Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-00-01313/USCOURTS-caDC-00-01313-0/pdf.json

Parties Involved:
Commissioner of Internal Revenue Service
Appellee
Del Commercial Properties, Inc.
Appellant

Document Text:

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued March 13, 2001 Decided June 8, 2001

No. 00-1313

Del Commercial Properties, Inc.,

Appellant

v.

Commissioner of Internal Revenue Service,

Appellee

Appeal from the United States Tax Court

(No. IRS-1887-98)

James P. Fuller argued the cause for appellant. With him

on the briefs were David L. Forst, Kenneth B. Clark and

William F. Colgin.

Kenneth W. Rosenberg, Attorney, U.S. Department of Justice, argued the cause for appellee. With him on the brief

was Jonathan S. Cohen, Attorney. Edward T. Perelmuter,

Attorney, entered an appearance.

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Before: Sentelle, Tatel and Garland, Circuit Judges.

Opinion for the Court filed by Circuit Judge Sentelle.

Sentelle, Circuit Judge: On July 18, 1990, Delcom Financial Ltd., a Canadian corporation, took out an $18 million loan

from the Royal Bank of Canada. This loan initiated a series

of transactions over the next twenty-four hours, involving five

companies organized in Canada, the Cayman Islands, the

Netherlands Antilles, the Netherlands, and the United

States--all of which were related to each other and to Delcom

Financial. The final transaction was a $14 million loan from

Del Investments Netherlands B.V. ("Del BV"), a Dutch corporation, to Del Commercial Properties, Inc., an American

corporation. Over the next year and a half, Del Commercial

repaid Del BV, who then transferred the payments to Delcom

Financial (or another related corporation), who in turn paid

off the Royal Bank loan. In July 1992, Del Commercial

began repaying Delcom Financial directly. Throughout this

entire period, however, Del BV reported Del Commercial's

interest payments on its Dutch tax returns.

In 1997, the Commissioner of Internal Revenue in the

United States ("Commissioner") informed Del Commercial

that it owed taxes and additions based on the interest payments it made between 1990 and 1993. See 26 U.S.C. ss 881,

1442, 6651(a)(1), 6656. Del Commercial petitioned the Tax

Court, claiming that in light of a treaty between the United

States and the Netherlands the corporation owed no tax on

interest payments made to Del BV. The Tax Court ruled

against Del Commercial, finding that the series of transactions between the related companies was a sham designed

solely to avoid U.S. taxes. See Del Commercial Props., Inc.

v. Commissioner, T.C.M. 1999-41, No. 1887-98, slip op. at 11

(Dec. 20, 1999). Based on this ruling, the Tax Court ordered

Del Commercial to pay $1,194,573 in taxes and additions. Del

Commercial now appeals from the Tax Court's decision. For

the reasons set forth below, we affirm.

I. BACKGROUND

Del Commercial Properties, Inc. ("appellant") is an Illinois

corporation whose principal place of business is in Ontario,

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Canada. It is a fourth-tier subsidiary of an affiliated group of

corporations ("the Affiliated Group") whose common parent is

DL Shekels Holdings Ltd. Delcom Financial, Ltd. is a

second-tier subsidiary in the Affiliated Group. Delcom Financial is a Canadian corporation that owns 100% of the

outstanding stock of Delcom Holdings, Ltd., another Canadian corporation. In turn, Delcom Holdings owns 100% of

Delcom Cayman, Ltd. (a corporation organized in the Cayman Islands), which owns 100% of the outstanding stock of

Delcom Antilles, N.V. (a corporation organized in the Netherlands Antilles). Delcom Antilles owns 100% of the outstanding stock of Del Investments Netherlands B.V. ("Del BV"), a

corporation organized in the Netherlands.

From 1990 through 1993, appellant's principal business was

leasing industrial real estate it owned in the United States.

In 1990, when appellant needed funding to refinance and

improve some of its American properties, one of DL Shekels's

first-tier subsidiaries, Tridel Corporation, arranged the following financing scheme: On July 18, 1990, the Royal Bank of

Canada loaned $18 million (in U.S. dollars) to Delcom Financial. That same day, Delcom Financial made two unsecured

interest-bearing loans to Delcom Holdings. One of those

loans (the one directly relevant to this case) was for $14

million. Delcom Holdings then contributed "about $14 million

to Delcom Cayman for common shares of stock." Stipulation

of Facts at 5, Del Commercial Props., Inc. v. Commissioner,

T.C.M. 1999-41 (Oct. 22, 1998). On the same day, "Delcom

Cayman contributed about $14 million to Delcom Antilles and

received common shares of stock in that entitiy. Later on

that same date, Delcom Antilles contributed about $14 million

to Del BV and received common stock in that entity." Id. at

5-6.

The following day, July 19, appellant borrowed $14 million

from Del BV. That same day, appellant "guaranteed repayment of a portion of amounts owed by Delcom Financial to

Royal Bank" and authorized Royal Bank to place a mortgage

on its real property in the U.S. Id. at 7. Appellant also

agreed to provide Royal Bank with "annual financial statements, to insure its real property, to assign the insurance

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policies to Royal Bank, to defer paying dividends to shareholders, and to use the proceeds from any sales of real

property to make payments on the $14 million Royal Bank

loan." Brief for the Appellee at 6.

On January 1, 1991, appellant began repaying Del BV. Del

BV transferred these payments "either to Delcom Holdings

or Delcom Financial. The funds were used to pay principal

and interest owed on the $14 million Royal Bank loan." Del

Commercial Props., T.C.M. 1999-411, slip op. at 7. Beginning in July 1992, however, appellant began making its loan

payments directly to Delcom Financial, "and Delcom Financial then forwarded funds to Royal Bank in payment on the

Royal Bank loan." Id. Throughout this time, Del BV reported the interest paid by appellant as income on its Netherlands tax returns. Meanwhile, appellant did not file United

States withholding tax returns or deposit withholding taxes

on any payments related to the loan.

On October 30, 1997, the Commissioner provided appellant

with a Notice of Deficiency stating that it owed taxes and

additions based on the interest payments made between 1990

and 1993. See 26 U.S.C. ss 881, 1442, 6651(a)(1), 6656.

Appellant petitioned the Tax Court to determine the correct

amount of taxes and additions, contending that under a treaty

between the United States and the Netherlands, no tax is

owed to the United States on interest payments made by an

American corporation to a Dutch corporation. The Tax Court

held that the series of loans and stock contributions that

began with Delcom Financial and ended with appellant "reflect a step transaction created simply to bypass U.S. withholding tax." Del Commercial Props., T.C.M. 1999-411, slip

op. at 11. Because the appellant had not "presented any

credible argument" that its failure to file a tax return or

deposit withholding taxes was "attributable to reasonable

cause," the Tax Court concluded that appellant owed penalties in addition to the withholding taxes. Id. at 13. Accordingly, the Tax Court ordered appellant to pay $1,194,573 in

taxes and additions.

Appellant appeals from that decision.

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II. ANALYSIS

We review Tax Court decisions "in the same manner and to

the same extent" as a decision issued by a district court. 26

U.S.C. s 7482. That is, questions of law are reviewed de

novo, while questions of fact are reviewed for clear error.

See ASA Investerings P'ship v. Commissioner, 201 F.3d 505,

511 (D.C. Cir.), cert. denied, 121 S. Ct. 171 (2000). As we

recently noted, "in tax cases mixed questions of law and fact

are to be treated like questions of fact." Id.

Appellant challenges the Tax Court's decision on two

grounds. First, it argues that the Tax Court erred in concluding that it was responsible for withholding United States

taxes on the interest payments it made to Del BV. According

to appellant, the financing scheme was not designed solely to

avoid U.S. taxes. Rather, the scheme sought to allow the

Affiliated Group to achieve substantial Canadian tax savings,

a permissible business purpose under American tax law.

Second, appellant contends that even if it should have withheld U.S. taxes on the interest payments, the Tax Court

erred by imposing a penalty for appellant's failure to file

withholding tax returns or to deposit the withholding tax.

Specifically, appellant suggests that it should not be penalized

because its decision not to withhold represented a reasonable

difference of opinion with the Commissioner. We address

each of these issues in turn.

A. Withholding of Interest Payments

The Internal Revenue Code requires foreign corporations

to pay "a tax of 30 percent of the amount received from

sources within the United States by a foreign corporation as

interest ... to the extent the amount so received is not

effectively connected with the conduct of a trade or business

within the United States." 26 U.S.C. s 881(a). An American

taxpayer who makes such interest payments is required to

deduct and withhold the tax owed by the foreign corporation.

See 26 U.S.C. ss 1441, 1442. If the American taxpayer fails

to deduct and withhold the tax, he is personally liable for the

tax due. See 26 U.S.C. s 1461.

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Pursuant to the United States-Netherlands Tax Treaty,

interest payments made by American taxpayers to Netherlands corporations are exempt from taxes in the United

States. See Supplementary Convention on Taxes on Income

and Other Taxes, Dec. 30, 1965, U.S.-Netherlands, Art. VI, 17

U.S.T. 896, 901. In contrast, under the United StatesCanada Tax Treaty, the tax on interest payments "shall not

exceed 15 percent of the gross amount of the interest" if the

recipient of the payments is "the beneficial owner of such

interest." Convention on Taxes on Income and Capital, Sept.

26, 1980, U.S.-Can., Art. XI, T.I.A.S. No. 11087.

Under the step-transaction doctrine, a particular step in a

transaction is disregarded for tax purposes if the taxpayer

could have achieved its objective more directly, but instead

included the step for no other purpose than to avoid U.S.

taxes. See Minn. Tea Co. v. Helvering, 302 U.S. 609, 613

(1938). In step-transaction cases, "the existence of formal

business activity is a given but the inquiry turns on the

existence of a nontax business motive." ASA Investerings,

201 F.3d at 512. As we explained last year, "the absence of a

nontax business purpose is fatal." Id. Although taxpayers

"are entitled to structure their transactions in such a way as

to minimize tax," there must be a purpose for the "business

activity ... other than tax avoidance" and that purpose

cannot be a "facade." Id. at 513; see also N. Ind. Pub. Serv.

Co. v. Commissioner ("NIPSCO"), 115 F.3d 506, 512 (7th Cir.

1997) (stating that the IRS cannot "disregard economic transactions ... which result in actual, non-tax-related changes in

economic position").

The Internal Revenue Service--and the courts--will ignore

a step in a series of transactions if that step does " 'not

appreciably affect [the taxpayer's] beneficial interest except

to reduce his tax.' " ASA Investerings, 201 F.3d at 514

(quoting Knetsch v. United States, 364 U.S. 361, 366 (1960)

(emphasis added) (quoting Gilbert v. Commissioner, 248 F.2d

399, 411 (2d Cir. 1957) (Hand, C.J., dissenting))). In two

separate revenue rulings the IRS specifically has held that an

American taxpayer cannot avoid U.S. taxes merely by relying

on a treaty with a foreign country. See Rev. Rul. 84-153,

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1984-2 C.B. 381; Rev. Rul. 84-152, 1984-2 C.B. 383. In

other words, if the sole purpose of a transaction with a

foreign corporation is to dodge U.S. taxes, the treaty cannot

shield the taxpayer from the fatality of the step-transaction

doctrine. For the taxpayer to enjoy the treaty's tax benefits,

the transaction must have a sufficient business or economic

purpose. We accord these rulings Skidmore deference--that

is, they are " 'entitled to respect' " to the extent they "have

the 'power to persuade,' " Christensen v. Harris County, 529

U.S. 576, 587 (2000) (quoting Skidmore v. Swift & Co., 323

U.S. 134, 140 (1944))--and we find them persuasive given the

plain meaning of 26 U.S.C. s 881 and s 1442, as informed by

Gregory v. Helvering, 293 U.S. 465, 469 (1935).

From July 1992 through 1993, appellant made its loan

payments directly to Delcom Financial. This fact is uncontested. Although Del BV may have recorded interest payments in its ledgers and reported them on its Dutch tax

returns, there is no evidence that appellant paid anything to

Del BV during this period. The U.S.-Netherlands Tax Treaty does not apply to direct transactions between a U.S.

corporation and a Canadian corporation. Accordingly, appellant unquestionably should have withheld taxes on its payments to Delcom Financial beginning in July 1992. The Tax

Court plainly did not err in coming to this conclusion.

Likewise, the Tax Court did not clearly err in concluding

that the payments from appellant to Del BV were in substance payments made to Delcom Financial and that those

payments only served to avoid U.S. taxes. The Tax Court's

decision in Gaw v. Commissioner is instructive. T.C.M.

1995-531, Nos. 17906-92, 18268-92 (Nov. 9, 1995), aff'd, 111

F.3d 962 (D.C. Cir. 1997) (unpublished table disposition).

Gaw dealt with a U.S. corporation's interest payments to a

Dutch corporation that was a subsidiary of a Hong Kong

corporation. The Tax Court held that the payments were

subject to U.S. taxes because in substance they were directed

to the Hong Kong corporation. The Tax Court explained that

"[u]nder the substance over form doctrine, although the form

of a transaction may literally comply with the provisions of

the [Internal Revenue] Code, that form will not be given

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effect where it has no business purpose and operates simply

as a device to conceal the true character of that transaction."

Id., slip op. at 96. The court reasoned that the taxpayer had

not carried his burden of proving that the loans had been

structured for any nontax business reason. See id. at 114.

Consequently, the court treated the loan as if it had been

made by the Hong Kong corporation and ruled that the loan

was subject to the withholding tax. See id. at 141-43.

Similarly, in this case, several facts demonstrate the nexus

between the original Royal Bank loan and the loan from Del

BV to appellant: (1) the interest rates and repayment schedules of the two loans closely correspond; (2) Royal Bank

obtained a guaranty of repayment from appellant and a

security interest in appellant's real property; and (3) beginning in the third quarter of 1992, appellant made payments on

the loan directly to Delcom Financial at Royal Bank's request. Like the taxpayer in Gaw, appellant has failed to

carry its burden of proving that Del BV was in substance the

real lender for tax purposes. If appellant had received the

loan from Royal Bank or Delcom Financial directly, the

interest payments would have been taxable under the U.S.-

Canada Tax Treaty. Appellant has not shown that Del BV

served any role with a "sufficient business or economic purpose to overcome the conduit nature of the transaction."

Rev. Rul. 84-153, 1984-2 C.B. at 384.

Appellant contends that the series of transactions between

Delcom Financial, Delcom Holdings, Delcom Cayman, Delcom

Antilles, Del BV, and appellant was not designed solely to

avoid U.S. taxes. Instead, according to appellant, by structuring the transactions as it did, Delcom Financial achieved

sizable Canadian tax savings. Appellant claims that Delcom

Financial was able to take advantage of a Canadian tax code

provision that allows corporations to deduct interest payments. In other words, Delcom Financial was able to deduct

the value of the interest payments it made to Royal Bank as

part of the original loan. This deduction was particularly

valuable to Delcom Financial (and thus the Affiliated Group)

because it received no additional income from which to offset

the deduction. In addition, appellant asserts that under

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Canadian law and a treaty between Canada and the Netherlands, no corporations in the Affiliated Group were required

to pay taxes "on amounts that were remitted by Del BV up

the chain and ultimately received by [Delcom Financial] as

dividends." Brief for Appellant at 7. Ultimately, appellant

maintains that the Affiliated Group received substantial Canadian tax benefits relative to the U.S. taxes it avoided.

In Tax Court proceedings, the petitioner maintains the

burden of proof. See Tax Ct. R. 142(a). In this case,

appellant absolutely failed to carry its burden; it did not offer

any evidence that the Affiliated Group achieved Canadian tax

savings. Indeed, appellant did not submit Delcom Financial's

Canadian tax returns. Nor did appellant submit any of

Delcom Financial's corporate records. Without this evidence,

the Tax Court could not have found that Delcom Financial

reported or deducted the interest payments and dividends, or

otherwise received any Canadian tax benefits.

In addition, appellant did not ask the Tax Court (or this

Court) to take judicial notice of the relevant provisions of the

Canadian tax code or the Canada-Netherlands tax treaty

through which the Affiliated Group claims to have achieved

tax savings--it did not even cite the provisions on which it

claims to have relied. Given the state of the record, we

cannot possibly conclude that appellant carried its burden

before the Tax Court or that the Tax Court clearly erred in

finding that the transactions served any purpose other than

avoiding U.S. taxes.

The only evidence presented to the Tax Court concerning

the transactions' supposed Canadian tax benefits is the testimony of William Christie, vice president of corporate planning and taxation at Tridel Corporation (a corporation in the

Affiliated Group that provided management and executive

services to the related corporations). Christie testified that

"I was told" that the "objectives" of the transaction were to

secure financing for appellant and "to maximize [the Affiliated

Group's] Canadian tax benefits." He also testified that his

boss "said that he wanted to finance the [appellant's] operations and to do it in a very tax efficient manner for Canada."

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Christie's testimony concerning the objectives of the transactions is hearsay. See Fed. R. Evid. 801, 802; see also 26

U.S.C. s 7453 (providing that Tax Court proceedings shall be

conducted "in accordance with the rules of evidence applicable

in trials without a jury in the United States District Court of

the District of Columbia"). As a result, the Tax Court could

not--and apparently did not--rely upon it for the truth of the

matter asserted.

Likewise, the only evidence appellant offers to establish

that the Affiliated Group actually achieved Canadian tax

benefits from the transactions is conclusory testimony by

Christie. This testimony is inadequate to carry appellant's

burden of proof and certainly does not establish that the Tax

Court clearly erred.

Appellant contends that the IRS has held that foreign tax

avoidance in general is a legitimate business purpose. See

Rev. Rul. 89-101, 1989-2 C.B. 67. Revenue Ruling 89-101, on

which appellant relies, focused on a transaction in which "a

first-tier foreign subsidiary corporation distributes the stock

of a second-tier foreign subsidiary corporation to the domestic

parent corporation to reduce the amount of foreign withholding tax imposed on distributions by the second-tier corporation." Id. at 67. The IRS held that the transaction served a

corporate business purpose within the meaning of Treasury

Regulation s 1.355-2(b) "because it will benefit the affiliated

group of corporations by reducing substantially the amount of

foreign withholding tax imposed on distributions from a member of the group." Id. at 68.

The Commissioner does not concede that foreign tax avoidance is a legitimate business purpose, and we do not need to

address that question here. While perhaps not directly applicable to this case, Treasury Regulation s 1.355-2(b) is instructive. That regulation, which formed the basis for Revenue Ruling 89-101, provides that "reducing non Federal taxes

is not a corporate business purpose" if (1) the property

distribution reduces "both Federal and non Federal taxes

because of similarities between Federal tax law and the tax

law of the other jurisdiction" and (2) "the reduction of FederUSCA Case #00-1313 Document #601641 Filed: 06/08/2001 Page 10 of 14
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al taxes is greater than or substantially coextensive with the

reduction of non Federal taxes." Treas. Reg. s 1.355-2(b)(2).

Based on this regulation and the revenue ruling on which

appellant relies, even if foreign tax avoidance is a sufficient

business purpose, appellant failed to establish that the Affiliated Group (or any of its members) achieved foreign tax

savings greater than its U.S. tax savings--or that it achieved

any foreign tax savings for that matter.

Finally, appellant suggests that we should follow the Seventh Circuit's decision in Northern Indiana Public Service

Co. v. Commissioner ("NIPSCO"), 115 F.3d 506 (7th Cir.

1997), which dealt with the tax treatment of an American

corporation's interest payments to a Dutch corporation. We

need not comment on whether we agree with NIPSCO's legal

analysis or holding; its procedural posture demonstrates why

it does not help appellant's cause.

In NIPSCO, the taxpayer won in the Tax Court, and the

Commissioner appealed. The Seventh Circuit affirmed the

Tax Court's judgment, holding that the lower court did not

clearly err in finding that the transactions had a legitimate

business purpose other than U.S. tax avoidance. See id. at

514. The appellate court explained that the Dutch corporation participated in the transactions because it could obtain

funds on the Eurobond market when "prevailing market

conditions made the overall cost of borrowing abroad less

than the cost of borrowing domestically." Id. at 511. Additionally, the Dutch corporation received a profit from its

transactions with the U.S. taxpayer. This profit then was

reinvested in the Eurobond market. The "profit motive" of

the Dutch corporation was sufficient to show that the motive

of the transaction was not simply tax avoidance.

Not only are the two cases not factually similar, but the

taxpayer's evidence in NIPSCO was substantially stronger

than the appellant's evidence in this case. Consequently, the

NIPSCO taxpayer was able to carry its burden of proof in the

Tax Court, and on appeal the Commissioner was unable to

show that the Tax Court clearly erred. Even more significantly, in the case now before us, the roles of the parties are

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reversed. The taxpayer lost in the Tax Court, and it has

appealed. Accordingly, it is the taxpayer who must establish

that the Tax Court's findings were clearly erroneous, which,

as we explained above, it cannot do.

B. Additions for Failing to Withhold U.S. Taxes

Section 6651(a)(1) of the Internal Revenue Code imposes a

penalty for a person's failure to file a tax return unless the

failure is due to "reasonable cause and not due to willful

neglect." 26 U.S.C. s 6651(a)(1). Likewise, s 6656(a) imposes a penalty on a person who fails to deposit withholding

taxes unless his failure is due to "reasonable cause and not

due to willful neglect." Id. s 6656(a).

In United States v. Boyle, the Supreme Court discussed the

meaning of "reasonable cause" and "willful neglect" in

s 6651(a)(1). 469 U.S. 241, 245-46 (1985). The Boyle Court

explained that to demonstrate "reasonable cause" a taxpayer

must establish "that he exercised ordinary business care and

prudence but nevertheless was unable to file the return

within the prescribed time." Id. at 246 (internal quotation

omitted). "Willful neglect," on the other hand, is demonstrated by the taxpayer's "conscious, intentional failure or reckless

indifference." Id. at 245. As the Court explained, the taxpayer maintains the "heavy burden" of proving that his

failure to file a tax return was due to reasonable cause, not

willful neglect. Id. The Commissioner suggests that the

Boyle standard extends to s 6656(a).

Despite the Supreme Court's clear statements in Boyle,

appellant contends that the proper standard for determining

whether it should pay an addition is found in Spies v. United

States, 317 U.S. 492 (1943), a case in which the taxpayer faced

criminal penalties. In Spies, the Supreme Court reasoned:

"It is not the purpose of the law to penalize frank difference

of opinion of innocent errors made despite the exercise of

reasonable care. Such errors are corrected by the assessment of the deficiency of tax and its collection with interest

for the delay." Id. at 496. We echoed this same sentiment

many years ago. See, e.g., Commissioner v. Clarion Oil Co.,

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148 F.2d 671, 677-78 (D.C. Cir. 1945); see also Palm Beach

Trust Co. v. Commissioner, 174 F.2d 527, 527 & n.2 (D.C. Cir.

1949) (per curiam); Orient Inv. & Fin. Co. v. Commissioner,

166 F.2d 601, 604 (D.C. Cir. 1948).

Unfortunately, appellant and the Commissioner do not

attempt to reconcile or distinguish Boyle and Spies. Worse,

neither party addresses the other's claim concerning the

appropriate standard. Indeed, in their briefs, appellant does

not even cite Boyle, and the Commissioner does not cite

Spies.

Although the Boyle Court did not address the meaning of

the terms "reasonable cause" and "willful neglect" as used in

s 6656(a), the same terms used in the same statute for the

same purpose presumably have the same meaning. See Allen

v. CSX Transp., Inc., 22 F.3d 1180, 1182 (D.C. Cir. 1994).

Because the same terms are used s 6651(a)(1) and s 6656(a)

to define the circumstances in which a taxpayer is not required to pay additions, we see no reason why "reasonable

cause" and "willful neglect" should not be interpreted consistently.

Notably, the Boyle Court did not overrule (or even cite)

Spies. The Spies language cited by appellant, which is dicta,

is not necessarily inconsistent with Boyle. After noting that

the purpose of the tax code is not to "penalize frank difference of opinion," the Spies Court pointed out that "[i]f any

part of the deficiency is due to negligence or intentional

disregard of rules and regulations," the taxpayer is subject to

additions. See 317 U.S. at 496-97. The Court's opinion in

Boyle can be read as simply setting forth when a "deficiency

is due to negligence or intentional disregard" rather than

reasonable cause.

We need not fully contemplate the effect Boyle had on

Spies to determine the outcome of this case; we therefore

leave that question for another day. Appellant has not

established that its failure to file tax returns or deposit

withholding taxes was due to reasonable cause and not willful

neglect as defined in Boyle. Although appellant purports in

its appellate briefs that the transactions were founded on the

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U.S.-Netherlands Tax Treaty, it has not established that its

deficiencies were not "due to negligence or intentional disregard of rules and regulations" as contemplated by Spies.

Indeed, as we explained above, appellant failed to prove that

it had any purpose other than avoiding U.S. taxes. See supra

at 5-10. Because appellant bears the heavy burden of proving that its deficiencies were due to reasonable cause and not

willful neglect, we have no basis for concluding that the Tax

Court erred in upholding the additions imposed by the IRS.

III. CONCLUSION

For the foregoing reasons, the Tax Court's decision is

AFFIRMED.

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