- 24 -
xii. Conclusion
Based on the above, we conclude that petitioner may not
deduct the $160,000 that it claimed as an interest expense paid
to Mr. Mohney.6
3. Section 6651
Respondent determined additions to tax under section
6651(a)(1), asserting that petitioner failed to file timely
Federal income tax returns. In order to avoid this addition to
tax, petitioner must prove that its failure to file timely was:
(1) Due to reasonable cause and (2) not due to willful neglect.
Sec. 6651(a); Rule 142(a); United States v. Boyle, 469 U.S. 241,
245 (1985); Catalano v. Commissioner, 81 T.C. 8 (1983).
A failure to file timely is due to reasonable cause if the
taxpayer exercised ordinary business care and prudence and,
nevertheless, was unable to file the return within the prescribed
time. Sec. 301.6651-1(c)(1), Proced. & Admin. Regs. Willful
neglect means a conscious, intentional failure or reckless
indifference. United States v. Boyle, supra at 245.
6 Even if we were to assume arguendo that Mr. Mohney and
petitioner had intended to establish a debtor-creditor
relationship ab initio, the record reveals that the character of
that debt, as debt, vanished before the subject years and was
equity during those years. See Green Leaf Ventures, Inc. v.
Commissioner, T.C. Memo. 1995-155; Frazier v. Commissioner,
T.C. Memo. 1975-220.
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