§465 — Deductions limited to amount at risk

at 83, however, we overruled both Todd and McCrary.

Indeed, under those circumstances a guarantor's liability could clearly be distinguished from that in Brand v. Commissioner, 81 T.C. at 828, and would amount to personal liability for purposes ofsection 465(b)(2)(A).

Indeed, under those circumstances a guarantor's liability could clearly be distinguished from that in Brand v. Commissioner, 81 T.C. at 828, and would amount to personal liability for purposes ofsection 465(b)(2)(A).

Indeed, under those circumstances a guarantor's liability could clearly be distinguished from that in Brand v. Commissioner, 81 T.C. at 828, and would amount to personal liability for purposes ofsection 465(b)(2)(A).

Both section 465 and section 1.704-1(b), Income Tax Regs., were among the grounds on which respondent supported the adjustments made in the FPAA. Petitioner filed a motion for partial summaryjudgment regarding the 40% gross valuation misstatement penalty, arguing that this penalty does not apply as a matter oflaw because petitioner conceded the correctness ofadjustments proposed in the FPAA on grounds unrelated to valuation or basis.

465(b)(3)(B)(ii), I.R.C., dealing with amounts borrowed by a corporation from its shareholders, does not apply to except P from sec.

We disagree with each of petitioner’s arguments.

We reject petitioners' narrow interpretation of property used in the business.

It is respondent's burden to show the solar equipment was connected to the electric grid before 2011, and he has not done so.23 The foregoing considered, we hold that Mr.

ner's OPIS transaction lacked economic substance; (4) even ifthe OPIS transaction functioned for tax purposes in the manner petitioner intended, the claimed losses - 37 - are artificial and not deductible under section 165; and (5) any allowable loss is limited by the at-risk rules ofsection 465." We hold that petitioner's OPIS transaction lacked economic substance.

Pursuant to section 465(b)(2)(A amounts borrowed, with respect to an activity include "amounts borrowed for use in an activity to the extent that * * * [the taxpayer] is personally liable for the repayment of suc h amounts ." Notwithstanding the foregoing provisions, a taxpayer's .amount at risk does not include amounts p

Both section 465 and section 1.704-l(b), Income Tax Regs., were among the grounds on which respondent supported the adjustments made in the FPAA. Petitioner filed a motion for partial summary judgment regarding the 40% gross valuation misstatement penalty, arguing that this penalty does not apply as a matter of law because petitioner conceded the correc

WhetherPetitioner Must Recognize a $200,000 Gain for 2003 Under Section 465(e) Respondent claims that petitioner's amount at risk in PW Partnership was reduced from $310,000 in 2001 to zero upon PW Partnership's termination in 2003 as a result ofpartnership losses flowing through to petitioner as well as distributions made to petitioner. Respondent argues that petitioner's amount at risk was then further reduced by $200,000 in 2003 as a result ofhis $200,000 debt under the subscription note and

ther argues that respondent's determinations .can be made only by examining the returns and personal circumstances of each individual partner and are. substantively equivalent to determinations in an FPAA that adjust a partner's amount at risk under section 465 . See Russian Recovery Fund Ltd . v . United States , 81 Fed . Cl . 793 (2008) . We disagree . Partnership items include any item of income, gain, loss, deduction, or credit that subtitle A requires the partnership to take into account fo

As amended by DEFRA, section 465(c)(2) generally requires, except as provided in section 465(c)(2)(B), that partnerships and S corporations separate equipment leasing activities (and the other activities listed in section 465(c)(1)) on a property-by-property basis, as do other taxpayers. If petitioners’ interpretation were adopted, permitting all leased section 1245 properties of a partnership or S corporation to be aggregated into one activity for purposes of the at-risk rules, section 465(c)(2

R.C., into a single activity for the 1 Cases of the following petitioners are consolidated herewith: Hubert Enterprises, Inc. and Subs., docket No. 10669-03; and Hubert Holding Co., docket No. 16798-03. -2- purpose of applying the at-risk rules of sec. 465, I.R.C. Ps also claim that S was at risk for portions of L’s losses by virtue of a deficit account restoration provision that, Ps state, made S liable for portions of L’s recourse obligations. Held: P1 may not deduct the unrecovered funds as e

adjustments to petitioners’ itemized deductions resulting from these Schedule F adjustments. The Schedule F losses were disallowed on several grounds, including respondent’s determination that petitioners did not meet the “at risk” requirements of section 465. The general business credits also were disallowed on several grounds, including respondent’s determination that the underlying property did not meet the requirements of section 46(c)(8). The partnership loss claimed by petitioners in 1987

adjustments to petitioners’ itemized deductions resulting from these Schedule F adjustments. The Schedule F losses were disallowed on several grounds, including respondent’s determination that petitioners did not meet the “at risk” requirements of section 465. The general business credits also were disallowed on several grounds, including respondent’s determination that the underlying property did not meet the requirements of section 46(c)(8). The partnership loss claimed by petitioners in 1987

ner, 94 T.C. 853 (1990), for a contrary result. There, the Commissioner issued notices of deficiency disallowing the taxpayers' claimed losses from TEFRA partnerships because the losses exceeded the amounts for which the taxpayers were at risk under section 465. The Commissioner never issued an FPAA to the partnerships, and the taxpayers argued that their at-risk amounts were partnership items that had to be determined at the partnership level. The Court held that the taxpayers' at-risk amounts

In those cases, the courts have given credence to recourse notes as a basis for supporting claimed losses or establishing section 465 "at risk" amounts.

We hold that petitioner is, therefore, not at risk under section 465 and is not entitled to the deductions in question.

The relevant portions of section 465 provide as follows: SEC.

- 15 - under section 465 must be decided in a partner-level proceeding, not in a partnership-level proceeding.

That opinion explained in considerable detail the application of the at-risk provisions of section 465 and concluded that the transaction would likely survive a challenge by respondent.

- 3 - The notice of deficiency disallowed losses claimed by petitioners from Opal Leasing on the ground that petitioner was not "at risk" within the meaning of section 465 with respect to his investment in the partnership.

These cross-motions raise the general question of whether petitioner is to be regarded as at risk within the meaning of section 465 with regard to partnership debt obligations associated with a computer equipment leasing transaction.

85-89, petitioners claimed deductions for depreciation and interest relating to the equipment-leasing transaction. Three separate statutory notices of deficiency were issued, in which respondent disallowed petitioners’ claimed deductions pursuant to section 465. Petitioners petitioned the Tax Court in each instance. Losses in the amount of $549,122 were disallowed for those years and were treated as a carryforward of suspended losses. On July 21, 1993, respondent sent petitioners a statutory not

465, I.R.C., limits deductions for losses from certain activities to the amount for which the taxpayer is "at risk". Sec. 465(b)(4), I.R.C., provides that a taxpayer shall not be considered at risk with respect to amounts protected against loss through nonrecourse financing, guarantees, stop-loss agreements, or other similar arrangements. - 2

465, I.R.C., limits deductions for losses from certain activities to the amount for which the taxpayer is "at risk". Sec. 465(b)(4), I.R.C., provides that a taxpayer shall not be considered at risk with respect to amounts protected against loss through nonrecourse financing, guarantees, stop-loss agreements, or other similar arrangements. - 2

Fourth, we must determine whether petitioners were at risk under section 465 and can therefore claim flowthrough losses from Alpine and related holding companies.

The consolidated return regulations are legislative in character and have the force and effect of law. Salem Packing Co. v. Commissioner, 56 T.C. 131, 141 (1971). Because we hold against Uniband on both these grounds, we need not address the Commissioner’s further contention that the 1996 consolidated return, even if otherwise vali

Those affected items, respondent asserts, include whether petitioners were at risk under section 465 and whether petitioners had a sufficient basis under section 704(d) to deduct any of their reported loss.

Whether petitioners were "at risk" within the meaning of section 465 with respect to the aforementioned indebtedness at 1 All section references are to the Internal Revenue Code of 1986, as in effect for the years in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.

iencies with respect to petitioners’ Federal income taxes: Year Amount 1993 $1,375,232 1994 2,138,632 1995 1,777,271 - 2 - The issues for decision are: (1) Whether petitioners had sufficient basis in indebtedness under section 1366(d)1 from which to deduct losses from two wholly owned S corporations; and (2) whether petitioners were at risk under section 465 for certain loans made to the two S corporations.

mber 18, 1992, by a Stipulation of Agreed Adjustments (the 1992 stipulation) that, in 1986, only $135,000 of the $200,250 CLD would be allowed, and the remaining $65,250 would be disallowed and suspended in accordance with the "at risk" rules under section 465. The $51,972 CLD for 1988 was disallowed in full, and the loss was also suspended in accordance with the "at risk" rules. Since the taxable year 1987 was not before the Court, the stipulation was silent as to the treatment of the 1987 CLD

(1) for 1988; (2) whether petitioners have substantiated deductions from the operation of the medical center for 1986, 1987, and 1988 in amounts greater than that allowed by respondent; and, if so, (3) whether petitioners had amounts "at risk" under section 465 to enable them to deduct losses from the operation of Forest Park Medical Center; and, if so, (4) whether the passive loss rules under section 469 either restrict or disallow petitioners' losses from the operation of the medical center; 1

While the taxpayers in the Epsten case conceded disallowance of the tax benefits because they were not at risk pursuant to section 465, the Court did not find them negligent under section 6653(a).

not reach, including about (1) whether the option transactions at issue have economic substance, (2) whether the Wrights should be required to recognize gain on the written option they purportedly assigned to charity at the same time they purportedly assigned the purchased option, and (3) whether the Wrights’ loss may be limited by section 165(a), section 465, Treasury Regulation § 1.165-1(b), or Treasury Regulation § 1.988-2(f).

We will sustain respondent’s determination if petitioner fails to establish any of those three points. See, e.g., Furey v. Commissioner, T.C. Memo. 2009-35. A. Outside Basis 1. Overview A partner’s distributive share of a partnership loss is allowed only to the extent of the adjusted basis of the partner’s interest in the partnership at the

440 (1999), and section 465 she concluded that because MedImpact had obtained - 7 - [*7] a capital interest in Summit Ventures during 2008, petitioner's claimed loss deductions from Schedule E were suspended for the year.

"(...continued) Supreme Court said "so long as the lessor retains significant and genuine attributes ofthe traditional lessor status, the form ofthe transaction adopted by the parties governs for tax purposes." Casebeer primarily holds that the taxpayers there weren't entitled to section 465 deductions because they were "protected against loss" under the meaning ofsection 465(b)(4).

"(...continued) Supreme Court said "so long as the lessor retains significant and genuine attributes ofthe traditional lessor status, the form ofthe transaction adopted by the parties governs for tax purposes." Casebeer primarily holds that the taxpayers there weren't entitled to section 465 deductions because they were "protected against loss" under the meaning ofsection 465(b)(4).

- 5 - Section 1366(a)(1)(A) provides that an S corporation shareholder may take into account his or her pro rata share ofthe corporation's losses, deductions, or credits.

Tucker's tax treatment ofthe FX transaction would more likely than not withstand IRS scrutiny and referenced multiple tax-law doctrines, including the sham transaction doctrine, economic substance, the step transaction doctrine, section 465 at-risk rules, and the basis adjustment rules.

ner, slip op. at 69; £ Neonatology Assocs., P.A. v. Commissioner, 115 T.C. at 99. "Never has this been more true than in today's environment where 24Most ofthe differences between the BDO and De Castro opinions pertaining to "Allocation ofLoss" and sec. 465 were the result ofdivergent citation conventions--the cited sources were identical. - 39 - [*39] taxpayers seek to reduce their tax liabilities by engineering artificial tax losses in complex and/or foreign transactions which leave little to

Respondent also sought documents showing that petitioners had sufficient bases to deduct the NOLs, and evidence concerning the "at risk" rules under section 465 and passive loss limitations under section 469.

4; aff'd, 713 F.3d 849 (6th Cir. 2013); Country Pine Fin., LLC v. Commissioner, T.C. Memo. 2009-251. 4Respondent also argues that petitioners' claimed losses from the HVB note must be disallowed under the loss rules in sec. 165, the at-risk rules in sec. 465, the substance over form doctrine, and the step transaction doctrine. We need not reach these arguments because ofour holding that petitioners' CARDS transaction lacks economic substance. -13- [*13] Petitioners argue that their CARDS transac

4; aff'd, 713 F.3d 849 (6th Cir. 2013); Country Pine Fin., LLC v. Commissioner, T.C. Memo. 2009-251. 4Respondent also argues that petitioners' claimed losses from the HVB note must be disallowed under the loss rules in sec. 165, the at-risk rules in sec. 465, the substance over form doctrine, and the step transaction doctrine. We need not reach these arguments because ofour holding that petitioners' CARDS transaction lacks economic substance. -13- [*13] Petitioners argue that their CARDS transac

ioner, 591 F.3d 649, 655 (D.C. Cir. 2010) (quoting sec. 6226(f)), aff'g in part, rev'g in part, and remanding 131 T.C. 84 (2008). 6 VisionMonitor argues that the notes should be included in outside basis because Mantor and Smith were "at risk" under section 465. It argues that the substance ofthe transaction made Mantor and Smith ultimately responsible for a fixed and definite obligation, that nothing in the Code or caselaw makes any explicit preclusion ofpartnership debts made to the partners t

That conclusion i based upon the similarity between that issue (i.e., applicability ofthe limited liability proviso) and the issue ofwhether pártnership losses exceed the amoun s for which the partners are at risk under section 465, which we have held to constitute an affected item.

- 53 - that "the question oftax immunity cannot be made to turn on the particular form in which the Tribe chooses to conduct its business." Id. at 157 n.13. In 1981 the Commissioner, relying on this statement in Mescalero Apache Tribe, concluded that a "federally chartered Indian tribal corporation shares the same tax status as th

everal undertakings by the taxpayer. Id. For purposes ofsection 183, each undertaking may be its own activity or several "Petitioners claim on brief, as they stated at trial, that DiDonato elected to aggregate his rental real estate activities under sec. 465. We are unaware ofany election available under sec. 465 allowing a taxpayerto aggregate his or her rental real estate activities. We understand petitioners to refer to the election available under sec. 469(c)(7)(A). - 99 [*99] undertakings m

That conclusion i based upon the similarity between that issue (i.e., applicability ofthe limited liability proviso) and the issue ofwhether pártnership losses exceed the amoun s for which the partners are at risk under section 465, which we have held to constitute an affected item.

the parties' arguments regarding the merits of "Respondent also argues that petitioners' losses are disallowed under sec. 165 because they were not_incurred in a transaction entered into for profit and that they are limited by the at-risk rules in sec. 465. We need not reach these arguments because of our other holdings. -28- petitioners' treatment of each step within the OPIS transaction. Instead, we begin our analysis with the general principles of the economic substance doctrine." I. Merits

ly, we denied the motion for partial summaryjudgment and explained our view, citing Hambrose Leasing 1984-5 Ltd. P'ship v. Commissioner, 99 T.C. 298 (1992), and Russian Recovery Fund, Ltd. v. United States, 81 Fed. Cl. 793 (2008), that at risk under sec. 465 is a partner-level issue on which the Court lacks jurisdiction to accept a concession in a partnership-levelproceeding such as the case at hand. The importance ofthe 40% penalty to both the IRS and taxpayers in Son of BOSS cases is shown by

espondent also asserts that petitioners' claimed loss deductions should be disallowed under sec. 165 because the losses were not incurred in a transaction entered into for profit and hence deductibility ofthe losses is limited by the at-risk rules ofsec. 465. We need not, and do not, consider these arguments because of our other holdings set forth herein. - 27 - [*27] we only "look at the transaction that gave rise to the tax loss." Id. We noted that the intended real estate investmentwould have

t deduct losses resulting from a transaction that "Respondent also argues that petitioner's claimed loss is disallowed under sec. 165 because it was not incurred in a transaction entered into for profit and that it is limited by the at-risk rules in sec. 465. We need not reach these arguments because ofour other holdings. -16- lacks economic substance, even ifthat transaction complies with the literal terms of the Code. See ACM P'ship v. Commissioner, 157 F.3d 231, 246 (3d Cir. 1998), aff'g in p

, we denied the motion for partial summary judgment and explained our view, citing Hambrose Leasing 1984-5 Ltd. P’ship v. Commissioner, 99 T.C. 298 (1992), and Russian Recovery Fund, Ltd. v. United States, 81 Fed. Cl. 793 (2008), that at risk under sec. 465 is a partner-level issue on which the Court lacks jurisdiction to accept a concession in a partnership-level proceeding such as the case at hand. The importance of the 40% penalty to both the IRS and taxpayers in Son of BOSS cases is shown by

continued) term "tax Êotivated trân'saction" means- (i)cany valuation overstatement (within the meaning of section 6659 (c) ) , (ii) in loss disailowed by reason of section 465 (a) and any credit disallowed under 46 (c) (8) (iii) any straddle (as defined in section 1092 (c) wiùhout regard to subsections (d) and (e) of section 1092), and (iv) any use of an accounting method specified in,regulations prescribed by the Secretary as a use which may result in a substantial distortion of income for any

Those affected items, respondent asserts, include whether petitioners were at risk under section 465 and whether petitioners had a sufficient basis under section 704(d) to deduct any of their reported loss .

option spreads would be limited to the net of any premiums paid for the purchased options and any premiums received for the written options ; (6) that the partners were not entitled to-deduct losses related to Highwood because the partners did not establish that the partners had any at-risk amounts within the meaning of, section 465 that would allow them a deduction; (7) that even if the FXDOTs were treated as contributed t o I Highwood, the amount contributed, i .e ., the premium paid for the

Commissioner, supra at 1054 ("We conclude that Whitmire was not at risk under section 465 because he was protected from loss by section 465(b)(4) guarantees, and because the scenario under which Whitmire would suffer.

purchased options and any premiums received for the written options; (6) that the partners were not entitled to deduct losses related to Highwood because the partners did not establish that the partners had any at-risk amounts within the meaning of section 465 that would allow them a deduction; (7) that even if the FXDOTs were treated as contributed to Highwood, the amount contributed, i.e., the premium paid for the long option, should be reduced by the amount received, i.e., the premium on the

at Lisle was not entitled to deduct losses related to FPC Subventure Partnership because he never made a capital contribution to the partnership (and, thus he was not a partner in the partnership) and/or Lisle was not “at risk” within the meaning of sec. 465. On June 13, 1994, Lisle filed a reply to respondent’s amendment to answer. On July 26, 1994, Lisle filed a motion to strike portions of respondent’s amendment to answer. Specifically, Lisle moved to strike the portion of respondent’s amendm

for Federal income tax purposes .2 In the FPAA, respondent disallowed deductions claimed by In Touch for professional fees, marketing expenses, consulting fees, and amortized startup expenditures ; determined that the members' at- risk amount under section 465 must be reduced by $176,818 ; determined that the total capital contributed to In Touch as of December 31, 2000, was $50,000 ; and determined that a computational adjustment to net earnings (loss) from self- employment must be made .

at Lisle was not entitled to deduct losses related to FPC Subventure Partnership because he never made a capital contribution to the partnership (and, thus he was not a partner in the partnership) and/or Lisle was not “at risk” within the meaning of sec. 465. On June 13, 1994, Lisle filed a reply to respondent’s amendment to answer. On July 26, 1994, Lisle filed a motion to strike portions of respondent’s amendment to answer. Specifically, Lisle moved to strike the portion of respondent’s amendm

at Lisle was not entitled to deduct losses related to FPC Subventure Partnership because he never made a capital contribution to the partnership (and, thus he was not a partner in the partnership) and/or Lisle was not “at risk” within the meaning of sec. 465. On June 13, 1994, Lisle filed a reply to respondent’s amendment to answer. On July 26, 1994, Lisle filed a motion to strike portions of respondent’s amendment to answer. Specifically, Lisle moved to strike the portion of respondent’s amendm

at Lisle was not entitled to deduct losses related to FPC Subventure Partnership because he never made a capital contribution to the partnership (and, thus he was not a partner in the partnership) and/or Lisle was not “at risk” within the meaning of sec. 465. On June 13, 1994, Lisle filed a reply to respondent’s amendment to answer. On July 26, 1994, Lisle filed a motion to strike portions of respondent’s amendment to answer. Specifically, Lisle moved to strike the portion of respondent’s amendm

at Lisle was not entitled to deduct losses related to FPC Subventure Partnership because he never made a capital contribution to the partnership (and, thus he was not a partner in the partnership) and/or Lisle was not “at risk” within the meaning of sec. 465. On June 13, 1994, Lisle filed a reply to respondent’s amendment to answer. On July 26, 1994, Lisle filed a motion to strike portions of respondent’s amendment to answer. Specifically, Lisle moved to strike the portion of respondent’s amendm

Respondent argues that the reasons for disallowing the losses to - 11 - petitioners include the limitation of partnership losses to the partner's basis in a partnership interest, the at-risk limitation under section 465, the passive loss limitation rules under section 469, and the S corporation loss limitation rules under section 1366, which are all "affected item bases" for disallowing losses at the partner level .

Section 465 imposes a further limitation on a partner’s distributive share of partnership losses. Under section 465, losses relating to activities engaged in by a taxpayer in carrying on a trade or business or for the production of income are allowed as deductions only to the extent that the taxpayer is at risk financially with respect to the activ

Respondent argues that the reasons for disallowing the losses to petitioners include the limitation of partnership losses to the partner’s basis in a partnership interest, the at-risk limitation under section 465, the passive loss limitation rules under section 469, and the S corporation loss limitation rules under section 1366, which are all “affected item bases” for disallowing losses at the partner level.

artnership-level proceeding, and that these issues must be resolved only in an affected-item proceeding at the partner level. Because our decision in these cases results in a disallowance of the losses that SMP and Corona claimed on their 182 Under sec. 465, respondent argues that to the extent the losses SMP reported on its sales of the $150 million and $81 million receivables are allowed, those losses arose from a film activity that was a separate activity from its other investment activities

6 As to 1993, the revenue agent listed on the Form 4549-CG and the supporting schedules that he had determined the following adjustments as increases or decreases to the taxable income petitioners reported on their 1993 return: Capital gain $630,764 Sec. 465 limited at risk 6,880 Itemized deductions 1,983 NOL carryback from 1994 (166,364) NOL carryback from 1996 (301,269) 171,994 The revenue agent’s letter to Bellavia advised Bellavia to discuss the adjustments with petitioners and, if acceptabl

"nonpassive loss" of $28,589 from Amazona. His return reflected Amazona to have had an ordinary loss of $48,579 for 1992, but further stated that only $28,589 of that loss was allowable to him for 1992 after application of the at risk provisions of section 465. Roadmaster Leasing In 1992, petitioner met with Lyle Schole, the promoter of a proposed venture called Roadmaster Leasing. They discussed entering into a limited partnership engaged in the business of buying late-model, used automobiles

In addition, you have not established an ownership interest in these properties nor has it been established that you were at risk per section 465 of the Internal Revenue Code.

In those cases, the courts have given credence to recourse notes as a basis for supporting claimed losses or establishing section 465 “at risk” amounts.

In those cases, the courts have given credence to recourse notes as a basis for supporting claimed losses or establishing section 465 “at risk” amounts.

In those cases, the courts have given credence to recourse notes as a basis for supporting claimed losses or establishing section 465 “at risk” amounts.

In those cases, the courts have given credence to recourse notes as a basis for supporting claimed losses or establishing section 465 “at risk” amounts.

In those cases, the courts have given credence to recourse notes as a basis for supporting claimed losses or establishing section 465 “at risk” amounts.

In those cases, the courts have given credence to recourse notes as a basis for supporting claimed losses or establishing section 465 “at risk” amounts.

In those cases, the courts have given credence to recourse notes as a basis for supporting claimed losses or establishing section 465 “at risk” amounts.

In those cases, the courts have given credence to recourse notes as a basis for supporting claimed losses or establishing section 465 “at risk” amounts.

In those cases, the courts have given credence to recourse notes as a basis for supporting claimed losses or establishing section 465 “at risk” amounts.

In those cases, the courts have given credence to recourse notes as a basis for supporting claimed losses or establishing section 465 “at risk” amounts.

In those cases, the courts have given credence to recourse notes as a basis for supporting claimed losses or establishing section 465 “at risk” amounts.

O.P.M. Horizon, Pluto, Knight, and any other intermediary were inserted into the transactions for the - 476 - sole purpose of enabling IRA to claim tax deductions. IRA made use of intermediary companies in an attempt to avoid the at-risk rules of section 465. D. Miscellaneous Additional Facts Generally Applicable to the Transactions Neither IRA nor its advisers attempted to obtain an opinion of the fair market value, the residual value, or the useful life of the equipment from a party unrelated

O.P.M. Horizon, Pluto, Knight, and any other intermediary were inserted into the transactions for the - 476 - sole purpose of enabling IRA to claim tax deductions. IRA made use of intermediary companies in an attempt to avoid the at-risk rules of section 465. D. Miscellaneous Additional Facts Generally Applicable to the Transactions Neither IRA nor its advisers attempted to obtain an opinion of the fair market value, the residual value, or the useful life of the equipment from a party unrelated

O.P.M. Horizon, Pluto, Knight, and any other intermediary were inserted into the transactions for the - 476 - sole purpose of enabling IRA to claim tax deductions. IRA made use of intermediary companies in an attempt to avoid the at-risk rules of section 465. D. Miscellaneous Additional Facts Generally Applicable to the Transactions Neither IRA nor its advisers attempted to obtain an opinion of the fair market value, the residual value, or the useful life of the equipment from a party unrelated

O.P.M. Horizon, Pluto, Knight, and any other intermediary were inserted into the transactions for the - 476 - sole purpose of enabling IRA to claim tax deductions. IRA made use of intermediary companies in an attempt to avoid the at-risk rules of section 465. D. Miscellaneous Additional Facts Generally Applicable to the Transactions Neither IRA nor its advisers attempted to obtain an opinion of the fair market value, the residual value, or the useful life of the equipment from a party unrelated

O.P.M. Horizon, Pluto, Knight, and any other intermediary were inserted into the transactions for the - 476 - sole purpose of enabling IRA to claim tax deductions. IRA made use of intermediary companies in an attempt to avoid the at-risk rules of section 465. D. Miscellaneous Additional Facts Generally Applicable to the Transactions Neither IRA nor its advisers attempted to obtain an opinion of the fair market value, the residual value, or the useful life of the equipment from a party unrelated

O.P.M. Horizon, Pluto, Knight, and any other intermediary were inserted into the transactions for the - 476 - sole purpose of enabling IRA to claim tax deductions. IRA made use of intermediary companies in an attempt to avoid the at-risk rules of section 465. D. Miscellaneous Additional Facts Generally Applicable to the Transactions Neither IRA nor its advisers attempted to obtain an opinion of the fair market value, the residual value, or the useful life of the equipment from a party unrelated

O.P.M. Horizon, Pluto, Knight, and any other intermediary were inserted into the transactions for the - 476 - sole purpose of enabling IRA to claim tax deductions. IRA made use of intermediary companies in an attempt to avoid the at-risk rules of section 465. D. Miscellaneous Additional Facts Generally Applicable to the Transactions Neither IRA nor its advisers attempted to obtain an opinion of the fair market value, the residual value, or the useful life of the equipment from a party unrelated

O.P.M. Horizon, Pluto, Knight, and any other intermediary were inserted into the transactions for the - 476 - sole purpose of enabling IRA to claim tax deductions. IRA made use of intermediary companies in an attempt to avoid the at-risk rules of section 465. D. Miscellaneous Additional Facts Generally Applicable to the Transactions Neither IRA nor its advisers attempted to obtain an opinion of the fair market value, the residual value, or the useful life of the equipment from a party unrelated

O.P.M. Horizon, Pluto, Knight, and any other intermediary were inserted into the transactions for the - 476 - sole purpose of enabling IRA to claim tax deductions. IRA made use of intermediary companies in an attempt to avoid the at-risk rules of section 465. D. Miscellaneous Additional Facts Generally Applicable to the Transactions Neither IRA nor its advisers attempted to obtain an opinion of the fair market value, the residual value, or the useful life of the equipment from a party unrelated

O.P.M. Horizon, Pluto, Knight, and any other intermediary were inserted into the transactions for the - 476 - sole purpose of enabling IRA to claim tax deductions. IRA made use of intermediary companies in an attempt to avoid the at-risk rules of section 465. D. Miscellaneous Additional Facts Generally Applicable to the Transactions Neither IRA nor its advisers attempted to obtain an opinion of the fair market value, the residual value, or the useful life of the equipment from a party unrelated

O.P.M. Horizon, Pluto, Knight, and any other intermediary were inserted into the transactions for the - 476 - sole purpose of enabling IRA to claim tax deductions. IRA made use of intermediary companies in an attempt to avoid the at-risk rules of section 465. D. Miscellaneous Additional Facts Generally Applicable to the Transactions Neither IRA nor its advisers attempted to obtain an opinion of the fair market value, the residual value, or the useful life of the equipment from a party unrelated

In those cases, the courts have given credence to recourse notes as a basis for supporting claimed losses or establishing section 465 "at risk" amounts.

0.P.M. Horizon, Pluto, Knight, and any other intermediary were inserted into the transactions for the - 476 - sole purpose of enabling IRA to claim tax deductions. IRA made use of intermediary companies in an attempt to a ·oid the at-risk rules of section 465. D. Miscellaneous Additional Facts Generally Apblicable to the Transactions Neither IRA nor its advisers attempted to obtain an opinion of the fair market value, the residual value, or the useful life of the equipment from a party unrelate

O.P.M. Horizon, Pluto, Knight, and any other intermediary were inserted into the transactions for the - 476 - sole purpose of enabling IRA to claim tax deductions. IRA made use of intermediary companies in an attempt to avoid the at-risk rules of section 465. D. Miscellaneous Additional Facts Generally Applicable to the Transactions Neither IRA nor its advisers attempted to obtain an opinion of the fair market value, the residual value, or the useful life of the equipment from a party unrelated

O.P.M. Horizon, Pluto, Knight, and any other intermediary were inserted into the transactions for the - 476 - sole purpose of enabling IRA to claim tax deductions. IRA made use of intermediary companies in an attempt to avoid the at-risk rules of section 465. D. Miscellaneous Additional Facts Generally Applicable to the Transactions Neither IRA nor its advisers attempted to obtain an opinion of the fair market value, the residual value, or the useful life of the equipment from a party unrelated

O.P.M. Horizon, Pluto, Knight, and any other intermediary were inserted into the transactions for the - 476 - sole purpose of enabling IRA to claim tax deductions. IRA made use of intermediary companies in an attempt to avoid the at-risk rules of section 465. D. Miscellaneous Additional Facts Generally Applicable to the Transactions Neither IRA nor its advisers attempted to obtain an opinion of the fair market value, the residual value, or the useful life of the equipment from a party unrelated

O.P.M. Horizon, Pluto, Knight, and any other intermediary were inserted into the transactions for the - 476 - sole purpose of enabling IRA to claim tax deductions. IRA made use of intermediary companies in an attempt to avoid the at-risk rules of section 465. D. Miscellaneous Additional Facts Generally Applicable to the Transactions Neither IRA nor its advisers attempted to obtain an opinion of the fair market value, the residual value, or the useful life of the equipment from a party unrelated

O.P.M. Horizon, Pluto, Knight, and any other intermediary were inserted into the transactions for the - 476 - sole purpose of enabling IRA to claim tax deductions. IRA made use of intermediary companies in an attempt to avoid the at-risk rules of section 465. D. Miscellaneous Additional Facts Generally Applicable to the Transactions Neither IRA nor its advisers attempted to obtain an opinion of the fair market value, the residual value, or the useful life of the equipment from a party unrelated

O.P.M. Horizon, Pluto, Knight, and any other intermediary were inserted into the transactions for the - 476 - sole purpose of enabling IRA to claim tax deductions. IRA made use of intermediary companies in an attempt to avoid the at-risk rules of section 465. D. Miscellaneous Additional Facts Generally Applicable to the Transactions Neither IRA nor its advisers attempted to obtain an opinion of the fair market value, the residual value, or the useful life of the equipment from a party unrelated

O.P.M. Horizon, Pluto, Knight, and any other intermediary were inserted into the transactions for the - 476 - sole purpose of enabling IRA to claim tax deductions. IRA made use of intermediary companies in an attempt to avoid the at-risk rules of section 465. D. Miscellaneous Additional Facts Generally Applicable to the Transactions Neither IRA nor its advisers attempted to obtain an opinion of the fair market value, the residual value, or the useful life of the equipment from a party unrelated

O.P.M. Horizon, Pluto, Knight, and any other intermediary were inserted into the transactions for the - 476 - sole purpose of enabling IRA to claim tax deductions. IRA made use of intermediary companies in an attempt to avoid the at-risk rules of section 465. D. Miscellaneous Additional Facts Generally Applicable to the Transactions Neither IRA nor its advisers attempted to obtain an opinion of the fair market value, the residual value, or the useful life of the equipment from a party unrelated

O.P.M. Horizon, Pluto, Knight, and any other intermediary were inserted into the transactions for the - 476 - sole purpose of enabling IRA to claim tax deductions. IRA made use of intermediary companies in an attempt to avoid the at-risk rules of section 465. D. Miscellaneous Additional Facts Generally Applicable to the Transactions Neither IRA nor its advisers attempted to obtain an opinion of the fair market value, the residual value, or the useful life of the equipment from a party unrelated

O.P.M. Horizon, Pluto, Knight, and any other intermediary were inserted into the transactions for the - 476 - sole purpose of enabling IRA to claim tax deductions. IRA made use of intermediary companies in an attempt to avoid the at-risk rules of section 465. D. Miscellaneous Additional Facts Generally Applicable to the Transactions Neither IRA nor its advisers attempted to obtain an opinion of the fair market value, the residual value, or the useful life of the equipment from a party unrelated

O.P.M. Horizon, Pluto, Knight, and any other intermediary were inserted into the transactions for the - 476 - sole purpose of enabling IRA to claim tax deductions. IRA made use of intermediary companies in an attempt to avoid the at-risk rules of section 465. D. Miscellaneous Additional Facts Generally Applicable to the Transactions Neither IRA nor its advisers attempted to obtain an opinion of the fair market value, the residual value, or the useful life of the equipment from a party unrelated

O.P.M. Horizon, Pluto, Knight, and any other intermediary were inserted into the transactions for the - 476 - sole purpose of enabling IRA to claim tax deductions. IRA made use of intermediary companies in an attempt to avoid the at-risk rules of section 465. D. Miscellaneous Additional Facts Generally Applicable to the Transactions Neither IRA nor its advisers attempted to obtain an opinion of the fair market value, the residual value, or the useful life of the equipment from a party unrelated

O.P.M. Horizon, Pluto, Knight, and any other intermediary were inserted into the transactions for the - 476 - sole purpose of enabling IRA to claim tax deductions. IRA made use of intermediary companies in an attempt to avoid the at-risk rules of section 465. D. Miscellaneous Additional Facts Generally Applicable to the Transactions Neither IRA nor its advisers attempted to obtain an opinion of the fair market value, the residual value, or the useful life of the equipment from a party unrelated

O.P.M. Horizon, Pluto, Knight, and any other intermediary were inserted into the transactions for the - 476 - sole purpose of enabling IRA to claim tax deductions. IRA made use of intermediary companies in an attempt to avoid the at-risk rules of section 465. D. Miscellaneous Additional Facts Generally Applicable to the Transactions Neither IRA nor its advisers attempted to obtain an opinion of the fair market value, the residual value, or the useful life of the equipment from a party unrelated

O.P.M. Horizon, Pluto, Knight, and any other intermediary were inserted into the transactions for the - 476 - sole purpose of enabling IRA to claim tax deductions. IRA made use of intermediary companies in an attempt to avoid the at-risk rules of section 465. D. Miscellaneous Additional Facts Generally Applicable to the Transactions Neither IRA nor its advisers attempted to obtain an opinion of the fair market value, the residual value, or the useful life of the equipment from a party unrelated

O.P.M. Horizon, Pluto, Knight, and any other intermediary were inserted into the transactions for the - 476 - sole purpose of enabling IRA to claim tax deductions. IRA made use of intermediary companies in an attempt to avoid the at-risk rules of section 465. D. Miscellaneous Additional Facts Generally Applicable to the Transactions Neither IRA nor its advisers attempted to obtain an opinion of the fair market value, the residual value, or the useful life of the equipment from a party unrelated

In those cases, the courts have given credence to recourse notes as a basis for supporting claimed losses or establishing section 465 "at risk" amounts.

garding the Greenberg Brothers project, listing First Blood in the subject portion of the letter. In the letter, Mr. Long expressed respondent's willingness to settle both docketed and nondocketed cases on the basis of an "at risk settlement" under section 465. In closing, the letter stated: "This offer to settle is open until September 28, 1990." 7 Mr. Redding, who was a witness in these cases, was recused as the Goodwins' counsel of record. See Model Rules of Professional Conduct rule 3.7. - 6

f the property, without regard to previously allowed amortization deductions, as petitioners contend, or (2) the corrected amortizable basis, as reduced by (...continued) Finally, at trial, respondent reserved the right to argue the applicability of sec. 465 as it relates to shareholder basis in a small business corporation. On brief, however, respondent advanced no sec. 465 argument. Accordingly, we conclude that any such argument was abandoned by respondent. Rybak v. Commissioner, 91 T.C. 524,

ner's tax liability resulting from the proper treatment of partnership items. N.C.F. Energy Partners v. Commissioner, 89 T.C. 741, 744 (1987). 7 For example, paragraph six of the original settlement agreement refers to the suspension of losses under sec. 465 and carried forward to future years. - 8 - Regs. It follows, therefore, that the determinations of the amounts at risk with respect to partnership liabilities are also "nonpartnership items" within the meaning of section 6231(a)(4). Accordin

f the property, without regard to previously allowed amortization deductions, as petitioners contend, or (2) the corrected amortizable basis, as reduced by (...continued) Finally, at trial, respondent reserved the right to argue the applicability of sec. 465 as it relates to shareholder basis in a small business corporation. On brief, however, respondent advanced no sec. 465 argument. Accordingly, we conclude that any such argument was abandoned by respondent. Rybak v. Commissioner, 91 T.C. 524,

ner's tax liability resulting from the proper treatment of partnership items. N.C.F. Energy Partners v. Commissioner, 89 T.C. 741, 744 (1987). 7 For example, paragraph six of the original settlement agreement refers to the suspension of losses under sec. 465 and carried forward to future years. - 8 - Regs. It follows, therefore, that the determinations of the amounts at risk with respect to partnership liabilities are also "nonpartnership items" within the meaning of section 6231(a)(4). Accordin

ner's tax liability resulting from the proper treatment of partnership items. N.C.F. Energy Partners v. Commissioner, 89 T.C. 741, 744 (1987). 7 For example, paragraph six of the original settlement agreement refers to the suspension of losses under sec. 465 and carried forward to future years. - 8 - Regs. It follows, therefore, that the determinations of the amounts at risk with respect to partnership liabilities are also "nonpartnership items" within the meaning of section 6231(a)(4). Accordin

y Judgment in docket No. 5359-96 observes in passing that, even if the taxpayer should be entitled to the upward basis adjustment he claims, his right to take it into account for current tax purposes would be subject to the at-risk limitations under section 465. 6(...continued) matter, etc.). - 37 - I agree with respondent’s observation. Although “section 465 had its origins in Congress’ concern over the use of nonrecourse financing or other devices in tax oriented investments, the scope of sect

), Proced. & Admin. Regs.; sec. 301.6231(c)-7T, Temporary Proced. & Admin. Regs., 52 Fed. Reg. 6793 (Mar. 5, 1987). - 4 - expressed respondent's willingness to settle both docketed and nondocketed cases on the basis of an "at risk settlement" under section 465. In closing, the letter stated: "This offer to settle is open until September 28, 1990." After receiving Mr. Long's letter, Mr. Faber contacted Mr. Long to discuss whether investment tax credits would be allowed under the settlement offer

regarding the Greenberg Brothers project, listing Lone Wolf in the subject portion of the letter. In the letter, Mr. Long expressed respondent's willingness to settle both docketed and nondocketed cases on the basis of an "at risk settlement" under section 465. In closing, the letter stated: "This offer to settle is open until September 28, 1990." After receiving Mr. Long's letter, Mr. Faber contacted Mr. Long to discuss whether investment tax credits would be allowed under the settlement offer

garding the Greenberg Brothers project, listing First Blood in the subject portion of the letter. In the letter, Mr. Long expressed respondent's willingness to settle both docketed and nondocketed cases on the basis of an "at risk settlement" under section 465. In closing, the letter stated: "This offer to settle is open until September 28, 1990." 7 Mr. Redding, who was a witness in these cases, was recused as the Goodwins' counsel of record. See Model Rules of Professional Conduct rule 3.7. - 6

ner's tax liability resulting from the proper treatment of partnership items. N.C.F. Energy Partners v. Commissioner, 89 T.C. 741, 744 (1987). 7 For example, paragraph six of the original settlement agreement refers to the suspension of losses under sec. 465 and carried forward to future years. - 8 - Regs. It follows, therefore, that the determinations of the amounts at risk with respect to partnership liabilities are also "nonpartnership items" within the meaning of section 6231(a)(4). Accordin

at at the time petitioners made their investment, as our subsequent discussion in respect of the addition to tax under section 6661 reveals, most of the pertinent decisions had not been handed down so that there was at best a shortage of authority setting forth legal principles governing the tax consequences arising from the at- risk provisions of section 465.5 We think the foregoing circumstances meet the standard established in United States v.

ge to 20 percent. As stated previously, these adjustments are merely mathematical adjustments that the parties can malee in the Rule 155 computation that we order below. Finally, at trial, respondent reserved the right to argue the applicability of sec. 465 as it relates to shareholder basis in a small business corporation. On brief, however, respondent advanced no sec. 465 argument. Accordingly, we conclude that any such argument was abandoned by respondent. Rybak v. Commissioner, 91 T.C. 524,

y judgment in docket No. 5359-96 observes in passing that, even if the taxpayer should be entitled to the upward basis adjustment he claims, his right to take it into account for current tax purposes would be subject to the at-risk limitations under section 465. I agree with respondent’s observation. Although “section 465 had its origins in Congress’ concern over the use of non-recourse financing or other devices in tax-oriented investments, the scope of section 465 is not limited to tax shelter

nts, Inc., his solely owned S corporation; that petitioner failed to report cancellation of indebtedness income relating to the activities of Double J & T Ranch (J & T), a joint venture in which petitioner was a member; that petitioner was not entitled to claimed losses in connection with the activities of J & T, pursuant to the "at risk" rules of section 465; and that petitioner was not entitled to capital losses claimed in - 4 - connection with the disposition of his interest in J & T.

The opinion letter concluded that the limited partners would have sufficient amounts “at risk” under section 465 to be entitled to the deductions projected for 1979 when Stonehurst incurred liability upon execution of the turnkey contract with R.H.

Neither party raises section 465, which limits deductions to the "amount at risk", or discusses the effect of that section on the facts of these cases.

vestments, Inc., his solely owned S corporation; that petitioner failed to report cancellation of indebtedness income relating to the activities of Double J&T Ranch (J&T), a joint venture in which petitioner was a member; that petitioner was not entitled to claimed losses in connection with the activities of J&T, pursuant to the “at risk” rules of section 465; and that petitioner was not entitled to capital losses claimed in connection with the disposition of his interest in J&T.

h a loss generally is insufficient to prove the claimed losses. Patterson v. Commissioner, T.C. Memo. 1984-58. In addition, the claimed losses were disallowed in the notice of deficiency on the ground that petitioner had not met the at-risk rules of section 465. The 1979 Bowling Green partnership return reflects over $448,000 of debt as nonrecourse. No contrary showing has been made by petitioner. Finally, the only evidence for the additional 1979 loss claimed on the amended return is the return

It has not been established that you had any amount at risk, as defined by section 465 of the Internal Revenue Code.

h a loss generally is insufficient to prove the claimed losses. Patterson v. Commissioner, T.C. Memo. 1984-58. In addition, the claimed losses were disallowed in the notice of deficiency on the ground that petitioner had not met the at-risk rules of section 465. The 1979 Bowling Green partnership return reflects over $448,000 of debt as nonrecourse. No contrary showing has been made by petitioner. Finally, the only evidence for the additional 1979 loss claimed on the amended return is the return

he expenses were not [sic] ordinary and necessary business expenses; (4) Your basis in the partnership is sufficient to entitle you to claim a partnership loss deduction, or; (5) The partners are "at risk" within the meaning of Internal Revenue Code Section 465. - 28 - b. Petitioner Paul S. Mahoney Dr. Mahoney resided in Los Angeles, California, at the time he filed his petition in the instant cases. During 1981, he worked as a physician. Dr. Mahoney reported adjusted gross income of $175,155 on

he expenses were not [sic] ordinary and necessary business expenses; (4) Your basis in the partnership is sufficient to entitle you to claim a partnership loss deduction, or; (5) The partners are "at risk" within the meaning of Internal Revenue Code Section 465. - 28 - b. Petitioner Paul S. Mahoney Dr. Mahoney resided in Los Angeles, California, at the time he filed his petition in the instant cases. During 1981, he worked as a physician. Dr. Mahoney reported adjusted gross income of $175,155 on