588 F.3d 889 (2009) NEW YORK GUANGDONG FINANCE, INC., Petitioner-Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee. No. 08-60792. United States Court of Appeals, Fifth Circuit. November 20, 2009. *891 Larry Kars (argued), New York City, for Petitioner-Appellant. Christine Durney Mason (argued), Nathan J. Hochman, U.S. Dept. of Justice, Tax Div., Robert R. Di Trolio, U.S. Tax Court, Steven W. Parks, U.S. Dept. of Justice, Clarissa C. Potter, IRS, Washington, DC, for CIR. Before HIGGINBOTHAM and STEWART, Circuit Judges, and ENGELHARDT,[*] District Judge. CARL E. STEWART, Circuit Judge: New York Guangdong Finance, Inc. ("Guangdong") appeals the Tax Court's judgment sustaining in part the Commissioner of Internal Revenue's ("Commissioner") notice of deficiency for withholding tax deficiencies and additions to tax. We AFFIRM. I. BACKGROUND During the 1990s, Guangdong engaged in loan transactions with two foreign corporations, Guangdong International Trust & Investment Corporation ("GITIC") and Guang Xin Enterprises, Ltd. ("GXE"). GITIC, a financial institution, was incorporated in the People's Republic of China and was wholly owned and controlled by the Chinese government. It was also a 50 percent shareholder of Guangdong during the relevant period. GXE, a trading company and a wholly owned subsidiary of GITIC, was incorporated in Hong Kong. During the years at issue, GXE's head office was located in Hong Kong. GXE shared this office with GITIC employees, although GXE's employees sat in separate rooms from GITIC employees. In 1990, Guangdong borrowed $2 million from GXE. The loan provided for a term of one year, which could be extended for an additional year. The loan agreement listed GXE as the sole lending party. GXE submitted a Form W-8, Certificate of Foreign Status, to Guangdong notifying Guangdong that GXE was not a U.S. citizen or resident. In 1994, Guangdong borrowed $2 million from GITIC. The loan agreement provided *892 for a two-year term. GITIC was listed as the sole lending party. On its Forms 1120, U.S. Corporation Income Tax Returns, for 1994, 1995, and 1996, Guangdong claimed deductions for interest payments made during those years. Guangdong attached Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business, to its 1994 tax return, but not to its 1995 or 1996 returns. In its 1994 Form 5472, Guangdong stated that GXE principally conducted its business in and filed its income tax returns as a resident of Hong Kong. Guangdong reported that it paid GXE $99,145 of interest in 1994 on its $2 million loan. In a 1998 letter, Guangdong provided its accountant with information on interest payments in response to an Internal Revenue Service ("IRS") Form 4564, Information Document Request. The letter stated that: (1) with respect to the loan from GXE, Guangdong had paid $164,762 in interest in 1995 and $139,798 in interest in 1996, and (2) with respect to the GITIC loan, Guangdong had paid $177,010 in interest in 1995 and $139,798 in interest in 1996. In 1999, Guangdong filed a Form 1120X, Amended U.S. Corporation Income Tax Return, for …
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