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Bricker was secretary and tax counsel of LTD, and he provided
legal advice to petitioners. Deloitte itself sought Mr.
Bricker's opinion on the issue of whether LTD is subject to U.S.
income tax. Petitioners do not contend that, implicit in the
advice of their attorney concluding that LTD was not engaged in a
U.S. trade or business, there was the additional counsel that
filing an income tax return was unnecessary. Mr. Bricker's
letter to Deloitte, in fact, states that LTD is still subject to
tax on any "fixed or determinable annual or periodical" U.S.
source income that it may receive. Petitioners have not
persuaded us that they received advice to the effect that filing
an income tax return was unnecessary. Consequently, we hold that
petitioners have not established reasonable cause and are
therefore subject to the section 6651(a)(1) addition to tax
relating to LTD’s income tax liability for taxable years ended
June 30, 1987 through 1989, and LTD’s withholding tax liability
for calendar years 1985 and 1986.
2. Sections 6653(a)(1) and 6653(a)(1)(A)
The Code imposes an addition to tax that is equal to 5
percent of the entire underpayment if any part of it was due to
negligence or disregard of rules or regulations. Sec. 6653(a)(1)
(for petitioners’ taxable year ended June 30, 1985), sec.
6653(a)(1)(A) (for petitioners’ taxable years ended June 30, 1986
through June 30, 1988), sec. 6653(a)(1) (for petitioners’ taxable
year ended June 30, 1989). If the addition to tax applies, the
Code imposes a further addition to tax in an amount that is equal
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