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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
$1,000.
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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