valuation and that the value claimed was made in good faith. Sec. 6659(c). Section 6659 only applies to returns filed after December 31, 1981. There are credit carrybacks attributable to the OEC transaction in 1980.25 In Nielsen v. Commissioner, 87 T.C. 779 (1986), we held that "an item carried back from a later year to an earlier year is 'attributable to the adjustment in the later year." The carryback is greater than $1,000. Thus, the addition also applies as to the credits carried back to 1980. Respondent also contends that the disallowed "advance rental" deductions in 1982 contributed to an underpayment attributable to a valuation overstatement. Respondent posits that the leasehold interest constituted a property interest, therefore the rentals amounted to the value of property claimed on a return. Thus, the $100,000 advance rentals were more than 250 percent of the fair market value of the leasehold interest-approximately $19,000. The fair market value of the leasehold, respondent asserts, is no more than the fair market value of the underlying property ($4,800 times four units). We do not agree with this reading of the statute. A valuation overstatement applies to "the value of any property, or the adjusted basis of any property, claimed on any return." Sec. 6659(c). We are unable to make the conceptual leap from deducting rental expenses to claiming the value of property on a return. Further, respondent's position is without support in the cases that have interpreted the statute. In Todd v. Commissioner, 89 T.C. 912 (1987), we rejected respondent's argument that section 6659 applies whenever an underpayment is attributable to a transaction involving or accompanied by a valuation overstatement. In that case, deductions were disallowed because property had not been placed in service and was held not to create an underpayment attributable to a valuation overstatement. Similarly, in Zirker v. Commissioner, 87 T.C. 970 (1986), we held that while disallowed depreciation deductions and investment tax credits did create an underpayment attributable to a valuation overstatement, other disallowed expenses, such as interest, did not. We disal 25 The 1980 return would have been timely filed on or before Apr. 15, 1981. lowed the deductions and credits on the basis that no sale of cattle occurred for tax purposes; the only valuation overstatement related to the basis of the cattle. Petitioners deducted the rental expenses as payments for the use of property. They made no claim as to the value of the underlying property. Thus, the underpayments attributable to the advanced rentals are not subject to the overvaluation addition. The final issue is the interest imposed on tax-motivated transactions imposed by section 6621(c).26 The increased rate of interest is 120 percent of the statutory rate imposed on underpayments. Sec. 6621(c)(1). A tax-motivated transaction includes any valuation overstatement, as defined in section 6659. Sec. 6621(c)(3)(A)(i). The underpayment attributable to the transaction must exceed $1,000.27 Thus, with respect to the underpayments attributable to the disallowed credits, the increased rate of interest applies. Sec. 6621(c)(1). We must next decide whether the increased rate of interest applies to the disallowed advanced rental and other expenses. We have already decided that the advanced rentals are not a valuation overstatement. The Commissioner has the authority to specify other types of transactions that will be treated as tax motivated. Sec. 6621(c)(3)(B). Deductions disallowed for any period under section 183 relating to an activity not engaged in for profit are included in respondent's temporary regulations, sec. 301.6621-2T Q-4, Temp. Proced. & Admin. Regs., 49 Fed. Reg. 59394 (Dec. 28, 1984). See Patin v. Commissioner, 88 T.C. 1086 (1987). We have previously disallowed the deductions and credits related to the OEC activity because it was not engaged in with the requisite profit objective. Thus, the increased rate of interest applies to the advanced rental and other expenses. To reflect the foregoing, Decision will be entered under Rule 155. 26 Prior to the Tax Reform Act of 1986, subsec. (c) was designated subsec. (d). Sec. 1511(a), Pub. L. 99-514, 100 Stat. 2085, 2744. The additional interest applies only after Dec. 31, 1984, and notwithstanding that the transaction was entered into prior to that date. Solowiejczyk v. Commissioner, 85 T.C. 552 (1985), affd. per curiam without published opinion 795 F.2d 1005 (2d Cir. 1986). 27 We previously found this with respect to the sec. 6659 issue. LOIS W. POINIER, AS TRANSFEREE OF HELEN WODELL HALBACH, ET AL., PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT Docket Nos. 23881-81, 23882-81, Filed January 11, 1988. Held, the amount of an appeal bond under sec. 7485, I.R.C. 1954, may not be reduced by the amount of any pending claims for refund. Held, further, "stripped" U.S. obligations may not be used as collateral in lieu of a surety bond under 31 U.S.C. sec. 9303 (1982). Geoffrey J. O'Connor, for the petitioners. OPINION TANNENWALD, Judge: On August 24, 1987, decisions were entered in these cases pursuant to our opinion filed on March 27, 1986. Subsequently, petitioners filed a timely motion to vacate decisions which was denied on November 3, 1987. Petitioners have moved for an order fixing the amount of an appeal bond pursuant to Rule 1921 and section 7485.2 Respondent requests us to fix the amount of the bond at $5,544,933. Petitioners do not dispute respondent's request as far as it goes, but claim that the amount of the bond should be reduced by $2,950,502 to reflect certain claims for income tax refunds previously filed by petitioners with respondent. In addition, petitioners seek to use "stripped" U.S. Government bonds as collateral in lieu of a surety bond and ask us to require respondent to accept, 'All Rule references are to the Tax Court Rules of Practice and Procedure, and, unless otherwise noted, all section references are to the Internal Revenue Code as amended. 2Sec. 7485 provides in relevant part: Notwithstanding any provision of law imposing restrictions on the assessment and collection of deficiencies, the review under section 7483 shall not operate as a stay of assessment or collection of any portion of the amount of the deficiency determined by the Tax Court unless a notice of appeal in respect of such portion is duly filed by the taxpayer, and then only if the taxpayer (1) on or before the time his notice of appeal is filed has filed with the Tax Court a bond in a sum fixed by the Tax Court not exceeding double the amount of the portion of the deficiency in respect of which the notice of appeal is filed, and with surety approved by the Tax Court, conditioned upon the payment of the deficiency as finally determined, together with any interest, additional amounts, or additions to the tax provided for by law, or (2) has filed a jeopardy bond under the income or estate tax laws. [Sec. 7485(a).] in lieu of such bond, a trust arrangement for certain bonds and Treasury bills. Section 7485 requires a bond "to protect the United States during the pendency of an appeal so that when the appeal becomes final, there will be adequate security for collection of the amounts finally determined to be owed." Estate of Kahn v. Commissioner, 60 T.C. 964, 967 (1973). Our customary practice is to set the appeal bond at the amount of the deficiency for which review is sought, plus additions to tax and interest running from the date the return was filed to a date 21⁄2 years after the appeal is required to be filed, limited of course by the statutory cap of twice the deficiency. Barnes Theater Ticket Service, Inc. v. Commissioner, 50 T.C. 28, 29 (1968). Any departure from this customary practice "must provide a means whereby the Internal Revenue Service is certain that it can collect the approved deficiency." 50 T.C. at 29. Reducing the amount of the bond because petitioners have claims for refund pending with respondent would not be in keeping with the requirement of certainty. While it may well be that petitioners' claims, which are based on a step-up in basis under section 1015 for gift taxes paid (which were required by our prior decisions, Poinier, Transferee v. Commissioner, 86 T.C. 478 (1986)), are meritorious, we cannot be certain that that is the case. The right to such refunds does not flow automatically from our prior decisions. Respondent would still be entitled to audit the returns for the years covered by the claims for refund in order to determine the correctness of the reported costs and sales proceeds of the securities whose basis would be stepped up, whether there might be other items of omitted income for the years involved and whether the claimed deductions for those years are allowable. Lewis v. Reynolds, 284 U.S. 281 (1932). Furthermore, respondent would appear to be entitled to offset against any refunds otherwise due petitioners, the amount of other taxes or other amounts owed by petitioners to the Government, the collection of 3The only evidence before us is the returns for the years involved showing such amounts, and the claims for refund showing the overall recalculation based upon the stepped-up basis. "Neither party has suggested that the provisions of secs. 1311-1314 are in any way involved herein and their application would be open to question. See O'Brien v. United States, 766 F.2d 1038 (7th Cir. 1985); Chertkof v. United States, 676 F.2d 984 (4th Cir. 1982). which is not barred by the statute of limitations. Sec. 6402. See 28 U.S.C. secs. 1346(c) and 1503; Cherry Cotton Mills, Inc. v. United States, 327 U.S. 536 (1946); Missouri Pacific Railroad v. United States, 168 Ct. Cl. 86, 88-89, 338 F.2d 668, 670 (1964); Luther v. United States, 225 F.2d 495, 498 (10th Cir. 1954). Finally, there may be other grounds upon which respondent could challenge the validity of petitioners' refund claims. Under the foregoing circumstances, we hold that the amount for which an appeal bond is required in this case may not be reduced by the amount of the claimed refunds of income taxes.5 We also conclude that, under all the circumstances herein, we should reject petitioners' request that we direct respondent to act upon such claims for refund in order to provide a basis for allowing such offsets. 6 Petitioners also wish to deposit stripped U.S. bonds in lieu of a surety bond. Deposit of U.S. bonds or notes in lieu of sureties is authorized by section 7485(c)(2), which refers to the provisions of 31 U.S.C. section 9303 (1982). In relevant part, that section provides: (a) If a person is required under a law of the United States to give a surety bond, the person may give a Government obligation as security instead of a surety bond. The obligation shall (1) be given to the official having authority to approve the surety bond; (2) be in an amount equal at par value to the amount of the required surety bond; and (3) authorize the official receiving the obligation to collect or sell the obligation if the person defaults on a required condition. [31 U.S.C. sec. 9303(a) (1982).] The Secretary of the Treasury has issued regulations governing the deposit of U.S. Government bonds. Those "We note that, if the claims for refund were offered as collateral in lieu of a surety bond, we would reach the same result for the same reasons and because the statute does not give us authority to accept anything other than U.S. Government obligations as collateral in lieu of a surety bond. See sec. 7485(c); Estate of Kahn v. Commissioner, 60 T.C. 964, 967-969 (1973). We also note that, although an established right to a refund is not a public-debt obligation of the United States (see 31 U.S.C. sec. 9303 (1982)), it would appear to satisfy the "surety" requirement of sec. 7485. Cf. Adolph Coors Co. v. Commissioner, 62 T.C. 300 (1974). "Presumably, the possibility that his assertion of a gift tax deficiency would not be sustained accounts for respondent's failure thus far to take action on petitioners' claims for refund. Petitioners have indicated that their failure to institute suit on the claims for refund is based on the same reasoning. 7" Stripped bonds" are bonds from which the interest coupons have been removed, leaving only the promise to pay the principal sum in the future, thereby allowing the interest coupons to be marketed separately from the principal. |