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and the security interest of the bank. Petitioner then leased
the equipment back to the leasing company.
With regard to both activities, petitioners claimed
deductions for both depreciation and interest on their Federal
income tax returns. With regard to both activities, the parties
have stipulated:
1. The activity was not a sham.
2. Petitioner had a business purpose in entering the
activity.
3. Petitioner's investment in the activity had substance.
4. Petitioner acquired the benefits and burdens of owner-
ship in the activity.
The parties have further stipulated that petitioners' deductions
for depreciation and interest in connection with the activities
depend on the extent to which petitioner was "at risk" for each
activity within the meaning of section 465. We thus must
determine with respect to each activity the extent to which
petitioner was at risk.1
1 Respondent has proposed that we find that petitioner was not
at risk with respect to petitioner's long-term note issued with
respect to each activity (viz, the petitioner computer
installment note and the petitioner telecommunications
installment note). Respondent has not requested that we find
that petitioner lacked risk with respect to the cash and any
short-term notes issued with respect to the activities. We
assume that respondent concedes that petitioner was at risk with
respect to such cash and short-term notes as of the beginning of
the activity here in question, and we will not further address
such items.
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