of the pertinent facts to provide

informed advice on the subject matter.   David v. Commissioner, 43
                              - 22 -

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, supra;

Kozlowski v. Commissioner, T.C. Memo. 1993-430, affd. without

published opinion 70 F.3d 1279 (9th Cir. 1995); see also, e.g.,

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

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

Memo. 1996-558; Gollin v. Commissioner, T.C. Memo. 1996-454;

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

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

     Reliance on representations by insiders, promoters, or

offering materials has been held an inadequate defense to

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

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

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

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

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

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

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

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

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

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

when neither the taxpayer nor the advisers purportedly relied

upon by the taxpayer knew anything about the nontax business
                               - 23 -

aspects of the contemplated venture.    David v. Commissioner,

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

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

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

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

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

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

the Plastics Recycling cases cited in Sann v. Commissioner,

supra.

     Petitioner testified that Marcus introduced the Resource

transaction to him and advised that "he thought it was a good

investment to make."    Like petitioner, Marcus is an attorney

specializing in bankruptcy law.    Petitioner does not claim that

Marcus had any education or experience in plastics materials or

plastics recycling.    Marcus and petitioner did not discuss

Resource or the Plastics Recycling transactions in any depth.

Indeed, petitioner did not learn how Marcus became aware of the

Plastics Recycling transactions, what Marcus did, if anything, to

investigate Resource or the Plastics Recycling transactions, or

even whether Marcus received a commission as a result of

petitioner's investment.    As an offeree representative, Marcus

would have been entitled to a commission in the amount of $2,500

as a result of petitioner's investment in Resource.    Since the

commission would have been paid by default to the general partner

if no offeree representative had claimed it, and since petitioner
                                - 24 -

has not suggested the name of any representative but Marcus, this

record suggests a reasonable likelihood that Marcus received a

commission as petitioner's offeree representative.

     Petitioner testified that his accountant, Hefter, reviewed

the offering memorandum on petitioner's behalf.    According to

petitioner, after Hefter reviewed it, and in response to

petitioner's questions, Hefter indicated that "it appeared to be

sound", that the tax opinion "appeared to be accurate", and that

"it appeared to be a valid investment based on the documents."

(Emphasis added.)   Petitioner did not indicate how much time and

effort Hefter devoted to his review of the offering memorandum.

Nor did he claim that Hefter personally investigated any aspect

of the Resource transactions.    Petitioner even stated that

whatever comments he received from Hefter were "based on the

documents".   Petitioner acknowledged that Hefter's area of

expertise was accounting, and petitioner never suggested that

Hefter had any experience or expertise in plastics materials or

plastics recycling.   Petitioner provided no information as to the

extent or nature of Hefter's knowledge of the income tax laws

beyond the information that he was a practicing accountant who

prepared petitioners' tax returns.

     Petitioner did not call Marcus or Hefter to testify in this

case, and his failure to do so gives rise to the inference that

their testimony would not have been favorable to petitioners.

See Mecom v. Commissioner, 101 T.C. 374, 386 (1993), affd.
                              - 25 -

without published opinion 40 F.3d 385 (5th Cir. 1994); Pollack v.

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

Cir. 1968); Wichita Terminal Elevator Co. v. Commissioner, 6 T.C.

1158, 1165 (1946), affd. 162 F.2d 513 (10th Cir. 1947); Sacks v.

Commissioner, T.C. Memo. 1994-217.     Petitioner's memory proved

selective at trial.   We found his testimony self-serving and at

times incredible, and we are 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 v. Commissioner, 87 T.C. 74, 77 (1986).

     We hold that petitioner's purported reliance on Marcus and

Hefter was not reasonable, not in good faith, and not based upon

full disclosure.   Neither Marcus nor Hefter had any experience or

expertise in plastics materials or plastics recycling.

Petitioner did not know, and did not ask, whether Marcus had

researched or investigated Resource or the Plastics Recycling

transactions.   The record is consistent with the conclusion that

Marcus received a commission as the "offeree representative" in

connection with the sale of a partnership interest to petitioner.

Hefter did nothing more than review the offering memorandum and

could only offer that the Resource transaction "appeared" valid

based on the representations therein.    A taxpayer may rely upon

his advisers' expertise (in this case bankruptcy law and

accounting), but it is not reasonable or prudent to rely upon an

adviser regarding matters outside of his field of expertise or
                              - 26 -

with respect to facts that he does not verify.   See David v.

Commissioner, 43 F.3d at 789-790; Goldman v. Commissioner, 39

F.3d at 408; Skeen v. Commissioner, 864 F.2d 93 (9th Cir. 1989),

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

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

Rogers v. Commissioner, supra.

     In this case, with the aid of petitioner's testimony and the

stipulated facts, respondent has satisfied the burden of showing

petitioner's negligence in claiming credits and deductions

arising from his investment in the Resource partnership in the

Plastics Recycling transaction.

     3.   Miscellaneous

     Petitioners stipulated that the fair market value of a

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

Notwithstanding this concession, petitioners contend that they

were reasonable in claiming credits on their 1981 Federal income

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

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

into evidence preliminary reports prepared for respondent by

Ernest D. Carmagnola (Carmagnola), the president of Professional

Plastic Associates.   Carmagnola had been retained by the IRS in

1984 to evaluate the Sentinel EPE and EPS recyclers in light of

what he described as "the fantastic values placed on the * * *

[recyclers] by the owners."   Based on limited information

available to him at that time, Carmagnola preliminarily estimated
                              - 27 -

that the value of the Sentinel EPE recycler was $250,000.

However, after additional information became available to him,

Carmagnola concluded in a signed affidavit, dated March 16, 1993,

that the machines actually had a fair market value of not more

than $50,000 each in the fall of 1981.

     We accord no weight to the Carmagnola reports submitted by

petitioners.   The projected valuations therein were based on

inadequate information, research, and investigation, and were

subsequently rejected and discredited by their author.    In one

preliminary report, Carmagnola states that he has "a serious

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

determine whether the machines actually could be profitable, he

required additional information from PI.   Carmagnola also

indicates that in preparing the report, he did not have

information available concerning research and development costs

of the machines and that he estimated those costs in his

valuations of the machines.

     Respondent rejected the Carmagnola reports and considered

them unsatisfactory for any purpose, and there is no indication

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

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

petitioners obtained copies of these reports and urge that they

support the reasonableness of the value reported on petitioners'

1981 return.   Not surprisingly, said counsel did not call

Carmagnola to testify in this case but preferred instead to rely
                                - 28 -

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

this case, as we have found previously, that the reports prepared

by Carmagnola are unreliable and of no consequence.

     Petitioners cite the following cases in support of their

position:   Heasley v. Commissioner, 902 F.2d 380 (5th Cir. 1990),

revg. T.C. Memo. 1988-408; Sammons v. Commissioner, 838 F.2d 330

(9th Cir. 1988), affg. in part and revg. in part T.C. Memo. 1986-

318; Braddock v. Commissioner, 95 T.C. 639 (1990); Ewing v.

Commissioner, 91 T.C. 396 (1988), affd. without published opinion

940 F.2d 1534 (9th Cir. 1991); and Hill v. Commissioner, T.C.

Memo. 1993-454.

     However, the negligence additions to tax were dismissed in

those cases for reasons inapposite to the facts of petitioners'

case.   Unlike petitioners, the taxpayers in the Heasley case were

of moderate education (neither had graduated from high school)

and of moderate income, and they actively monitored their

investment.   In the Sammons, Braddock, Ewing, and Hill cases, the

taxpayers relied upon tax and/or investment advice from advisers

they knew were qualified, or reasonably believed were qualified,
                              - 29 -

to give such advice.2   Petitioner, in contrast, purports to have

relied upon the advice of an attorney and an accountant for the

value of a purportedly technologically advanced plastics

recycling machine and the economic viability of the Resource

transaction.   Yet neither of petitioner's purported advisers had

any expertise in plastics materials or plastics recycling.

Further, petitioner did not learn whether the attorney had

researched or investigated Resource or received a commission for

the sale of a partnership share to him, and petitioner knew that

the accountant had not investigated or confirmed any of the

representations in the offering memorandum.   We consider

petitioners' reliance on the Heasley, Sammons, Braddock, Ewing,

and Hill cases misplaced.

     4.   Conclusion as to Negligence

     Under the circumstances of this case, petitioners failed to

exercise due care in claiming a large loss deduction and tax


2
     The taxpayers in Sammons v. Commissioner, 838 F.2d 330, 337
(9th Cir. 1988), affg. in part and revg. in part T.C. Memo. 1986-
318, relied upon a "reasonably debatable" valuation by one of
five appraisers--two of whom were exceptionally qualified--for
the value of certain charitable deduction property. In Braddock
v. Commissioner, 95 T.C. 639 (1990), the taxpayers relied upon an
adviser who claimed tax expertise with respect to a reporting
issue that had never before been considered by any court, and the
answer to which was not entirely clear from the relevant
statutory language. The taxpayers in Ewing v. Commissioner, 91
T.C. 396 (1988), affd. without published opinion 940 F.2d 1534
(9th Cir. 1991), read and relied upon a tax opinion prepared by
an attorney who at least two of the taxpayers had known and
successfully dealt with for over 10 years. In Hill v.
Commissioner, T.C. Memo. 1993-454, the taxpayer relied upon an
independent evaluation by his long-time accountant and a
financial broker recommended by the accountant.
                              - 30 -

credits with respect to Resource on their 1981 Federal income tax

return.   Petitioner knew little about Resource.    He did not

thoroughly review the offering memorandum or seek explanation of

the portions that he did not understand.     Neither the attorney

who informed him of Resource nor the accountant who reviewed the

offering memorandum had any experience or expertise in plastics

materials or plastics recycling.   Moreover, the accountant did

not research or investigate any of the representations in the

offering memorandum, and petitioner did not learn what, if

anything, the attorney had done.   Petitioner did not even know

whether the attorney was soliciting the investment for a

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

that respondent has satisfied the burden of proof and that

petitioners are liable for the negligence additions to tax under

section 6653(a)(1) and (2) for 1981.   Respondent is sustained on

this issue.

B.   Section 6659--Valuation Overstatement

      In the amended answer, respondent asserted that petitioners

were liable for the section 6659 addition to tax on the portion

of their underpayment attributable to valuation overstatement.

Because the section 6659 addition to tax was raised for the first

time in the amended answer, respondent has the burden of proof.

Rule 142(a); Vecchio v. Commissioner, 103 T.C. at 196; Bagby v.

Commissioner, 102 T.C. at 612.
                                - 31 -

     A graduated addition to tax is imposed when an individual

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

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

A valuation overstatement exists if the fair market value (or

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

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

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

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

underpayment.   Sec. 6659(b).

     Petitioners claimed tax benefits, including investment tax

credits and business energy credits, based on a purported value

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 that

valuation overstatement, petitioners are liable for the section

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

underpayment of tax attributable to the tax benefits claimed with

respect to Resource.

     Petitioners contend that section 6659 cannot apply in this

case because they conceded the claimed tax benefits relating to

Resource.   In the alternative, petitioners contend that

respondent erroneously failed to waive the section 6659 addition

to tax.   We reject both of these arguments for reasons set forth

below.
                              - 32 -

     1.   Concession of the Deficiency

     Section 6659 does not apply to underpayments of tax that are

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

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

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

taxpayers claim tax benefits that are disallowed on grounds

separate and independent from alleged valuation overstatements,

the resulting underpayments of tax are not regarded as

attributable to valuation overstatements.     Krause v.

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

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

28 F.3d 1024 (10th Cir. 1994).   However, when valuation is an

integral factor in disallowing deductions and credits, section

6659 is applicable.   See Illes v. Commissioner, 982 F.2d 163, 167

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

Commissioner, 933 F.2d 143, 151 (2d Cir. 1991) (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 their concession of the tax benefits

related to Resource precludes imposition of the section 6659

addition to tax.   The basis for petitioners' concession is not

stated in the stipulation of settled issues, and petitioners
                             - 33 -

point out that the notice of deficiency "merely asserts that the

claimed losses and credits were disallowed because Petitioners

have not established their entitlement thereto."    According to

petitioners, "Unless it is clear that the only possible basis for

* * * [their] concession was the existence of a valuation

overstatement, it is impossible to attribute the underpayment

involved herein to a valuation overstatement."

     However, we have found herein that the Resource transaction

lacked economic substance due to overvaluation of the recyclers,

notwithstanding petitioners' open-ended concession.    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 Resource, petitioners claimed a loss deduction and credits

that resulted in an underpayment of tax, and we held that the

Resource transaction lacked economic substance.    Regardless of

petitioners' concession, in this case the underpayment of tax was

attributable to the valuation overstatement.

     Moreover, concession of tax benefits such as 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.
                              - 34 -

Memo. 1993-630.   Instead, the ground upon which the tax benefits

are 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 225, 228 (9th Cir. 1990), affg. T.C. Memo.

1988-416; Irom v. Commissioner, 866 F.2d 545, 547 (2d Cir. 1989),

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

supra.

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

was presented to the Court to prove that disallowance and

concession of the claimed loss deduction and investment tax

credits related to anything other than a valuation overstatement.

To the contrary, petitioners stipulated substantially the same

facts concerning the Resource transactions as we found in

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

that the taxpayers were liable for the section 6659 addition to

tax because the underpayment of taxes was directly related to the

overvaluation of the Sentinel EPE recyclers.    The overvaluation

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

of our findings in Provizer that the transaction was a sham and

lacked economic substance.   Similarly, the record in this case

plainly shows that the overvaluation of the recyclers is integral
                               - 35 -

to and is the core of our holding that the Resource transaction

was a sham and lacked economic substance.

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

827, and Rogers v. Commissioner, T.C. Memo. 1990-619, is

misplaced.   In the McCrary case, the taxpayers conceded

disentitlement to their claimed tax benefits and the section 6659

addition to tax was held inapplicable.   However, the taxpayers'

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

preclude imposition of the section 6659 addition to tax.   Rather,

the section 6659 addition to tax was disallowed because the

agreement at issue was conceded to be a license and not a lease.

In the Rogers case, this Court rejected the section 6659 addition

to tax because we had "not found that the credits were disallowed

due to an overvaluation".   In contrast, the record in this case

plainly shows, and we have so held, that petitioners'

underpayment was attributable to overvaluation of the Sentinel

EPE recyclers.    We consider petitioners' reliance on McCrary v.

Commissioner, supra, and Rogers v. Commissioner, supra, to be

inappropriate.3




3
     Petitioners' citation of Heasley v. Commissioner, 902 F.2d
380 (5th Cir. 1990), revg. T.C. Memo. 1988-408, 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, 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. See Gilman
v. Commissioner, 933 F.2d 143, 151 (2d Cir. 1991), affg. T.C.
Memo. 1989-684.
                                - 36 -

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

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

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

recyclers had been overvalued was integral to and inseparable

from our holding of a lack of economic substance.    Petitioners

stipulated that the Resource transaction was similar to the

Clearwater transaction described in the Provizer case, and that

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

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

the record here plainly shows that the overvaluation of the

recyclers was the only reason for the disallowance of the claimed

tax benefits, we conclude that respondent has satisfied the

burden of showing that the deficiency was attributable to

overvaluation of the Sentinel EPE recyclers.

     2.    Section 6659(e)

     Petitioners alternatively argue that respondent erroneously

failed to waive the section 6659 addition 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.     Respondent's refusal to waive a section

6659 addition to tax is reviewable by this Court for abuse of

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

discretion has been found in situations where the Commissioner's
                               - 37 -

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.

     Petitioner urges that he relied upon Marcus, Hefter, and the

offering memorandum in deciding on the valuation he and his wife

claimed on their tax return.   He contends that such reliance was

reasonable, and, therefore, that respondent should have waived

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

in finding petitioners liable for the negligence additions to

tax, petitioner's purported reliance on Marcus, Hefter, and the

offering memorandum was not reasonable.    Petitioner's review of

the offering memorandum was inadequate.    Marcus and Hefter had no

expertise in plastics materials or plastics recycling.    Hefter

only read the offering memorandum, and petitioner failed to learn

what, if anything, Marcus had done.

     We hold that petitioners did not have a reasonable basis for

the adjusted basis or valuation claimed on their tax return with

respect to the investment in Resource.    In the instant case,

respondent could find that petitioner's reliance on Marcus,

Hefter, and the offering memorandum was unreasonable.    The record

in this case does not establish an abuse of discretion on the

part of respondent but supports respondent's position.    We hold

that respondent has satisfied the burden of showing that

respondent's refusal to waive the section 6659 addition to tax in
                              - 38 -

this case is not an abuse of discretion.   Petitioners are liable

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

the underpayment of tax attributable to the disallowed tax

benefits.   Respondent is sustained on this issue.


                                    Decision will be entered

                               under Rule 155.
