Thomas F. and Therese Grojean - Page 18

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          of his notes to the bank, there was complete circularity of                  
          funds, and his status was in substance not that of the                       
          corporation’s creditor but of guarantor of the corporation’s debt            
          to the bank.                                                                 
          We hold petitioner is not entitled to basis under section 1366(d)            
          for his participation interests in the Schanno note and the                  
          credit note totaling $1.2 million.                                           
               We turn to the additions to tax for failure to file timely.             
          Section 6651(a)(1) reads in pertinent part:                                  
               In case of failure * * * to file any return * * * on                    
               the date prescribed therefor * * *, unless it is shown                  
               that such failure is due to reasonable cause and not                    
               due to willful neglect, there shall be added to the                     
               amount required to be shown as tax on such return 5                     
               percent of the amount of such tax if the failure is for                 
               not more than 1 month, with an additional 5 percent for                 
               each additional month or fraction thereof during which                  
               such failure continues, not exceeding 25 percent in the                 
               To escape the addition to tax for filing the 1989 and 1990              
          returns untimely, petitioners must prove that (1) their failure              
          to file timely did not result from willful neglect, and (2) this             
          failure was due to reasonable cause.  On brief, respondent                   
          proposed the following finding of fact:  “Petitioners failed to              
          file timely income tax returns for 1989 and 1990, and their                  
          failure was due to willful neglect and not due to reasonable                 
          cause.”  Petitioners did not object to this proposed finding of              
          fact, nor did they proffer any evidence that would suggest that              
          reasonable cause existed.  We hold petitioners are liable for the            
          additions to tax under section 6651(a)(1) as determined by                   

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