The amendment that added section 6659 to the Internal Revenue Code states that it "shall apply to returns filed 87 T.C. 779">*781 after December 31, 1981." Sec. 722(a)(4), Economic Recovery Tax Act of 1981 (ERTA), Pub. L. 97-34, 95 Stat. 341.

Petitioners argue that the addition to tax does not apply to their 1978 and 1979 tax returns because they were filed before the effective date of section 6659. Petitioners' argument is premised on the assumption that the "return" referred to in subsection (a)(4) of section 722 of ERTA is the return for the year of the underpayment upon which the addition to tax for a valuation overstatement is imposed. Petitioners also argue that the 1978 and 1979 Forms 1040X filed after December 31, 1981, were merely claims for refund and thus do not constitute tax returns. Respondent contends that an underpayment attributable to a valuation overstatement on a return filed after December 31, 1981, is subject to the addition to tax irrespective of the filing date of the return for the year of the underpayment. We find respondent's position to be more persuasive in view of the statutory1986 U.S. Tax Ct. LEXIS 40">*45 language, the legislative history, and the apparent deterrent purpose of section 6659.

Subsection (a) of section 6659 imposes an addition to tax where there is "an underpayment of the tax imposed by chapter 1 for the taxable year which is attributable to a valuation overstatement." Another pertinent portion of section 6659² provides:

SEC. 6659(c). Valuation Overstatement Defined. --

(1) In general. -- For purposes of this section, there is a valuation overstatement if the value of any property, or the adjusted basis of any property, claimed on any return is 150 percent or more of the amount determined to be the correct amount of such valuation or adjusted basis (as the case may be). [Emphasis supplied.]

The House report and the House Conference report both state only that the provision applies to "returns filed after December 31, 1981." H. Rept. 97-201, at 244 (1981), 1981-2 C.B. 352, 398-399; H. Rept. 97-215 (Conf.), at 262 (1981), 1981-2 C.B. 481, 515. The General Explanation by the Staff of the Joint Committee on Taxation, however, describes the effective date as follows:

The provision applies to returns filed after December 31, 1981. Since the provision applies to returns filed after December 31, 1981, property that has been overvalued on a return filed prior to that date may give rise to1986 U.S. Tax Ct. LEXIS 40">*47 the penalty on a return filed after December 31, 1981, if the original overvaluation produces a tax underpayment on the later filed return (and if the property has not been held for more than five years as of the close of the taxable year). Moreover, the provision could be applicable in situations where overvaluations in one year result in carryovers to future years which give rise to underpayments in those years. This will be the case in any situation in which an overvaluation of property in one year produces a tax benefit in that year which, in turn, has the result of producing a tax benefit in a future year (or future years). [Staff of the Joint Committee on Taxation, General Explanation of the Economic Recovery Tax Act of 1981, at 335 (J. Comm. Print 1981).]

Accordingly, it seems that Congress contemplated and intended that the section apply at least in the following instances: (1) A return filed after the effective date including both an underpayment and a valuation overstatement; (2) a valuation overstatement on a return filed before the effective date and the related underpayment on a return filed after the effective date; and (3) a valuation overstatement on a return1986 U.S. Tax Ct. LEXIS 40">*48 filed after the effective date and the related underpayment on a return filed subsequently. In each such case, the event, or the act of filing, that resulted in an underpayment attributable to a valuation overstatement took place after the effective date. Also, the actual underpayment of taxes occurred after the effective date.

Petitioners argue that because the committee explanation discusses only carryovers and not carrybacks, carrybacks must not have been intended. The circumstance present in this case, however, logically is a fortiori an appropriate one for application of section 6659. In the cases discussed in the 87 T.C. 779">*783 committee explanation, the taxpayer is merely repeating or incorporating by reference a valuation overstatement made prior to the time that it was subject to a statutory sanction. Perhaps an explanation of how the sanction might apply in a carryforward situation was necessary to avoid uncertainty in that area. It is inconceivable to us, however, that Congress intended to leave a gap for those who would place a valuation overstatement on a return for a year after the effective date of section 6659, carry back the claimed benefit of the overstatement to1986 U.S. Tax Ct. LEXIS 40">*49 prior years, and obtain a refund of taxes for the prior years free of the risk of the sanction obviously intended to deter such overstatements.

In other contexts, we have held that an item carried back from a later year to an earlier year, is "attributable to" the adjustment in the later year. Herman Bennett Co. v. Commissioner, 65 T.C. 506">65 T.C. 506 (1975). That is the only reasonable interpretation of section 6659(a) in this case.

Based on the foregoing, we need not determine whether the Forms 1040X are "returns."

Petitioners' motion for partial summary judgment will be denied.

An appropriate order will be issued.