t c memo united_states tax_court mark friedman petitioner v commissioner of internal revenue respondent david and deborah b alter petitioners v commissioner of internal revenue respondent docket nos filed date stuart a smith and david h schnabel for petitioners in docket nos and jennifer j kohler elizabeth a maresca and frances ferrito regan for respondent in docket no donald a glasel mitchell hausman jennifer j kohler and frances ferrito regan for respondent in docket no contents page memorandum findings_of_fact and opinion opinion of the special_trial_judge findings_of_fact a the plastics recycling transactions b the partnerships c petitioners and their introduction to the partnership transactions dollar_figure mark friedman dollar_figure david and deborah b alter dollar_figure opinion dollar_figure a sec_6653 a --negligence dollar_figure the private offering memoranda dollar_figure the so-called oil crisis dollar_figure petitioners' purported reliance on advisers dollar_figure miscellaneous dollar_figure conclusion as to negligence dollar_figure b section 6659--valuation overstatement dollar_figure the grounds for petitioners' underpayments dollar_figure concession of the deficiencies dollar_figure sec_6659 dollar_figure c petitioners' motions for leave to file motion for decision ordering relief from the negligence_penalty and the penalty rate of interest and to file supporting memoranda of law dollar_figure memorandum findings_of_fact and opinion dawson judge these cases were assigned to special_trial_judge norman h wolfe pursuant to the provisions of sec_7443a and rule sec_180 sec_181 and sec_183 they were tried and briefed separately but consolidated for purposes of opinion all section references are to the internal_revenue_code in effect for the tax_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 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 tcmemo_1992_177 affd without published opinion 996_f2d_1216 6th cir the facts of the underlying transactions and the sentinel recyclers in these cases are substantially identical to those considered in the provizer case in a notice_of_deficiency dated date respondent determined a deficiency in petitioner friedman's federal_income_tax in the amount of dollar_figure plus additions to tax in the amount of dollar_figure under sec_6659 for valuation_overstatement in the amount of dollar_figure under sec_6653 for negligence and under sec_6653 in the amount of percent of the interest payable with respect to the portion of the underpayment attributable to negligence respondent also determined that interest on the deficiency accruing after date would be calculated pincite percent of the statutory rate under sec_6621 in a notice_of_deficiency dated date respondent determined a deficiency with respect to the joint federal_income_tax return filed by david and deborah b alter petitioners alter for in the amount of dollar_figure plus additions to tax in the amount of dollar_figure under sec_6659 for valuation_overstatement in the amount of dollar_figure under sec_6653 for negligence and under sec_6653 in the amount of percent of the interest payable with respect to the portion of the underpayment attributable to negligence respondent also determined that interest on the deficiency accruing after date would be calculated pincite percent of the statutory rate under sec_6621 in a stipulation of settled issues filed date petitioners alter conceded the disallowance of a real_estate office rent deduction claimed on their return in the amount of dollar_figure the parties in each of these consolidated cases filed stipulations of settled issues concerning the adjustments relating to petitioners' participation in the plastics recycling program the stipulations provide 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 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 sec_6621 formerly sec_6621 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 sec_6659 and for negligence under the applicable provisions of sec_6653 long after the trials of these cases petitioners each filed a motion for leave to file motion for decision ordering relief from the negligence_penalty and the penalty rate of interest and to file supporting memorandum of law under rule these motions were filed with attached exhibits on date in the friedman case and on date in the alter case on those same dates petitioners each also lodged with the court a motion for decision ordering relief from the additions to tax for negligence and the increased rate of interest with attachments and a memorandum in support of the motion subsequently respondent filed objections with attachments and memoranda in support thereof and petitioners thereafter filed reply memoranda for reasons discussed in more detail at the end of this opinion and also in farrell v commissioner tcmemo_1996_295 these motions shall be denied see also gollin v commissioner tcmemo_1996_454 grelsamer v commissioner tcmemo_1996_399 zenkel v commissioner tcmemo_1996_398 the issues remaining in these consolidated cases are whether petitioners are liable for the additions to tax for negligence under sec_6653 and and whether petitioners are liable for additions to tax under sec_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 petitioner friedman is a limited_partner in clearwater and petitioners alter are limited partners in poly reclamation 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 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 dollar_figure each eci corp in turn resold the recyclers to f g corp for dollar_figure 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 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 percent of the notes were recourse but that the recourse portion of the notes was only due after the nonrecourse portion percent was paid in full all of the monthly payments required among the entities in the above transactions offset each other these transactions were done simultaneously although the recyclers were sold and leased for the above amounts under the structure of simultaneous transactions the fair_market_value of a sentinel epe recycler in was not in excess of dollar_figure 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 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 poly reclamation and clearwater each closed during the latter few months of 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 27-percent interest in plymouth equipment associates and a 37-percent interest in taylor recycling associates partnerships that leased sentinel recyclers burstein owns a 605-percent interest in empire associates and a 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 each of the offering memoranda for clearwater and poly reclamation states that the general_partner will receive fees from the partnership in the amount of dollar_figure 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 percent of the proceeds from each offering were allocated to the payment of sales commissions and offeree representative fees the offering memoranda list significant business and tax risk factors associated with investments in the partnerships specifically the offering memoranda state 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 the partnerships have no prior operating history the general_partner has no prior experience in marketing recycling or similar equipment the limited partners have no control_over the conduct of the partnerships' business there is no established market for the sentinel epe recyclers 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 certain potential conflicts of interest exist c petitioners and their introduction to the partnership transaction sec_1 mark friedman petitioner mark friedman friedman resided in new york new york when his petition was filed friedman was a member of phi betta kappa and graduated magna cum laude from the university of pennsylvania in with a b a degree in history he then attended the university of pennsylvania law school and became the articles editor of its law review after his graduation from law school in friedman became employed by the law firm of simpson thatcher bartlett in new york city four years later he became employed by the law firm of shea gould also in new york city and became a partner of that firm on date friedman specializes in corporate and federal securities law he has represented issuers and underwriters in both public and private offerings of securities one of his primary functions has been drafting prospectuses and offering circulars by friedman was very familiar with the typical content of a prospectus or private offering memorandum in addition to his professional experience friedman has been an active investor since from to friedman invested in a great number of publicly traded stocks and private placements his approach to those investments was thorough and methodical friedman read the prospectus or private offering memorandum spoke to an expert in the pertinent industry investigated the risk factors described in the offering materials consulted industry reports and spoke to other active investors or lawyers friedman is sophisticated enough to know that in any_tax investment the underlying economics have to be legitimate in friedman acquired a 547-percent1 interest in clearwater for dollar_figure as a result of his investment in clearwater on his federal_income_tax return friedman claimed an operating loss in the amount of dollar_figure of a total of dollar_figure in investment tax and business energy credits the parties stipulated that friedman owned percent of the profits losses and capital of clearwater during taxable_year however friedman's schedule_k-1 partner's share of income credits deductions etc attached to clearwater's partnership return reports that he owned a 547-percent interest in clearwater friedman used dollar_figure on his return respondent disallowed friedman's claimed operating loss and investment_credit flowing from clearwater friedman was told about the plastics recycling transactions by several partners at shea gould approximately eight partners contemplated investing in a plastics recycling transaction friedman understood that stuart hirshfield hirshfield a bankruptcy specialist at shea gould previously had done business with winer and thought well of him hirshfield and two other partners dan carroll carroll and lonn trost trost each made inquiries about some aspects of the plastics recycling transactions friedman also understood that trost and hirshfield visited pi at least once and viewed some sentinel epe recyclers alan parker parker a tax partner reviewed the tax friedman's basis in the clearwater sentinel epe recyclers was dollar_figure he had a basis in other_property qualifying for the investment_tax_credit in the amount of dollar_figure friedman's tentative investment tax and business energy credits flowing from clearwater each totaled dollar_figure however friedman's business_energy_credit was subject_to a limitation in the amount of zero and his regular_investment_credit was subject_to a limitation in the amount of dollar_figure of the total investment_credit claimed in by friedman dollar_figure was from clearwater and dollar_figure was from other qualifying property the record in docket no does not disclose whether friedman carried forward or back his unused credits respondent allowed dollar_figure in investment tax_credits related to other_property not at issue herein benefits and indicated that they were supportable provided that from a business point of view this was a good economic investment friedman decided to invest in clearwater after reading the offering memorandum and discussing the investment with his colleagues at shea gould he also provided a copy of the offering memorandum to his accountant the accountant had no experience in plastics or plastics recycling and did not independently investigate the plastics industry or the sentinel epe recycler friedman does not have any education or experience in engineering plastics materials or plastics recycling he understood that carroll had a background in engineering and that another partner joseph ferraro ferraro may have had some experience in his past with plastics friedman did not see a sentinel epe recycler investigate the uniqueness of the machine investigate whether the value placed on the recycler was bona_fide or investigate whether there were any other machines that were designed to recycle low density polyethylene he did not do any type of cash_flow analysis or check any of the figures in the offering memorandum friedman did not personally investigate pi he did not ask whether the technology for the sentinel epe recycler was patented or inquire whether there were any suitable end-users for the recyclers he did not review any periodicals relating to resin prices he never made a profit in any year from his investment in clearwater david and deborah b alter petitioners david and deborah b alter resided in new york new york at the time their petition was filed david alter alter graduated from the harvard law school and has been practicing law since alter has been a member of several law firms since from to he was a partner at the law firm of squadron alter weinrib from to he was a partner of the law firm of alter lefevre raphael lowry alter lefevre and from to he was a partner at the law firm of shea gould alter is a general practitioner 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 alter's entertainment clients asked him to review offering materials for investment opportunities that they had learned of elsewhere in alter lefevre underwent several name changes during alter's tenure as a partner apparently alter lefevre raphael lowry was the name of the firm by for convenience references to alter lefevre include its predecessor names while alter was a partner the course of his practice alter advised his clients whether to consider such investments alter acquired a 547-percent interest in poly reclamation for dollar_figure in as a result of his investment in poly reclamation on their joint federal_income_tax return alter and his wife deborah claimed an operating loss in the amount of dollar_figure and investment tax and business energy credits totaling dollar_figure respondent disallowed the alters' claimed operating loss and investment tax and business energy credits flowing from poly reclamation alter learned of the plastics recycling transactions from hirshfield who in turn had been introduced to the transactions by winer alter understood that hirshfield previously had done business with winer and thought well of him alter read the poly reclamation offering memorandum and attended some meetings with other shea gould partners who were considering an investment in the plastics recycling transactions including hirshfield carroll ferraro trost and parker he understood that carroll had a background in engineering and that ferraro who at the time represented british petroleum had worked at a plastic sec_5 alter and his wife claimed an additional dollar_figure in regular investment credits from other qualifying property on their return company for one or more summers during and prior to 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 school of law he is a member of the new york state bar and during 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 joined 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 through a vai client bill cullen who at the time also was represented by alter in a tax matter feinstein subsequently joined alter lefevre sometime in feinstein continued to advise persons regarding financial and tax matters at alter lefevre the firm provided a variety at trial feinstein recalled that at the time he joined alter lefevre the name of the firm was pross halpern smith alter's posttrial brief indicates that the firm's name at that time was pross smith halpern lefevre of 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 date 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 and feinstein joined shea gould in the fall of 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 the poly reclamation offering memorandum from winer he spent approximately to 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 claimed that he asked feinstein to check with the tax partner in the firm alan parker feinstein did not speak with parker 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 associate 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 feinstein did not state who this friend and associate was or what his or her credentials were else whether any plastics recycling machines comparable to the sentinel 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 education or experience in the plastics industry he did not visit pi and there is no indication in the record in docket no that feinstein 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 connection with grinders extruders and pelletizers feinstein did not know how many other partnerships would be leasing sentinel recyclers 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 offering memorandum he had no competence to confirm the value of the machines or to do any comparison and he did not hire anyone to value the machine like feinstein alter 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 at least four of his clients that he was investing in a plastics recycling transaction and that the investment was open to them as well he told 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 details of the investment alter did not advise his clients to read the offering memorandum but it was available for them to read he did not suggest that they consult with any plastics experts at least four of alter's clients as well as alter invested in a plastics recycling transaction in alter and those same four clients invested in another plastics recycling transaction in alter and his wife deborah have no education or work experience in plastics materials or plastics recycling prior to investing in the plastics recycling transactions alter did not know anything about the business of pi and had not seen a sentinel epe or eps recycler his knowledge of pi was limited to the information in the offering materials and what feinstein told him the warnings and caveats in the offering memorandum did not concern him alter never asked whether there were any comparable machines already on the market and he was unaware of any companies that would be suitable end-users for the recyclers he knew that feinstein did not have any expertise in plastics materials or plastics recycling alter and his wife deborah never made a profit from their participation in poly reclamation opinion we have decided a large number of the plastics recycling group of cases the majority of these cases like the present provizer v commissioner tcmemo_1992_177 affd without published opinion 996_f2d_1216 6th cir concerned the substance of the partnership transaction and also the additions to tax the following cases concerned the addition_to_tax for negligence inter alia becker v commissioner tcmemo_1996_538 jaroff v commissioner tcmemo_1996_527 gollin v commissioner tcmemo_1996_454 grelsamer v commissioner tcmemo_1996_399 zenkel v commissioner tcmemo_1996_398 estate of busch v commissioner tcmemo_1996_342 spears v commissioner tcmemo_1996_341 stone v commissioner tcmemo_1996_230 reimann v commissioner tcmemo_1996_84 bennett v commissioner tcmemo_1996_14 atkind v commissioner tcmemo_1995_582 triemstra v commissioner tcmemo_1995_581 pace v commissioner tcmemo_1995_580 dworkin v commissioner tcmemo_1995_533 wilson v commissioner tcmemo_1995_525 avellini v commissioner tcmemo_1995_489 paulson v commissioner tcmemo_1995_387 zidanich v commissioner tcmemo_1995_382 ramesh v commissioner tcmemo_1995_346 reister v commissioner tcmemo_1995_305 fralich v commissioner tcmemo_1995_257 continued cases raised issues regarding additions to tax for negligence and valuation_overstatement we have found the taxpayers liable for the additions to tax in all but one of the opinions to date on these issues although procedural rulings have involved many more favorable results for taxpayers continued shapiro v commissioner tcmemo_1995_224 pierce v commissioner tcmemo_1995_223 fine v commissioner tcmemo_1995_222 pearlman v commissioner tcmemo_1995_182 kott v commissioner tcmemo_1995_181 eisenberg v commissioner tcmemo_1995_180 88_tc_376 concerned the applicability of the safe-harbor leasing provisions of sec_168 95_tc_560 concerned a jurisdictional issue farrell v commissioner tcmemo_1996_295 baratelli v commissioner tcmemo_1994_484 estate of satin v commissioner tcmemo_1994_435 fisher v commissioner tcmemo_1994_434 foam recycling associates v commissioner tcmemo_1992_645 madison recycling associates v commissioner tcmemo_1992_605 concerned other issues in zidanich v commissioner tcmemo_1995_382 we held the taxpayers liable for the sec_6659 addition_to_tax but not liable for the negligence additions to tax under sec_6653 as indicated in our opinion the zidanich case and the steinberg case consolidated with it for opinion involved exceptional circumstances in estate of satin v commissioner supra and fisher v commissioner supra after the decision in provizer v commissioner supra the taxpayers were allowed to elect to accept a beneficial settlement because of exceptional circumstances in farrell v commissioner supra we rejected the taxpayers' claim to a similar belated settlement arrangement since the circumstances were different and the taxpayers previously had rejected settlement and elected to litigate the case see also zenkel v commissioner supra baratelli v commissioner supra in provizer v commissioner tcmemo_1992_177 a test case for the plastics recycling group of cases this court found that each sentinel epe recycler had a fair_market_value not in excess of dollar_figure held that the clearwater transaction was a sham because it lacked economic_substance and a business_purpose upheld the sec_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 held that losses and credits claimed with respect to clearwater were attributable to tax- motivated transactions within the meaning of sec_6621 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 the alters 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 applicable law in a substantially identical case that also involved clearwater see provizer v commissioner supra a sec_6653 a --negligence in notices of deficiency respondent determined that each of petitioners was liable for the additions to tax for negligence under sec_6653 and for petitioners have the burden of proving that respondent's determinations of these additions to tax are erroneous rule a 79_tc_846 sec_6653 imposes an addition_to_tax equal to percent of the underpayment if any part of an underpayment_of_tax is due to negligence or intentional disregard of rules or regulations sec_6653 imposes an addition_to_tax equal to 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 85_tc_934 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 60_tc_728 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 tcmemo_1996_46 compare spears v commissioner tcmemo_1996_ with zidanich v commissioner tcmemo_1995_382 petitioners argue that they were reasonable in claiming deductions and credits with respect to the partnerships they maintain that they carefully read the respective offering memoranda expected an economic profit in light of the so-called oil crisis in the united_states in and that they reasonably relied upon their colleagues at shea gould as qualified advisers on this matter the private offering memoranda friedman and alter each testified that they read the respective offering memoranda their testimony and actions however indicate that they did not give due consideration to all of the information set out in the offering memoranda and that they ultimately did not place a great deal of reliance if any on the representations therein the offering memoranda raised numerous caveats and warnings with respect to the partnerships including the partnerships had no operating history management of the partnerships' 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 partnerships as he deemed necessary 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 partnerships there was no established market for the sentinel recyclers and although competitors purportedly were 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 friedman testified that he was an active investor from to and that it was his established practice to read the accompanying prospectus or offering memorandum and investigate the risks that were described therein with respect to clearwater however friedman did not investigate the risks described in the offering memorandum or even seek to verify the purported value or uniqueness of a sentinel epe recycler alter testified that he was not concerned by the risk factors described in the poly reclamation offering memorandum and commented that he had seen similar disclaimers in other red herrings or offering memoranda asked what he did to confirm the value of the machine alter testified i had no competence to do that to do any 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 the records in these cases do not reflect a careful and studied consideration of the offering memoranda by either petitioner the projected tax benefits in the clearwater and poly reclamation offering memoranda exceeded petitioners' investments according to the clearwater and poly reclamation offering memoranda for each dollar_figure investor the projected first-year tax benefits were investment tax_credits in the amount of dollar_figure for each partnership plus deductions in the amounts of dollar_figure and dollar_figure respectively for his dollar_figure investment in clearwater friedman claimed an operating loss in the amount of dollar_figure and investment tax and business energy credits in the amount of dollar_figure on his return as a result of alter's dollar_figure investment in poly reclamation on their return he and his wife deborah claimed an operating loss in the amount of dollar_figure and investment tax and business energy credits totaling dollar_figure the investment tax and business energy credits generated by the partnerships and available to petitioners equaled percent of their cash investments therefore after adjustments of withholding estimated_tax or final payment and possible carryback or carryover in friedman's case like the taxpayers in provizer v commissioner tcmemo_1992_177 except for a few weeks at the beginning petitioners never had any money in the partnership transactions in view of the disproportionately large tax benefits claimed on petitioners' federal_income_tax returns relative to the dollar amounts invested further investigation of the partnership transactions clearly was required a careful consideration of the materials as noted the total amount of investment tax and business energy credits flowing from clearwater to friedman in dollar_figure--was subject_to limitation in the offering memoranda in these cases especially the discussions of high writeoffs and risk of audit should have alerted a prudent and reasonable investor to the questionable nature of the promised deductions and credits see 857_f2d_1383 9th cir affg dister v commissioner tcmemo_1987_217 sacks v commissioner tcmemo_1994_217 affd 82_f3d_918 9th cir petitioners' reliance upon the court_of_appeals for the ninth circuit's partial reversal of our decision in osterhout v commissioner tcmemo_1993_251 affd in part and revd in part without published opinion sub nom balboa energy fund v commissioner 85_f3d_634 9th cir 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 thereindollar_figure the court_of_appeals for the ninth circuit reversed our imposition of the negligence osterhout v commissioner tcmemo_1993_251 affd in part and revd in part without published opinion sub nom balboa energy fund v commissioner 85_f3d_634 9th cir 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 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 additions to tax petitioners point out that the taxpayer in that case relied in part upon a tax opinion contained in the offering materials in the consolidated cases before us however petitioners' purported reliance on the tax opinion letter is undermined by their indifference to the numerous caveats and warnings highlighted throughout the offering materials 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 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 indicate that prospective investors such as petitioners were not to rely upon the tax opinion letter see collins v commissioner supra the limited technical opinion of tax counsel expressed in these letters was not designed as advice upon which taxpayers might rely and the opinion of counsel itself so states as sophisticated attorneys and investors friedman and alter knew or should have known that the opinion letter had a limited function that the caveats and warnings in the letter were to be taken seriously and certainly that they could not rely upon the opinion letter without full investigation of the economic and other factual assumptions upon which it explicitly was based the so-called oil crisis petitioners each testified that they reasonably expected to make an economic profit from the partnership transactions because plastic is an oil derivative and the united_states was experiencing a so-called oil crisis during the year 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 credits and purported losses based on vastly exaggerated valuations of recycling machinery petitioners did not seriously educate themselves in or personally investigate the plastics recycling transactions nor did they consult any plastics materials or plastics recycling experts regarding the business prospects for such a venture alter stipulated that prior to investing in clearwater he knew nothing about the business of pi he did not inquire as to whether there were any other competing machines he was unaware of any suitable end-users and he knew nothing about resin prices friedman stipulated that prior to investing in poly reclamation he did not investigate whether there were any other competing machines he did not investigate how the sentinel epe recycler functioned he did not investigate the uniqueness of the machine or whether its purported value was bona_fide and he did not investigate whether there were any suitable end-users for the recyclers petitioners did not attempt to resolve the numerous business-related caveats and warnings in the offering memoranda we are not convinced that petitioners gave sufficient consideration to the business aspects of the partnerships to show that they intended and reasonably expected to make an economic profit from the transactions regardless of the so-called oil crisis moreover petitioners did not adequately explain how the so- called oil crisis provided a reasonable basis for them to invest in the partnerships and claim the associated tax deductions and credits the offering materials warned that there could be no assurances that prices for new resin pellets would remain at their then current level one of respondent's experts steven grossman explained that the price of plastics materials is not directly proportional to the price of oil in his report he stated that less than percent of crude_oil is utilized for making plastics materials and that studies have shown that a increase in crude_oil prices results in only a to increase in the cost of plastics products furthermore during and in addition to the media coverage of the so-called oil crisis there was extensive continuing press coverage of questionable tax_shelter plans 731_f2d_1417 9th cir affg 79_tc_714 petitioners' reliance on 99_tc_132 affd sub nom 28_f3d_1024 10th cir is misplaced the facts in krause v commissioner supra are distinctly different from the facts of these cases in krause v commissioner supra 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 pincite in holding that the taxpayers in krause v commissioner supra were not liable for the negligence additions to tax this court noted that one of the government's expert witnesses acknowledged that investors may have been significantly and reasonably influenced by the energy price hysteria that existed in the late 1970's and early 1980's to invest in eor technology id pincite in the present cases however as explained by respondent's expert steven grossman the price of plastics materials was not directly proportional to the price of oil and there is no persuasive evidence that the so-called oil crisis had a substantial bearing on petitioners' decisions to invest while eor was according to our krause opinion in the forefront of national policy and the media during the late 1970's and 1980's there is no showing in these records that the so-called energy crisis would provide a reasonable basis for petitioners' investing in recycling of polyethylene particularly in the machinery here in question in addition the taxpayers in the krause case were experienced in or investigated the oil industry and eor technology specifically one of the taxpayers in krause v commissioner supra 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 pincite 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 petitioners' purported reliance on advisers petitioners claim that they reasonably relied upon the advice of qualified advisers specifically several partners at shea gould alter claims that he relied on feinstein as well none of the shea gould partners purportedly relied upon by petitioners testified in the trials of these cases feinstein testified in the alter case the concept of negligence and the argument of reliance on an expert are highly fact intensive petitioners in these cases are very well-educated and sophisticated attorneys who at the time of these investments were members of a leading new york city law firm friedman specialized in corporate and federal securities law alter specialized in entertainment and labor law and also consulted on various tax and financial issues for his clients these sophisticated attorneys ultimately relied upon other attorneys to investigate the tax law and the underlying business circumstances of a proposed investment the success of which depended upon a purportedly technologically unique machine neither the attorneys allegedly relied upon by petitioners nor an accountant who reviewed the clearwater offering memorandum was expert in plastics materials or plastics recycling a taxpayer may avoid liability for the additions to tax under sec_6653 and if he or she reasonably relied on competent professional advice 469_us_241 89_tc_849 affd 904_f2d_1011 5th cir affd 501_us_868 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 43_f3d_788 2d cir affg tcmemo_1993_621 39_f3d_402 2d cir affg tcmemo_1993_480 freytag v commissioner supra sacks v commissioner tcmemo_1994_217 kozlowski v commissioner tcmemo_1993_430 affd without published opinion 70_f3d_1279 9th cir see also gollin v commissioner tcmemo_1996_454 stone v commissioner tcmemo_1996_230 reimann v commissioner tcmemo_1996_84 reliance on representations by insiders promoters or offering materials has been held an inadequate defense to negligence goldman v commissioner supra 990_f2d_893 6th cir affg donahue v commissioner tcmemo_1991_181 94_tc_637 affd without published opinion 956_f2d_274 9th cir affd without published opinion sub nom cowles v commissioner 949_f2d_401 10th cir 92_tc_958 affd without published opinion 921_f2d_280 9th cir 92_tc_827 91_tc_524 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 85_tc_557 lax v commissioner tcmemo_1994_329 affd without published opinion 72_f3d_123 3d cir sacks v commissioner supra steerman v commissioner tcmemo_1993_447 rogers v commissioner tcmemo_1990_619 see also the plastics recycling cases cited supra note in addition to his professional experience as a corporate and federal securities lawyer by friedman had made a great number of personal investments his approach to these investments was rigorous and methodical he read the prospectus or private offering memorandum spoke to an expert in the pertinent industry investigated the risk factors described in the offering materials consulted industry reports and spoke to other active investors or lawyers with respect to clearwater however friedman's investigation was wanting friedman did not speak to a plastics materials or plastics recycling expert or investigate the risk factors described in the offering memorandum or consult plastics industry trade journals or reports his investigation of clearwater entailed nothing more than reading the offering memorandum and discussing the investment with other attorneys at shea gould friedman testified that he also provided a copy of the offering memorandum to his accountant and that his accountant did not advise against the investment the accountant however had no experience in plastics or plastics recycling and did not independently investigate the plastics industry or the sentinel epe recycler moreover the accountant did not testify at the trial of friedman's case and the substance of his advice if any is not clear from friedman's testimony see 931_f2d_578 9th cir affg tcmemo_1988_531 88_tc_1086 affd without published opinion 865_f2d_1264 5th cir affd without published opinion sub nom hatheway v commissioner 856_f2d_186 4th cir affd sub nom 864_f2d_93 9th cir affd sub nom 868_f2d_865 6th cir rejecting claims to reliance on an accountant under analogous circumstances friedman recalled that approximately eight other partners at shea gould either invested in or to some extent reviewed the plastics recycling transactions of these three were litigators carroll ferraro and leon gold one specialized in bankruptcy law hirshfield two specialized in corporate and or federal securities law arnold jacobs and thomas constance and one specialized in taxation parker friedman did not indicate the area of practice of the other partner he mentioned trost asked if any of these partners were experts in the plastics industry friedman replied i don't believe any of them were although i believe that dan carroll had an engineering background and i think joe ferraro may have had some experience in his past with plastics but i am not sure of that at this point friedman had a vague recollection of the investigation conducted by the other partners at shea gould he recalled that hirshfield and trost visited pi and that carroll made inquiries of people in the plastics business friedman did not indicate what if anything ferraro did he tentatively recalled receiving reports perhaps written that the partners investigating the plastics recycling transactions had gotten information that there was a substantial market for the recycled pellets he also testified that certain members of shea gould spoke to plastics experts who told them that there was a substantial market for the product of these machines friedman could not recall however which partners spoke to these purported experts or whether the experts consulted were independent of pi he testified that the partners who visited pi hirshfield and trost reported to us that they weren't aware of any other machines that did precisely what this machine did in fact the sentinel epe recycler was not unique instead several machines capable of densifying low density materials were already on the market other plastics recycling machines available during ranged in price from dollar_figure to dollar_figure including the foremost densilator nelmor weiss densification system regenolux buss-condux plastcompactor and cumberland granulatordollar_figure see provizer v commissioner tcmemo_1992_177 friedman did not explain what hirshfield and trost did if anything to become aware of competing plastics recyclers aside from their visit to pi friedman acknowledged that he is sophisticated enough to know that in any_tax investment the underlying economics have to be legitimate and he stipulated to the effect that he understood that the purported value of the sentinel epe recycler generated the tax benefits he claimed on his return he also understood from parker the partner primarily responsible for reviewing the tax aspects of the plastics recycling transactions that the tax benefits were supportable provided that from a business point of view this was a good economic investment nonetheless friedman stipulated that he never saw a sentinel epe recycler or investigated the uniqueness of the machine or investigated whether the value placed on the recycler was bona_fide or investigated whether there were any other machines that were designed to recycle low density polyethylene friedman's testimony about his modest investigation prior to investing in petitioners alter and friedman each stipulated to the availability of the foremost densilator nelmor weiss densification system regenolux buss-condux plastcompactor and cumberland granulator during the plastics recycling transaction was generally vague qualified and unconvincing friedman sought to establish that he monitored his investment in clearwater he testified that he spoke to hirshfield and trost on a number of occasions about the progress of the partnership friedman stated i believe that within the first year or so i received favorable reports that it was doing well and the machines were doing well in provizer v commissioner supra this court found at no time were all six of the sentinel epe recyclers leased by clearwater placed with end- users the recyclers were used infrequently and they often were not in use at all pi failed promptly to pick up either the scrap or machines rejected by prospective end-users and at times did not pay the end-user for the scrap that pi did pick up friedman submitted into the record several updates regarding the placement of the recyclers and the performance of clearwater a date update indicated that end-users had been found for four recyclers financial statements for the years ended and showed that clearwater was operating at a loss in a preface to the financial statements the accounting firm that prepared them h w freedman co stated as follows the financial statements have been prepared on a basis of accounting other than generally_accepted_accounting_principles the compilation is limited to presenting in the form of financial statements information that is the representation of the partnership we have not audited or reviewed the accompanying financial statements and accordingly do not express an opinion on them we are not independent with respect to clearwater group h w freedman co prepared the partnership returns for eci corp and f g corp the named partner of h w freedman co harris w freedman was the president and chairman of the board_of f g corp and owned percent of a sentinel epe recycler a date update submitted into the record by friedman contained an date sales summary showing a first quarter gross_profit of dollar_figure like friedman's perfunctory investigation of clearwater alter's investigation of poly reclamation was limited to reading the offering memorandum and discussing the investment with others at shea gould the colleagues he spoke to included hirshfield carroll parker and ferraro in addition to feinstein in whom alter claims he reposed particular confidence based upon their long professional association alter recalled the investigation by his colleagues at shea gould in general terms and portions of his testimony were inconsistent with 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 alter was under the impression that feinstein's friend lauren had read the offering memorandum but feinstein was explicit that lauren had not seen an offering memorandum feinstein's investigation of poly reclamation and the plastics recycling transactions was very 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 the 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-- only allegedly confirmed that the stream-of-income method of valuation was used in the industry feinstein did not verify any of the underlying assumptions upon which the income projections in the offering memorandum were based neither feinstein nor lauren visited pi to see a sentinel epe recycler or investigated whether competitive machines existed feinstein testified that he had telephone conversations with winer but he did not explain whether they discussed poly reclamation or the plastics recycling transactions or the nature of winer's advice if any see howard v commissioner f 2d pincite patin v commissioner t c pincite rejecting claims to reliance on an adviser where there is no showing that relevant advice was given alter also recalled speaking to winer he thought he remembered that winer had indicated that end-users had been scheduled for the machines but that winer did not name the end- users alter did not mention having any other conversations with winer also like feinstein alter accepted at face value all of the representations made in the offering memorandum at trial he was asked what made the sentinel epe recycler unique he replied 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 tcmemo_1992_177 we found that 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 among the recycler's component parts were replaceable rotating and stationary cutting blades like friedman alter submitted several documents into the record as evidence that he monitored his investment in poly reclamation of a total of six documents submitted only one dealt with poly reclamation that one dated date indicated that three of poly reclamation's sentinel epe recyclers had been placed and were running the other five documents dealt with partnerships that owned sentinel eps recyclers an date letter discussed the impossible pricing situation that continues in the polystyrene market the remaining documents were two financial statements for stevens recycling associates stevens recycling for the years ended and and two reports regarding the placement of the sentinel eps recyclers owned by stevens recycling alter was not sufficiently confident of poly reclamation and the plastics recycling transactions to recommend them expressly to his clients on direct examination he was 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 were interested they could participate as well 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 was asked what his recollection was regarding the nature of the recommendation and how it was presented by mr alter he replied 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 just as alter mentioned but did not recommend the plastics recycling transactions to his clients there is no showing in docket no that any of the shea gould partners recommended or advised that alter invest in poly reclamation 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 yet as alter well knew feinstein did not personally invest in a plastics recycling transaction nor did his friend lauren we hold that petitioners' purported reliance on the other partners at shea gould and in alter's case feinstein as well was not reasonable not in good_faith nor based upon full disclosure petitioners' testimony in these cases was self- serving and at times vague and elusive and this court is not required to accept it as true 338_f2d_602 9th cir affg 41_tc_593 99_tc_202 87_tc_74 snyder v commissioner tcmemo_1995_285 sacks v commissioner tcmemo_1994_217 moreover petitioners' failure to call any of the shea gould partners to testify gives rise to the inference that their testimony would not have been favorable to petitioners 101_tc_374 affd without published opinion 40_f3d_385 5th cir 47_tc_92 affd 392_f2d_409 5th cir 6_tc_1158 affd 162_f2d_513 10th cir sacks v commissioner supra the purported value of the sentinel epe recycler generated the deductions and credits in these cases and that circumstance was reflected in the offering memoranda certainly parker and feinstein recognized the nature of the tax benefits and given their education and professional experiences petitioners should have recognized it as well friedman acknowledged that he recognized the nature of the tax benefits and undoubtedly they were made clear to alter by feinstein yet neither friedman alter nor their colleagues at shea gould confirmed the value of the sentinel epe recycler the records in these cases show that in the end petitioners and their colleagues relied on pi personnel for the value of the sentinel epe recyclers and the economic viability of the partnership transactions see vojticek v commissioner tcmemo_1995_444 to the effect that advice from such persons is better classified as sales promotion neither feinstein nor the participating partners at shea gould had any expertise in plastics materials or plastics recycling although ferraro apparently worked many years ago for one or more summers at a plastics company and carroll had an engineering background they did not testify in these cases and the records fail to establish that ferraro's summer job experience or carroll's engineering background adequately enabled them to assess the plastics recycling transactions a taxpayer may rely upon his advisers' expertise but it is not reasonable or prudent to rely upon an adviser regarding matters outside of his field of expertise or with respect to facts that he does not verify see david v commissioner f 3d pincite- goldman v commissioner f 3d pincite 864_f2d_93 9th cir affg 88_tc_1086 lax v commissioner tcmemo_1994_329 sacks v commissioner supra rogers v commissioner tcmemo_1990_619 miscellaneous the parties in these consolidated cases stipulated that the fair_market_value of a sentinel epe recycler in was not in excess of dollar_figure regardless of this concession petitioners contend that they were reasonable in claiming credits on their federal_income_tax returns based upon each recycler's having a value of dollar_figure in support of this position petitioners rely upon preliminary reports prepared for respondent by ernest d carmagnola carmagnola the president of professional plastic associates carmagnola had been retained by the irs in 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 dollar_figure however after additional information became available to him carmagnola concluded in a signed affidavit dated date that the machines actually had a fair_market_value of not more than dollar_figure each in the fall of dollar_figure we accord no weight to the carmagnola reports submitted by petitioners the projected valuations therein were based on inadequate information research and investigation and were subsequently rejected and discredited by their author in one preliminary report carmagnola states that he has a serious concern of actual profit of a sentinel epe recycler and that to determine whether the machines actually could be profitable he required additional information from pi carmagnola also indicates that in preparing the report he did not have information available concerning research_and_development costs of the machines and that he estimated those costs in his valuations of the machines respondent rejected the carmagnola reports and considered them unsatisfactory for any purpose and there is no indication in the records that respondent used them as a basis for any determinations in the notices of deficiency even so counsel the parties stipulated as to the authenticity of the carmagnola reports but respondent objected on grounds of relevance materiality and hearsay since these reports have been included in the record in many other plastics recycling cases we admitted them into evidence with the caveat that if mr carmagnola was not called to testify we expected to give minimal weight to the reports for petitioners obtained copies of these reports and urge that they support the reasonableness of the values reported on petitioners' returns not surprisingly counsel in these cases did not call carmagnola to testify 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 consequence petitioners are not relieved of the negligence additions to tax based on the preliminary reports prepared by carmagnola petitioners cite a number of cases in support of their positions but primarily rely on 71_f3d_515 5th cir affg in part and revg in part tcmemo_1994_179 chamberlain v commissioner 6_f3d_729 5th cir affg in part and revg in part tcmemo_1994_228 mollen v united_states aftr 2d ustc par big_number d ariz reile v commissioner tcmemo_1992_ and davis v commissioner tcmemo_1989_607 this court declined to sustain the negligence additions to tax in the reile and davis cases for reasons inapposite to the facts herein in the davis case the taxpayers reasonably relied upon a trusted and long-term adviser who was independent of the investment venture and the offering materials reviewed by the taxpayers did not reflect that the principals in the venture lacked experience in the pertinent line_of_business in the reile case the taxpayers a married couple had only year of college between them and characterized themselves as financial dummies in contrast to those cases petitioners herein are well-educated and experienced professionals friedman is a corporate and federal securities lawyer intimately familiar with public and private placements while alter is an entertainment and labor lawyer who also assists a number of his clients in financial matters feinstein and the participating partners at shea gould were colleagues contemplating a similar investment not long-term advisers to petitioners in addition the offering memoranda warned that the partnerships had no prior operating history and that the general_partner had no prior experience in marketing recycling or similar equipment accordingly petitioners' reliance on the reile and davis cases is misplaced in mollen v united_states supra the taxpayer was a medical doctor who specialized in diabetes and who on behalf of the arizona medical association led a continuing medical education cme accreditation program for local hospitals the underlying tax matter involved the taxpayer's investment in diabetics cme group ltd a limited_partnership that invested in 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 pincite7 ustc par big_number at big_number see zfass v commissioner tcmemo_1996_167 in contrast there is no showing in these cases that petitioners or their colleagues 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 profitabledollar_figure feinstein spoke to lauren ferraro apparently worked for one or more summers at a plastics company and carroll had an engineering background but neither ferraro nor carroll testified in these cases and the continued but their discussion was limited to lauren's impression of pi lauren did not read the poly reclamation offering memorandum see a sentinel epe recycler or do any type of investigation into the plastics recycling market petitioners and their colleagues did not hire any independent experts in the field of plastic materials or plastics recycling they relied upon 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 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 continued records fail to establish that they were qualified to analyze the sentinel epe recycler or the plastics recycling transactions western cases however the courts of appeals have affirmed decisions of the tax_court imposing negligence additions to tax see foulds v commissioner tcmemo_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_f3d_651 9th cir chakales v commissioner tcmemo_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_f3d_726 8th cir kozlowski v commissioner tcmemo_1993_430 reliance on adviser held unreasonable absent a showing that the adviser understood the transaction and was qualified to give an opinion whether it was bona_fide affd without published opinion 70_f3d_1279 9th cir freytag v commissioner t c pincite 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 here we have found that none of petitioners' colleagues at shea gould including ferraro carroll and feinstein possessed sufficient knowledge of the plastics or recycling industries to render a competent opinion this fact has been deemed relevant by the court_of_appeals for the second circuit the court to which appeal in these cases lies see david v commissioner f 3d pincite taxpayers' reliance on expert advice not reasonable where expert lacks knowledge of business in which taxpayers invested goldman v commissioner f 3d pincite same accordingly petitioners shall 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 circuitdollar_figure 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 we hold that petitioners did not reasonably rely upon the offering memoranda and their colleagues at shea gould friedman knew that the tax benefits were contingent upon the purported value of the sentinel epe recycler and certainly alter understood this circumstance or learned as much from feinstein yet neither petitioners nor their purported advisers in good_faith investigated the fair other cases cited by petitioners are inapplicable and distinguishable for the following general nonexclusive reasons they involve far less sophisticated if not unsophisticated taxpayers the reasonableness of the respective taxpayers' reliance on expert advice was established in those cases on grounds that do not exist here and the advice given was within the adviser's area of expertise market_value of a sentinel epe recycler or the underlying viability financial structure and economics of the partnership transactions these sophisticated able and successful taxpayers knew or should have known better we hold upon consideration of the entire records that petitioners are liable for the negligence additions to tax under sec_6653 and for the taxable_year at issue respondent is sustained on this issue b section 6659--valuation overstatement in notices of deficiency respondent determined that petitioners were liable for the sec_6659 addition_to_tax on the portion of their respective underpayments attributable to valuation_overstatement petitioners have the burden of proving that respondent's determinations of the sec_6659 additions to tax in their cases are erroneous rule a luman v commissioner t c pincite a graduated addition_to_tax is imposed when an individual has an underpayment_of_tax that equals or exceeds dollar_figure and is attributable to a valuation_overstatement sec_6659 d a valuation_overstatement exists if the fair_market_value or adjusted_basis of property claimed on a return equals or exceed sec_150 percent of the amount determined to be the correct amount sec_6659 if the claimed valuation exceed sec_250 percent of the correct value the addition is equal to percent of the underpayment sec_6659 petitioners claimed tax benefits including an investment_tax_credit and a business_energy_credit based on purported values of dollar_figure for each sentinel epe recycler petitioners concede that the fair_market_value of a sentinel epe recycler in was not in excess of dollar_figure therefore if disallowance of petitioners' claimed tax benefits is attributable to such valuation overstatements petitioners are liable for the sec_6659 additions to tax at the rate of percent of the underpayments of tax attributable to the tax benefits claimed with respect to the partnerships petitioners contend that sec_6659 does not apply in their cases for the following three reasons disallowance of the claimed tax benefits was attributable to other than a valuation_overstatement petitioners' concessions of the claimed tax benefits preclude imposition of the sec_6659 additions to tax and respondent erroneously failed to waive the sec_6659 additions to tax we reject each of these arguments for reasons set forth below the grounds for petitioners' underpayments sec_6659 does not apply to underpayments of tax that are not attributable to valuation overstatements see mccrary v commissioner t c pincite 89_tc_912 affd 862_f2d_540 5th cir 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 t c pincite citing todd v commissioner supra however when valuation is an integral factor in disallowing deductions and credits sec_6659 is applicable see 982_f2d_163 6th cir affg tcmemo_1991_449 933_f2d_143 2d cir the sec_6659 addition_to_tax applies if a finding of lack of economic_substance is due in part to a valuation_overstatement affg tcmemo_1989_684 masters v commissioner tcmemo_1994_197 affd without published opinion 70_f3d_1262 4th cir harness v commissioner tcmemo_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 sec_6659 requires a direct causative relationship between a valuation_overstatement and an underpayment in tax sec_6659 cannot apply to their deficiencies petitioners cite the following cases to support this argument 902_f2d_380 5th cir revg tcmemo_1988_408 893_f2d_225 9th cir affg tcmemo_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 the disallowed tax_credits and other_benefits in these cases the underpayments of tax and our finding that the partnership transactions lacked economic_substance petitioners argue that in provizer v commissioner tcmemo_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 efforts to justify the overvaluation was the dominant factor that led us to hold that the clearwater transaction lacked economic_substance likewise overvaluation of the sentinel epe recyclers in these cases is the ground for our holding herein that the partnership transactions lacked economic_substance moreover a virtually identical argument was recently rejected in gilman v commissioner supra by the court_of_appeals for the second circuit the court to which appeal in these cases lies see 54_tc_742 affd 445_f2d_985 10th cir 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 sec_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 pincite 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 sec_6659 ' gilman v commissioner supra pincite quoting 876_f2d_616 8th cir affg t c memo see also rybak v commissioner t c pincite 87_tc_970 donahue v commissioner tcmemo_1991_ affd without published opinion 959_f2d_234 6th cir affd sub nom 990_f2d_893 6th cir petitioners' reliance on gainer v commissioner supra todd v commissioner supra and mccrary v commissioner t c pincite 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 pincite petitioners' cases present just such a different situation overvaluation of the recyclers was integral to and inseparable from petitioners' claimed tax benefits and our holding that the partnership transactions lacked economic substancedollar_figure concession of the deficiencies to the extent that 902_f2d_380 5th cir revg tcmemo_1988_408 merely represents an application of 89_tc_912 affd 862_f2d_540 5th cir 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 933_f2d_143 2d cir the lack of economic_substance was due in part to the overvaluation and thus the underpayment was attributable to the valuation_overstatement affg tcmemo_1989_684 petitioners argue that their concessions of the deficiencies preclude imposition of the sec_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 sec_6659 cannot apply in support of this line of reasoning petitioners rely heavily upon 902_f2d_380 5th cir and mccrary v commissioner supra petitioners' open-ended concessions do not obviate our finding that the partnership transactions lacked economic_substance due to overvaluation of the recyclers this is not a situation where we have to decide difficult valuation questions for no reason other than the application of penalties see mccrary v commissioner supra pincite n the value of the sentinel epe recycler was established in provizer v commissioner tcmemo_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 sec_6659 addition_to_tax see dybsand v commissioner tcmemo_1994_56 chiechi v commissioner tcmemo_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 sec_6659 addition_to_tax and the other does not the taxpayer may still be liable for the addition_to_tax gainer v commissioner f 2d pincite 866_f2d_545 2d cir vacating in part tcmemo_1988_211 harness v commissioner tcmemo_1991_321 in the present cases no argument was made and no evidence was presented to the court to prove that disallowance and concession of the claimed investment tax_credits and other tax benefits related to anything other than a valuation_overstatement to the contrary petitioners each stipulated substantially the same facts concerning the partnership transactions as we found in provizer v commissioner supra in the provizer case we held that the taxpayers were liable for the sec_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 big_number 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 sec_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 sec_6659 addition_to_tax in mccrary v commissioner supra the sec_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 petitioners' reliance on mccrary v commissioner supra is rejecteddollar_figure we held in provizer v commissioner supra that each sentinel epe recycler had a fair_market_value not in excess of dollar_figure 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 the clearwater transaction was considered in the provizer case and alter stipulated that the poly reclamation transaction is substantially identical to the clearwater transaction in addition petitioners each stipulated that the fair_market_value of a sentinel epe recycler in was not in excess of dollar_figure given those concessions and the fact that the records here plainly show that the overvaluations of the recyclers were 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 sec_6659 petitioners' citation of heasley v commissioner supra in support of the concession argument is also rejected that case was not decided by the court_of_appeals for the fifth circuit on the basis of a concession moreover see supra note 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 petitioners argue that respondent erroneously failed to waive the sec_6659 additions to tax sec_6659 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 sec_6659 addition_to_tax is reviewable by this court for abuse_of_discretion krause v commissioner t c pincite abuse_of_discretion has been found in situations where the commissioner's refusal to exercise her discretion is arbitrary capricious or unreasonable see 91_tc_1079 82_tc_989 haught v commissioner tcmemo_1993_58 we note initially that petitioners did not request respondent to waive the sec_6659 additions to tax until well after the trials of these cases petitioners each made their requests approximately months after the trials of their cases we are reluctant to find that respondent abused her discretion in these cases when she was not timely requested to exercise it and there is no direct evidence of any abuse of administrative discretion haught v commissioner supra cf wynn v commissioner tcmemo_1995_609 klieger v commissioner tcmemo_1992_734 however we do not decide this issue solely on petitioners' failure timely to request waivers but instead we have considered the issue on its merits petitioners urge that they relied on the respective offering materials and their colleagues at shea gould 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 sec_6659 additions to tax however as we explained above in finding petitioners liable for the negligence additions to tax petitioners' purported reliance on the offering materials and their colleagues was not reasonable each petitioner read the offering memoranda for the partnerships which contained numerous warnings and caveats including the likelihood that the value placed on the recyclers would be challenged by the irs as being in excess of fair_market_value friedman recognized that the purported value of the sentinel epe recycler was intrinsic to the tax benefits and alter undoubtedly learned as much on his own or from one of his colleagues even so there is no showing in the records in these cases that petitioners or the persons they purportedly relied upon--including ferraro and carroll--were qualified to assess or analyze the technical aspects of the plastics recycling transactions nor do the records show that petitioners or their colleagues ever hired any plastics engineering or technical experts with respect to the plastics recycling transactions feinstein spoke with lauren who may have had some knowledge of the plastics industry but their discussion was limited to pi's reputation feinstein refrained from asking lauren anything about plastics recycling competitive machines or these particular plastics recycling transactions in the end petitioners and their colleagues relied exclusively on pi its personnel and the offering materials as to the value and purported uniqueness of the machines in support of their contention that they acted reasonably petitioners cite 22_f3d_1001 10th cir revg tcmemo_1993_23 however the facts in the mauerman case are distinctly different from the facts of these cases in mauerman the court_of_appeals for the tenth circuit held that the commissioner had abused her discretion for not waiving a sec_6661 addition_to_tax like the sec_6659 addition_to_tax a sec_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 the taxpayer in mauerman relied upon independent attorneys and accountants for advice as to whether payments were properly deductible or capitalized the advice relied upon by the taxpayer in mauerman was within the scope of the advisers' expertise the interpretation of the tax laws as applied to undisputed facts in these cases particularly with respect to valuation petitioners relied upon advice that was outside the scope of expertise and experience of their purported advisers consequently petitioners' reliance on the mauerman case is rejected we hold that petitioners did not have a reasonable basis for the adjusted bases or valuations claimed on their tax returns with respect to their investments in the partnerships in these cases respondent could find that petitioners' respective reliance on the offering materials and their colleagues 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 sec_6659 additions to tax in these cases is not an abuse_of_discretion petitioners are liable for the respective sec_6659 additions to tax at the rate of 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 memoranda of law long after the trials of these cases petitioners each filed a motion for leave to file motion for decision ordering relief from the negligence_penalty and the penalty rate of interest and to file supporting memorandum of law under rule 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 and each of which was styled miller v commissioner see farrell v commissioner tcmemo_1996_295 denying a motion similar to petitioners' motions see also jaroff v commissioner tcmemo_1996_527 gollin v commissioner tcmemo_1996_454 grelsamer v commissioner tcmemo_1996_399 zenkel v commissioner tcmemo_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 64_tc_989 see also haft trust v commissioner 62_tc_145 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 such motions would be denied therefore and for reasons set forth in more detail below petitioners' motions for leave shall be denied some of our discussion of background and circumstances underlying petitioners' motions is drawn from documents submitted by the parties and findings of this court in two earlier decisions see estate of satin v commissioner tcmemo_1994_ fisher v commissioner tcmemo_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 tcmemo_1992_177 and the two miller cases we held in estate of satin and fisher that the terms of the piggyback_agreement bound the parties to the results in all three lead cases not just the provizer case petitioners assert that the piggyback_agreement was extended to them but they do not claim to have accepted the offer timely so they effectively rejected itdollar_figure in or about february of 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 tcmemo_1994_484 pursuant to the offer taxpayers had days to accept the following terms allowance of a deduction for percent of the amount of the cash investment in the venture in the year s of investment to the 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 extent of loss claimed government concession of the substantial_understatement of tax penalties under sec_6661 and the negligence additions to tax under sec_6653 and taxpayer concession of the sec_6659 addition_to_tax for valuation_overstatement and the increased rate of interest under sec_6621 and execution of a closing_agreement form_906 stating the settlement and resolving the entire matter for all yearsdollar_figure 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 itdollar_figure in date the miller cases were disposed of by settlement agreement between the taxpayers and respondentdollar_figure although the records do not include a settlement offer to petitioners petitioners have attached to their motions for decision a copy of a settlement offer to another taxpayer with respect to a plastics recycling case and respondent has not disputed the accuracy of the statement of the plastics recycling settlement offer 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 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 her objections to petitioners' motions continued this court entered decisions based upon those settlements on date the settlement provided that the taxpayers in the miller cases were liable for the addition_to_tax under sec_6659 for valuation_overstatement but not for the additions to tax under the provisions of sec_6661 and sec_6653 the increased interest under sec_6621 premised solely upon miller's interest in the recyclers for the taxable years at issue was not applicable because miller made payments prior to date 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 continued for leave and petitioners do not dispute the accuracy of the document 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 363_us_299 frankfurter j concurring see 748_f2d_1465 11th cir 476_f2d_406 4th cir according to petitioners the principle of equality precludes the commissioner from making arbitrary distinctions between like cases see 787_f2d_637 d c cir vacating 83_tc_822 the different tax treatment accorded petitioners and miller was not arbitrary or irrational while petitioners and miller both invested in the plastics recycling project their actions with respect to such investments provide a rational basis for treating them differently miller foreclosed any potential liability for increased interest in his cases by making payments prior to date no interest accrued after that date in contrast petitioners made no such payment and they conceded that the increased rate of interest under sec_6621 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 sec_6621 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 sec_6621 according to petitioners if the millers were not otherwise subject_to the penalty interest provisions because of the particular timing of their tax_payments there would have been no need for the court to include such a recital in its decisions this argument by petitioners is entirely conjectural and is not supported by the documentation on which counsel relies in fact the recital that no increased interest under sec_6621 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 tcmemo_1994_435 or fisher v commissioner tcmemo_1994_ 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 sec_6621 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 they also rejected a settlement offer made to them prior to trial of a test case in contrast prior to trial miller negotiated for himself and accepted an offer that was essentially the same as the plastics recycling project settlement offer that petitioners failed to accept prior to trial accordingly petitioners' motions are not supported by the principle of equality on which they rely cf baratelli v commissioner tcmemo_1994_484 in order to reflect the foregoing appropriate orders will be issued denying petitioners' motions and decisions will be entered for respondent