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 Jus-
tice, 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: On July 18, 1990, Delcom Finan-
cial 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 corpo-
ration, 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 pay-
ments 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 transac-
tions 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,
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 Fi-
nancial is a Canadian corporation that owns 100% of the
outstanding stock of Delcom Holdings, Ltd., another Canadi-
an corporation. In turn, Delcom Holdings owns 100% of
Delcom Cayman, Ltd. (a corporation organized in the Cay-
man Islands), which owns 100% of the outstanding stock of
Delcom Antilles, N.V. (a corporation organized in the Nether-
lands Antilles). Delcom Antilles owns 100% of the outstand-
ing 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 fol-
lowing financing scheme: On July 18, 1990, the Royal Bank of
Canada loaned $18 million (in U.S. dollars) to Delcom Finan-
cial. 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 repay-
ment 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 state-
ments, to insure its real property, to assign the insurance
policies to Royal Bank, to defer paying dividends to share-
holders, 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. Begin-
ning in July 1992, however, appellant began making its loan
payments directly to Delcom Financial, "and Delcom Finan-
cial then forwarded funds to Royal Bank in payment on the
Royal Bank loan." Id. Throughout this time, Del BV report-
ed the interest paid by appellant as income on its Nether-
lands 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 "re-
flect a step transaction created simply to bypass U.S. with-
holding 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 penal-
ties in addition to the withholding taxes. Id. at 13. Accord-
ingly, the Tax Court ordered appellant to pay $1,194,573 in
taxes and additions.
Appellant appeals from that decision.
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 con-
cluding 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 with-
held 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.
Pursuant to the United States-Netherlands Tax Treaty,
interest payments made by American taxpayers to Nether-
lands 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 States-
Canada 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 trans-
actions ... 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,
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 uncon-
tested. Although Del BV may have recorded interest pay-
ments 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 Trea-
ty does not apply to direct transactions between a U.S.
corporation and a Canadian corporation. Accordingly, appel-
lant unquestionably should have withheld taxes on its pay-
ments 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 sub-
stance 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.
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 sched-
ules 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) begin-
ning in the third quarter of 1992, appellant made payments on
the loan directly to Delcom Financial at Royal Bank's re-
quest. 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 pur-
pose 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 struc-
turing 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 pay-
ments. 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 Nether-
lands, 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 Cana-
dian 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 testi-
mony of William Christie, vice president of corporate plan-
ning 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] opera-
tions and to do it in a very tax efficient manner for Canada."
Christie's testimony concerning the objectives of the trans-
actions 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 withhold-
ing tax imposed on distributions by the second-tier corpora-
tion." 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 mem-
ber of the group." Id. at 68.
The Commissioner does not concede that foreign tax avoid-
ance is a legitimate business purpose, and we do not need to
address that question here. While perhaps not directly appli-
cable to this case, Treasury Regulation s 1.355-2(b) is in-
structive. That regulation, which formed the basis for Reve-
nue 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 Feder-
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 Affili-
ated 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 Sev-
enth 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 corpora-
tion 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. Addi-
tionally, 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 signifi-
cantly, 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.
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) impos-
es 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 demonstrat-
ed by the taxpayer's "conscious, intentional failure or reckless
indifference." Id. at 245. As the Court explained, the tax-
payer 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 assess-
ment 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).
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 re-
quired to pay additions, we see no reason why "reasonable
cause" and "willful neglect" should not be interpreted consis-
tently.
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 differ-
ence 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
U.S.-Netherlands Tax Treaty, it has not established that its
deficiencies were not "due to negligence or intentional disre-
gard 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 prov-
ing 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.