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direction for several years, without any apparent
harm.
No harm occurred in the sense that, since the required payments
were to be equal (virtually equal in the computer equipment
activity), it did not matter which way around the circle payments
flowed. Likewise, it would not have mattered if payments flowed
the right way around the circle but were made in only one-half
the amounts called for under the various obligations. Indeed,
from a simple balance sheet point of view, it would not have
mattered if no payments ever were made. Unless the circle was
broken, with the consequences visited on petitioner, then his
obligations to Proz imposed no realistic possibility that he
would suffer an economic loss. As the Court of Appeals for the
Second Circuit said in Waters v. Commissioner, 978 F.2d at 1316-
1317:
if * * * [the party equivalent to Sha-Li or RTS]
stopped making payments on its lease, it could only
have expected a chain reaction resulting in * * * [the
taxpayer], and then * * * [the middle entity] ceasing
to make payments as well. Any ensuing litigation would
similarly have resulted in a chain reaction. Whether
or not a litigant would be entitled to setoff in a
particular court action, it is clear that once the dust
settled, the claims among the parties would have
cancelled each other out.
3. Nonrecourse Nature of Underlying Bank Debt
Both the petitioner computer installment note and the
petitioner telecommunications installment note are claimed by
petitioner to be "limited recourse" obligations. Assuming that
such obligations exposed petitioner to some personal liability,
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