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the guarantee fees were shams and that there was no "ordinary and
necessary" business purpose for the guarantee fees as required by
section 162. The amounts paid to Dapy and Roundabout, and
subsequently distributed to the Spanish investors as guarantee
fees, were dividends. Accordingly, respondent's determination
will be sustained.
X. Failure To Deposit Withholding Tax
Respondent contends that petitioners are liable for a
penalty under section 6656 because they "failed to withhold and
periodically deposit withholdings of tax". Respondent asserts
that the penalty applies to the extent that the Court concludes
that the MDT payments to various foreign entities and individuals
were subject to the 30-percent withholding under section 1442 and
petitioners failed to withhold.
Section 6656, as it applies to returns with a due date prior
to December 31, 1989, states:
SEC. 6656. FAILURE TO MAKE DEPOSIT OF TAXES OR
OVERSTATEMENT OF DEPOSITS.
(a) Underpayment of Deposits.--In case of failure
by any person required by this title or by regulation
of the Secretary under this title to deposit on the
date prescribed therefor any amount of tax imposed by
this title in such government depositary as is
authorized under section 6302(c) to receive such
deposit, unless it is shown that such failure is due to
reasonable cause and not due to willful neglect, there
shall be imposed upon such person a penalty of 10
percent of the amount of the underpayment. For
purposes of this subsection, the term "underpayment"
means the excess of the amount of the tax required to
be so deposited over the amount, if any, thereof
deposited on or before the date prescribed therefor.
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