Ellwest Stereo Theatres of Memphis, Inc., et al. - Page 17

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            transactions as bona fide loans.  We can only conclude that they                               
            have not satisfied their burden of showing reasonable cause.                                   
                  4.  Payees’ Failure To Secure Treaty Exemption                                           
                  Petitioners seek to excuse their failure to withhold and                                 
            deposit tax on payments made to the Netherlands Antilles                                       
            corporations, Caribbean Films and European Investments, on the                                 
            ground that these payments would have been exempt from                                         
            withholding under the United States-Netherlands income tax                                     
            convention, as applied to the Netherlands Antilles, but for the                                
            fact that the Netherlands Antilles corporations failed to follow                               
            certain procedures for certifying their eligibility for the                                    
            exemption.  See sec. 1.1441-6(b) and (c), Income Tax Regs.;                                    
            Rev. Proc. 79-40, 1979-2 C.B. 504.                                                             
                  There is no evidence, however, that petitioners decided not                              
            to withhold and deposit tax in the belief that the foreign payees                              
            had filed or would file the requisite certificates.  On the                                    
            contrary, since petitioners also failed to withhold and deposit                                
            tax with respect to payments made to other foreign corporations                                
            that would not have been eligible for an exemption, it is                                      
            reasonable to conclude that the availability of an exemption                                   
            under the United States-Netherlands income tax convention had                                  
            nothing to do with their failure.                                                              
                  5.  Subsequent Good Faith Efforts                                                        
                  Finally, petitioners call our attention to their cooperation                             
            with the IRS to uncover the extent of the prior payments and                                   

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