- 58 -
establish that the claimed interest constitutes investment
interest. Respondent also contends that the Takaos did not have
investment income against which any investment interest expense
may be deducted.
Petitioners presented no evidence showing that the Takaos
used the loan proceeds to which the interest relates to acquire
or hold property held for investment as defined in section
163(d)(5). Thus, they have failed in their burden of proof on
this issue. Accordingly, we sustain respondent's determination
for 1991. In light of our holding, we do not address
respondent's remaining arguments relating to this issue.
We turn now to the additions to tax and penalties respondent
determined for the years in issue.
Section 6651(a)
Respondent determined that the Takaos are liable for an
addition to tax for late filing under section 6651(a) for 1988,
because they failed to timely file their Federal income tax
return for that year. Petitioners contend that the Takaos relied
on Nakamura to timely file their return. Respondent contends
that the Takaos did not prove that the failure to timely file was
due to reasonable cause. We agree with respondent.
Section 6651(a)(1) imposes an addition to tax of 5 percent
of the amount of the tax due for each month a return is
delinquent, up to a maximum of 25 percent. The addition to tax
is not applicable if it is shown that the failure is due to
reasonable cause and not willful neglect. Sec. 6651(a)(1);
Page: Previous 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 NextLast modified: May 25, 2011