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Good Shepherd in consideration of the second Kasa obligation.
More importantly, as we have said, petitioners have introduced no
evidence that Good Shepherd paid anything, either principal or
interest, with regard to the second Kasa obligation. We are not
convinced that the second Kasa obligation represented true
indebtedness or that Good Shepherd paid any interest with respect
thereto, and we so find.
For the reasons stated, we determine that Good Shepherd may
not claim any interest deductions for either 1986, 1987, or 1988.
E. Conclusion
We sustain the deficiencies in tax determined by respondent
for the reasons stated. Therefore, we need not address
respondent's alternative grounds that Good Shepherd was organized
and operated for purposes of tax avoidance rather than to make a
profit.
III. Additions to Tax
A. Negligence
Section 6653(a) imposes one or more additions to tax where
an underpayment of tax is due to negligence or intentional
disregard of rules or regulations (hereafter, without
distinction, negligence). Respondent has determined additions to
tax for negligence with respect to all petitioners. Section
6653(a)(1), for returns due in 1989, section 6653(a)(1)(A), for
returns due in 1987 and 1988, and section 6653(a)(1), for returns
due in 1986, impose an addition to tax equal to 5 percent of the
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