- 197 -
because it qualifies for the grandfathering provided by Rev. Rul.
85-163, 1985-2 C.B. 349. With respect to the Bank transactions,
petitioner also alleges on brief that accountants prepared
Radcliffe's 1985 and 1986 income tax returns and BOT's 1986
income tax return and that those corporations relied on those
advisers in that regard. With respect to the Horbury transac-
tion, petitioner also claims that his father relied on counsel in
organizing Horbury.
Respondent argues that petitioner has failed to establish
that the additions to tax and penalties determined against
Radcliffe and BOT should be rejected. She contends that the
payment of interest to the respective U.S. banks in question
involved in the Bank transactions was arranged for the purpose of
evading the tax on interest paid to foreign persons that is
required to be withheld by the payor. Respondent also asserts
that petitioner was personally involved in, and acted on behalf
of Radcliffe and BOT, respectively, in arranging and carrying out
the Bank transactions at issue and that his knowledge of the law
with respect to the withholding tax on the payment of interest to
foreign corporations, including the provision exempting from
withholding tax interest paid by a U.S. bank to such corpora-
tions, must be imputed to Radcliffe and BOT.
With respect to the Bank transactions, at the time Rev. Rul.
87-89, supra, was issued, application of the substance over form
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