Court Opinion

ID: 185447
Source: CourtListenerOpinion
Date Created: 2011-02-05 02:32:13+00
Date Added: 2024-06-11T17:26:15.974284
License: Public Domain

251 F.3d 210 (D.C. Cir. 2001)
Del Commercial Properties, Inc., Appellantv.Commissioner of Internal Revenue Service, Appellee
No. 00-1313
United States Court of Appeals  FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued March 13, 2001Decided June 8, 2001

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.
Before:  Sentelle, Tatel and Garland, Circuit Judges.
Opinion for the Court filed by Circuit Judge Sentelle.
Sentelle, Circuit Judge:

1
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.

2
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.   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

3
Del Commercial Properties, Inc. ("appellant") is an Illinois  corporation whose principal place of business is in Ontario, 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.

4
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.

5
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 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.

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.

7
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.   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.

8
Appellant appeals from that decision.

II. ANALYSIS

9
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.  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.

10
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

11
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.  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.   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.  1461.

12
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.

13
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").

14
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, 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.  881 and  1442, as informed by  Gregory v. Helvering, 293 U.S. 465, 469 (1935).

15
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.

16
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 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.

17
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.

18
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 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.

19
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.

20
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.

21
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."

22
Christie's testimony concerning the objectives of the transactions is hearsay.  See Fed. R. Evid. 801, 802;  see also 26  U.S.C.  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.

23
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.

24
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  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.

25
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  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 Federal taxes is greater than or substantially coextensive with the  reduction of non Federal taxes."  Treas. Reg.  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.

26
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.

27
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.

28
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 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.

29
B. Additions for Failing to Withhold U.S. Taxes

30
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.  6651(a)(1).  Likewise,  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.  6656(a).

31
In United States v. Boyle, the Supreme Court discussed the  meaning of "reasonable cause" and "willful neglect" in   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  6656(a).

32
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., 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).

33
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.

34
Although the Boyle Court did not address the meaning of  the terms "reasonable cause" and "willful neglect" as used in   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  6651(a)(1) and  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.

35
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.

36
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 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 213-16.  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

37
For the foregoing reasons, the Tax Court's decision is  AFFIRMED.