                        T.C. Memo. 2004-130



                      UNITED STATES TAX COURT



                     RALF ZACKY, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 3539-02.               Filed May 27, 2004.



     Ralph G. Zacky, pro se.

     Laura Beth Salant, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     LARO, Judge:   Petitioner petitioned the Court to redetermine

respondent’s determination that petitioner is liable for the

following deficiencies in Federal excise tax and additions

thereto:
                                  - 2 -
               First-tier              Second-tier
          (initial) deficiency   (additional) deficiency   Addition to tax
  Year        Sec. 4975(a)             Sec. 4975(b)        Sec. 6651(a)(1)

  1996         $1,016                    --                  $254.00
  1997          3,252                    --                   813.00
  1998          6,941                    --                 1,735.25
  1999         10,999                    --                 2,749.75
  2000         15,463                    --                 3,865.75
  2001           --                   $124,079             12,398.00

We decide whether petitioner is liable for these amounts.              We

hold he is.   Unless otherwise stated, section references are to

the applicable versions of the Internal Revenue Code.           Rule

references are to the Tax Court Rules of Practice and Procedure.

                           FINDINGS OF FACT

     Some facts were stipulated.       We incorporate herein by this

reference the parties’ stipulation of facts and the exhibits

submitted therewith.    We find the stipulated facts accordingly.

Petitioner resided in Mentone, California, when his petition was

filed.

     Aspects, Inc. (Aspects), is a C corporation of which

petitioner is the president and sole shareholder.           It has a

profit sharing plan (plan) that was adopted effective December 1,

1983, and was amended on April 20, 1991.         The plan is qualified

under section 401(a).    The plan’s underlying trust is exempt from

Federal tax under section 501(a).

     From the inception of the plan through November 7, 2001, the

date on which the notice of deficiency was issued in this case,

the plan has had many participants.        One of these participants

was petitioner.   Petitioner also was the plan’s sole trustee.
                               - 3 -

Pursuant to the plan, the trustee was required to provide the

plan with services which included (1) investing, managing, and

controlling plan assets, (2) maintaining records of plan receipts

and disbursements and preparing a written annual report,

(3) borrowing and raising funds for the plan, and (4) making

loans from the plan to plan participants.   From the inception of

the plan through November 7, 2001, petitioner has had access to

the plan’s books, records, and assets.

     As of March 28, 1990, neither Aspects nor petitioner had the

funds necessary to pay Aspects’s payroll liability of $40,000,

which was imminently coming due.   Petitioner on that date

borrowed $40,000 from the plan (first loan) to pay that

liability.   The first loan was supported by a promissory note

signed by petitioner and dated March 28, 1990.   The note stated

that interest of 12 percent per annum would accrue on the unpaid

principal and that repayment would be made over 5 years through

quarterly installments of $2,688.63 beginning on June 28, 1990.

The note stated that the first loan was secured by petitioner’s

vested interest in the plan.   The balance of that interest was

$112,000 on March 28, 1990, and $104,106.42 on April 1, 1994.

     Inland Empire Properties, Inc. (Inland), was a licensed

California corporation from June 17, 1992, until March 1, 2000.

Its business during that time was the ownership and leasing to

Aspects and other tenants of a commercial building.   Inland’s
                               - 4 -

president and sole shareholder was petitioner, and it had no

employees.   On May 20, 1992, the plan lent $10,527.84 to Inland

(second loan) so that petitioner could pay off his car loan,

which was about to go into default.    An unsigned document drafted

on Aspects stationery and bearing the typewritten name of

petitioner stated that the second loan was due in 1 year, that

the interest rate payable on the second loan was 6.4 percent, and

that the second loan was secured by a 1989 Pontiac Bonneville SSE

bearing a stated vehicle identification number.   The document

also stated that the second loan was renewable after the first

year at the then-prevailing interest rate plus 3 percent.

Shortly after the making of the second loan, petitioner

transferred to Inland the title to the referenced 1989 Pontiac

Bonneville SSE.

     On March 1, 1993, the plan lent $94,294.89 to Inland (third

loan) so that Inland could pay the mortgage and real estate taxes

due on the building.   An unsigned promissory note with a

signature block for petitioner, in his capacity as Inland’s

president, stated that interest was accruing on the unpaid

principal at 5 percent per annum and that repayment was to be

made through monthly installments of $10,000 beginning on April

1, 1993.   The third loan was unsecured.

     To date, no principal or interest has been paid on the

first, second, or third loan (collectively, the three loans).
                                - 5 -

The plan has during its existence made two other loans to

participants other than petitioner, and it has required that

those individuals repay those loans.        Petitioner knew at the

times of the three loans that his creditworthiness was poor, and

he knew at the times of the second and third loans that Inland’s

creditworthiness was poor.    When petitioner and Inland failed to

pay back the three loans according to their terms, petitioner, in

his capacity as plan trustee, neither sought nor attempted to

compel payment.

     The relevant provisions of the plan are as follows:

     7.2   INVESTMENT POWERS AND DUTIES OF THE TRUSTEE

                (a) The Trustee shall invest and reinvest the
           Trust Fund to keep the Trust Fund invested without
           distinction between principal and income and in
           such securities or property, real or personal,
           wherever situated, as the Trustee shall deem
           advisable, including, but not limited to, stocks,
           common or preferred, bonds and other evidences of
           indebtedness or ownership, and real estate or any
           interest therein. * * *

                  *   *   *     *       *     *    *

     7.4   LOANS TO PARTICIPANTS

                (a) The Trustee may, in the Trustee’s
           discretion, make loans to Participants and
           Beneficiaries under the following circumstances:
           (1) loans shall be made available to all
           Participants and Beneficiaries on a reasonably
           equivalent basis; (2) loans shall not be available
           to Highly Compensated Employees in an amount
           greater than the amount available to other
           Participants and Beneficiaries; (3) loans shall
           bear a reasonable rate of interest; (4) loans
           shall be adequately secured; and (5) shall provide
           for repayment over a reasonable period of time.
                    - 6 -

     *    *    *    *       *   *   *

     (c) Loans made pursuant to this Section (when
added to the outstanding balance of all other
loans made by the plan to the Participant) shall
be limited to the lesser of:

     (1) $50,000 reduced by the excess (if any)
     of the highest outstanding balance of loans
     from the plan to the Participant during the
     one year period ending on the day before the
     date on which such loan is made, over the
     outstanding balance of loans from the plan to
     the Participant on the date on which such
     loan was made, or

     (2) one-half (1/2) of the present value of
     the non-forfeitable accrued benefit of the
     Participant under the plan.

     *    *    *    *       *   *   *

     (d) Loans shall provide for level
amortization with payments to be made not less
frequently than quarterly over a period not to
exceed five (5) years.

     *    *    *    *       *   *   *

     (f) Any loans granted or renewed on or after
the last day of the first plan Year beginning
after December 31, 1988 shall be made pursuant to
a Participant loan program. Such loan program
shall be established in writing and must include,
but need not be limited to, the following:

     (1) the identity of the person or positions
     authorized to administer the Participant loan
     program;

     (2) a procedure for applying for loans;

     (3) the basis on which loans will be approved or
     denied;

     (4) limitations, if any, on the types and amounts
     of loans offered;
                               - 7 -

                (5) the procedure under the program for
                determining a reasonable rate of interest;

                (6) the types of collateral which may secure a
                Participant loan; and

                (7) the events constituting default and the steps
                that will be taken to preserve plan assets.

                Such Participant loan program shall be
           contained in a separate written document which,
           when properly executed, is hereby incorporated by
           reference and made a part of the plan.

     Petitioner has never filed a Form 5330, Return of Excise

Taxes, for any period relevant herein.   The plan filed a Form

5500-C/R, Return/Report of Employee Benefit plan, for its plan

years ended March 31, 1991, 1992, 1993, and 1995.   The plan has

not filed a Form 5500-C/R for any plan year thereafter.

     The plan reported on its Form 5500-C/R for its plan year

ended March 31, 1995, that it had as of March 31, 1995, “Other”

investments of $203,241.   Respondent determined that these

investments were the three loans, that each of the three loans

was a prohibited transaction under section 4975, and that the

principal of the three loans totaled $203,241 as of January 1,

1996.   Respondent also determined that a “stated interest rate”

of 10 percent applied to each subject year for purposes of

computing the “amount involved” under section 4975(a) and that,

on the basis of this 10-percent rate, the amounts involved for

the subject years were as follows:
                                  - 8 -

           Date       Principal       Interest           Amount Involved

          1/1/96      $203,241            10%              $20,324
          1/1/97       223,565            10                22,356
          1/1/98       245,922            10                24,592
          1/1/99       270,514            10                27,051
          1/1/00       297,565            10                29,756
                                                           124,079

Respondent noted that section 53.4941(e)-1(e)(1), Foundation

Excise Tax Regs., treats prohibited transaction loans as

occurring on the first day of each taxable year in the taxable

period after the year in which the loan occurs and determined on

the basis of these regulations that petitioner owed first-tier

excise taxes as follows:

              1996    1997         1998          1999         2000

           $1,016    $1,016      $1,016         $1,016      $1,016
              –-      2,236       2,236          2,236       2,236
              --        --        3,689          3,689       3,689
              –-        --          –-           4,058       4,058
              –-        –-          --             –-        4,464
            1,016     3,252       6,941         10,999      15,463

Respondent also determined on the basis of these regulations that

petitioner owed a second-tier excise tax of $124,079 for 2001.

     On January 19, 1994, Aspects filed a voluntary petition for

bankruptcy.   Aspects stated on that petition that it owed

$195,000 to the plan and that the plan was an unsecured creditor.

On February 6, 1995, the bankruptcy court overseeing the

bankruptcy proceeding confirmed Aspects’s “First Amended plan of
                                   - 9 -

Reorganization” (confirmed plan).       Under the confirmed plan, the

plan continued to be listed as an unsecured creditor.

                                  OPINION

       Respondent determined that petitioner is liable for both

tiers of excise taxes under section 4975(a) and (b).        Respondent

asserts on brief that petitioner is a “disqualified person” under

section 4975(e)(2) as to each of the three loans, that the plan

is a “plan” under section 4975(e)(1), that each of the three

loans is a “prohibited transaction” under section 4975(c), and

that none of the three loans has been “corrected” within the

meaning of section 4975(f)(5).       Petitioner does not dispute that

he was a “disqualified person” as to each of the three loans.           He

was.       See, e.g., sec. 4975(e)(2)(A), (E).1   Nor does petitioner


       1
       Under subpars. (A) and (E), respectively, of sec.
4975(e)(2), a “disqualified person” is a person who is “a
fiduciary” or “an owner, direct or indirect, of 50 percent or
more of * * * the combined voting power of all classes of stock
entitled to vote or the total value of shares of all classes of
stock of a corporation * * * which is an employer” of any
employees covered by the plan. As relevant herein, petitioner
was a fiduciary (i.e., a trustee) of the plan who was the sole
owner of the stock of an employer (Aspects) whose employees were
covered by the plan. Under sec. 4975(e)(2)(G), a “disqualified
person” also is a corporation of which 50 percent or more of the
combined voting power of all classes of stock entitled to vote or
the total value of shares of all classes of stock is owned by a
person described in sec. 4975(e)(2)(A) or (E). Thus, by virtue
of its ownership by petitioner, Inland also was a disqualified
person as to the second and third loans. The possibility that
Inland may be liable for excise taxes under sec. 4975(a) or (b)
as to the second and third loans is unimportant to our analysis
in that petitioner is jointly and severally liable for any excise
tax imposed on those loans by sec. 4975(a) and (b). See sec.
                                                   (continued...)
                                - 10 -

dispute that the plan was a “plan” within the meaning of section

4975.    It was.   See sec. 4975(e)(1)(A).    As we understand

petitioner’s argument on brief, he is not liable for any of the

excise taxes respondent determined because none of the three

loans is a prohibited transaction.       The three loans are not

prohibited transactions, petitioner asserts, because (1) the

loans were permitted by the plan, (2) the bankruptcy court has

through its confirmation of the confirmed plan prescribed rules

under which Aspects will repay the loans, (3) the Department of

Labor has reviewed the loans and approved them, and (4) the loans

were made in the best interest of the plan and its participants.

Petitioner also asserts in this regard that the period of

limitation has expired on the assessment of all of the excise

taxes respondent determined as to the three loans.       Petitioner

does not challenge respondent’s calculation of the excise taxes

shown in the notice of deficiency, including respondent’s use of

the 10-percent rate.

     We agree with respondent that petitioner is liable for the

excise taxes as determined.    Section 4975 was added to the Code

in 1974 by the Employee Retirement Income Security Act of 1974

(ERISA), Pub. L. 93-406, sec. 2003(a), 88 Stat. 971.       Congress

enacted section 4975 to effect its intent to tax disqualified



     1
      (...continued)
4975(f)(1).
                              - 11 -

persons who engage in self-dealing rather than penalize innocent

employees, who were previously faced with plan disqualification

on account of a prohibited transaction.    S. Rept. 93-383, at

94-95 (1973), 1974-3 C.B. (Supp.) 80, 173-174.    Disqualification

penalized employee/plan participants in that they were denied

favorable tax consequences such as deferral of taxation.      Id. at

94, 1974-3 C.B. (Supp.) at 173.   The goal of Congress in enacting

section 4975 “was to bar categorically a transaction that was

likely to injure the pension plan.”    Commissioner v. Keystone

Consol. Indus., Inc., 508 U.S. 152, 160 (1993) (citing S. Rept.

93-383, supra at 95-96, 1974-3 C.B. (Supp.) at 174-175).

     Section 4975 imposes two tiers of excise taxes on a

prohibited transaction.   The first-tier tax, the rate of which

depends on the date on which a prohibited transaction occurs, is

imposed on the “amount involved” in a prohibited transaction for

each year, or part thereof, in the taxable period.    Sec. 4975(a).

For prohibited transactions occurring before August 21, 1996, the

rate of the first-tier tax is 5 percent.    See sec. 4975(a) before

amendment by the Small Business Job Protection Act of 1996

(SBJPA), Pub. L. 104-188, sec. 1453, 110 Stat. 1817.    For

prohibited transactions occurring after August 20, 1996, and

before August 6, 1997, the rate of the first-tier tax is 10

percent.   See sec. 4975(a) after amendment by SBJPA sec. 1453

(first-tier tax rate increased from 5 percent to 10 percent).
                               - 12 -

For prohibited transactions occurring after August 5, 1997, the

rate of the first-tier tax is 15 percent.     See sec. 4975(a) after

amendment by the Taxpayer Relief Act of 1997, Pub. L. 105-34,

sec. 1074, 111 Stat. 949 (first-tier tax rate increased from 10

percent to 15 percent).    The second-tier excise tax, equal to 100

percent of the “amount involved”, is imposed when a transaction

to which the first-tier tax applies is not corrected within the

taxable period.    See sec. 4975(b).    In this context, the taxable

period begins with the date on which the prohibited transaction

occurs and ends on the earliest of (A) the date of mailing of a

notice of deficiency with respect thereto, (B) the date on which

the tax imposed by section 4975(a) is assessed, or (C) the date

on which correction of the prohibited transaction is completed.2

Sec. 4975(f)(2).    A correction of a prohibited transaction may be

accomplished by “undoing the transaction to the extent possible,

but in any case, placing the plan in a financial position not

worse than that in which it would be if the disqualified person

were acting under the highest fiduciary standards.”      Sec.

4975(f)(5).

     As to the first-tier tax, each of the three loans falls

within the wide span of section 4975(a).      Each of these loans is



     2
       Here, the earliest of these three dates is Nov. 7, 2001;
i.e., the date of which the notice of deficiency was mailed to
petitioner. The taxable period, therefore, ends on that date
absent an earlier correction of a prohibited transaction.
                              - 13 -

a “prohibited transaction” under section 4975(c)(1)(B), (D), and

(E), and none of these loans is exempted from that definition by

section 4975(d).   Under section 4975(c)(1)(B), the plan’s lending

of money to petitioner or to Inland was a “direct or indirect * *

* lending of money * * * between a plan and a disqualified

person”.   Under section 4975(c)(1)(D), each of the three loans

also was a “direct or indirect * * * transfer to, or use by or

for the benefit of, a disqualified person of the income or assets

of a plan”.3   See O’Malley v. Commissioner, 96 T.C. 644, 651-652

(1991), affd. 972 F.2d 150 (7th Cir. 1992).    Under section

4975(c)(1)(E), each of the three loans also was a direct or

indirect “act by a disqualified person who is a fiduciary whereby

he deals with the income or assets of a plan in his own interest

or for his own account”.   Cf. Greenlee v. Commissioner, T.C.

Memo. 1996-378; Gilliam v. Edwards, 492 F. Supp. 1255, 1263

(D.N.J. 1980).

     Petitioner aims to avoid an application of section 4975(a)

by advancing his five assertions set forth above.    Petitioner’s

reliance on these assertions is misplaced.    First, petitioner

asserts incorrectly that because each of the three loans was



     3
       Specifically, the three loans benefited petitioner in that
he used the first loan to pay the payroll of his wholly owned
corporation Aspects, he caused the second loan to pay his
personal car payment, and he caused the third loan to pay the
mortgage and payroll taxes on the building owned by a second
wholly owned corporation, Inland.
                              - 14 -

permitted by the plan, none was a prohibited transaction.   The

first loan was not permitted by the plan.   In that it has yet to

be repaid more than 14 years after its making, the first loan

failed the plan’s explicit requirement that participant loans

“provide for level amortization with payments to be made not less

frequently than quarterly over a period not to exceed five (5)

years.”   The second and third loans, both of which are different

from the first loan in that they are not participant loans, were

specifically prohibited by the statute upon their making.   In

other words, even if the plan did allow the second and third

loans to Inland, we read nothing in section 4975 that would

exempt these loans from that section’s definition of a prohibited

transaction.

     As to petitioner’s second assertion, the mere fact that the

bankruptcy court confirmed a plan under which Aspects may repay

each of the three loans is of no consequence to our decision.     In

addition to the fact that Aspects has not yet made any payment on

those loans, we read nothing in the confirmed plan, nor has

petitioner pointed us to anything, that persuades us that Aspects

will eventually repay any or all amounts due on the three loans.

In fact, as we read the confirmed plan, the plan’s status is

simply that of an unsecured creditor with rights no greater than

those of any other unsecured creditor.   Such an unfulfilled

third-party obligation does not transmute the prohibited
                                - 15 -

transaction loans into acceptable loans, does not correct the

prohibited transactions, and does not eliminate petitioner’s

liabilities for the excise taxes respondent determined as to the

three loans.    See Medina v. Commissioner, 112 T.C. 51, 55-56

(1999).

     As to petitioner’s third assertion, we find no evidence in

the record that establishes, as petitioner asks us to find, that

the Department of Labor has reviewed and approved each of the

three loans.    Although petitioner in his brief asks the Court to

rely upon a certain letter from the Department of Labor, that

letter was not admitted into evidence and, hence, is not

evidence.   See Rule 143(b).

     As to petitioner’s fourth assertion, petitioner relies

mistakenly on his claim that the three loans were in the best

interest of the plan and its participants.    From a factual point

of view, we are unable to find in the record that the loans were

in the best interest of the plan and its participants.    From a

legal point of view, even if we could make such a finding, our

conclusion would be the same:    that the loans are prohibited

transactions.    As we noted in Rutland v. Commissioner, 89 T.C.

1137, 1146 (1987):

     The language and legislative history of ERISA indicate
     a congressional intention to create, in section
     4975(c)(1), a blanket prohibition against certain
     transactions, regardless of whether the transaction was
     entered into prudently or in good faith or whether the
     plan benefitted as a result. “Good intentions and a
                               - 16 -

     pure heart are no defense” to liability under section
     4975(a). Leib v. Commissioner, 88 T.C. 1474, 1481
     (1987).

     As to petitioner’s final assertion, petitioner is mistaken

in his belief that the period of limitation has expired on an

assessment of the excise taxes at issue.    Although an assessment

of excise taxes of that type must generally be made within 3

years of the date that the relevant return is filed, and more

than 3 years have passed from the due date of most of the

relevant returns which were required to be filed for the subject

years, an exception applies where, as here, a return is never

filed.   Sec. 6501(a), (c).   In a case such as this, the

Commissioner may assess an excise tax at any time.    See sec.

6501(c)(3); see also secs. 301.6501(e)-1(c)(4), 301.6501(n)-1,

Proced. & Admin. Regs.

     We conclude that petitioner is a disqualified person who

participated in three prohibited transactions by way of the three

loans.   We also conclude that he did so other than as a fiduciary

acting only as such.   A disqualified person such as petitioner

participates in a prohibited transaction under section 4975 by

approving the transaction or by receiving its benefit.      O’Malley

v. Commissioner, 96 T.C. 644 (1991).    Petitioner’s participation

in the three loans other than as a fiduciary is seen from the

fact that he approved them for the purpose of receiving their
                              - 17 -

benefit personally and that he did not take collection action

when payment on the loans was overdue.

     We sustain respondent’s determination under section 4975(a)

and turn to his determination under section 4975(b).     Petitioner

sets forth in his brief no specific objection to the latter

determination.   Respondent asserts as to this matter that

petitioner has never corrected any of the three loans and that

plan beneficiaries risk losing plan benefits as a result of those

loans.   Respondent concludes that petitioner also is liable for

the second-tier excise tax.   We agree.

     Section 141.4975-13, Temporary Excise Tax Regs., 41 Fed.

Reg. 32890 (Aug. 5, 1976) and 51 Fed. Reg. 16305 (May 2, 1986),

provides that, absent permanent regulations for section

4975(f)(4) and (5), section 53.4941(e)-1, Foundation Excise Tax

Regs., shall be relied upon to interpret terms contained in

section 4975(f).   Section 53.4941(e)-1(c)(4)(i), Foundation

Excise Tax Regs., provides:

     In the case of the use by a disqualified person of
     property owned by a private foundation, undoing the
     transaction includes, but is not limited to,
     terminating the use of such property. In addition to
     termination, the disqualified person must pay the
     foundation–

           (a) The excess (if any) of the fair market
           value of the use of the property over the
           amount paid by the disqualified person for
           such use until such termination, and

           (b) The excess (if any) of the amount which
           would have been paid by the disqualified
                              - 18 -

          person for the use of the property on or
          after the date of such termination, for the
          period such disqualified person would have
          used the property (without regard to any
          further extensions or renewals of such
          period) if such termination had not occurred,
          over the fair market value of such use for
          such period.

     In applying (a) of this subdivision the fair market
     value of the use of property shall be the higher of the
     rate (that is, fair rental value per period in the case
     of use of property other than money or fair interest
     rate in the case of use of money) at the time of the
     act of self-dealing (within the meaning of paragraph
     (e)(1) of this section) or such rate at the time of
     correction of such act of self-dealing. In applying
     (b) of this subdivision the fair market value of the
     use of property shall be the rate at the time of
     correction.

     Pursuant to these regulations, where as here a prohibited

transaction is the lending of money, correction of the prohibited

transaction requires termination of the loan by its repayment

plus reasonable interest.   Sec. 53.4941(e)-1(c)(4), Foundation

Excise Tax Regs.; see also Medina v. Commissioner, supra at 55;

Kadivar v. Commissioner, T.C. Memo. 1989-404.    Given that none of

the three loans has been repaid, we conclude that petitioner did

not correct any of the prohibited transactions by November 7,

2001, the end of the applicable taxable period, and that the plan

was not “in a financial position not worse than that in which it

would be if the disqualified person were acting under the highest

fiduciary standards”.   See sec. 4975(f)(5).   We sustain

respondent’s determination that petitioner is liable for the

second-tier excise tax under section 4975(b).    We note, however,
                              - 19 -

that sections 4961(a) and 4963(e)(1) generally allow for the

abatement of a second-tier excise tax if the prohibited

transaction giving rise thereto is corrected within 90 days after

our decision sustaining the tax becomes final.   Because the issue

of whether petitioner will or would qualify for an abatement is

not yet ripe for decision, we express no opinion on this issue at

this time.

     We turn to the additions to tax respondent determined under

section 6651(a)(1).   Respondent determined that petitioner is

liable for these additions to tax because he did not file an

excise tax return for 1996, 1997, 1998, 1999, or 2000.

Petitioner argues that these additions to tax do not apply

because the plan did not have the money to pay its plan

administrator to prepare those returns.   We agree with

respondent.

     A disqualified person who engages in a prohibited

transaction is required to file an excise tax return for each

taxable year in the taxable period.    Secs. 4975(f)(2), 6011; sec.

54.6011-1(b), Pension Excise Tax Regs.; see also Janpol v.

Commissioner, 102 T.C. 499, 500 (1994).    Such a person who fails

to do so timely is generally liable under section 6651(a)(1) for

a monthly addition to tax equal to 5 percent of the amount of tax

that should have been shown on the return, up to a maximum charge

of 25 percent.   See Janpol v. Commissioner, supra at 500.   This
                               - 20 -

addition to tax does not apply where the failure to file was due

to reasonable cause and was not due to willful neglect.     United

States v. Boyle, 469 U.S. 241, 245 (1985); Janpol v.

Commissioner, supra at 504.    Reasonable cause is present where

the person exercised ordinary business care and prudence but was

unable to file the return within the prescribed time.     United

States v. Boyle, supra at 245; sec. 301.6651-1(c)(1), Proced.

& Admin. Regs.    Willful neglect means a conscious, intentional

failure or reckless indifference.    United States v. Boyle, supra

at 245.

     Because petitioner was a disqualified person who engaged in

prohibited transactions, and the transactions remained

uncorrected upon issuance of the notice of deficiency, he was

required to file an excise tax return for each year in issue.

Petitioner did not file an excise tax return for any of these

years.    Nor has he established to our satisfaction that he had

reasonable cause not to file those returns.    Cf. United States v.

Boyle, supra at 249 (taxpayers have a personal and nondelegable

duty to file a timely return; reliance on an accountant to file a

return does not provide reasonable cause for an untimely filing).

We hold that petitioner is liable for the section 6651(a)(1)

additions to tax respondent determined.
                              - 21 -

     We have considered all arguments in this case and, to the

extent not discussed above, find those arguments to be without

merit or irrelevant.   To reflect the foregoing,


                                         Decision will be entered

                                    under Rule 155.
