Carl J.D. Bauman and Margaret A. Bauman - Page 32

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          the deductions claimed as advance minimum royalty payments under            
          section 1.612-3(b), Income Tax Regs.  The basis for disallowance            
          of the advance minimum royalty payments is independent of and               
          separable from the tax-motivated transactions upon which the                
          other deductions of ERL were disallowed.  Therefore, to the                 
          extent that petitioners’ underpayment of tax is attributable to             
          the disallowed advance minimum royalty payments, petitioners are            
          not liable for the increased interest under section 6621(c).  All           
          other disallowed deductions, however, have been sustained on                
          grounds of economic sham and lack of profit objective.                      
          Accordingly, petitioners will be liable for increased interest              
          under section 6621(c) for the underpayment in tax attributable to           
          these adjustments, if the underpayments for each year exceed                
          Issue 8.  Late Filing Addition to Tax                                       
               Section 6651(a)(1) provides for an addition to tax for                 
          failure to timely file a Federal income tax return.  Section                
          6651(a)(1) also provides for an exception to this addition when             
          the taxpayer shows that the failure to file was due to reasonable           
          cause and not due to willful neglect.  Willful neglect has been             
          defined as “a conscious, intentional failure or reckless                    
          indifference”.   United States v. Boyle, 469 U.S. 241, 245                  
          (1985).  Merely demonstrating an absence of willful neglect does            
          not meet the burden of proof required of the taxpayer; the                  
          taxpayer must also make an affirmative showing that a reasonable            

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