- 4 -
essentially offsetting nature of the various lease and note
payments, resulted in a protection against loss for the limited
partners under section 465(b)(4). Id. at 450-452. The Court
held that the limited partners in the partnership there involved,
Tiger Lily, had no real economic liability on the partnership
debt, and hence were not "at risk" with regard to the partnership
notes. Therefore, the taxpayers were not entitled to flow-
through deductions on their income tax returns for those years.
Id. at 450. Both Opal Leasing and Tiger Lily were 2 of
approximately 160 partnerships included in the so-called EMC
Equipment Leasing Project. The Commissioner contends that the
financial structure of the transaction in Opal Leasing is
factually indistinguishable from the financial structure of the
transactions in Thornock for purposes of section 465(b)(4).
Subsequent to the decision in Thornock, this Court decided
another case involving equipment leasing, Waters v. Commissioner,
T.C. Memo. 1991-462, affd. 978 F.2d 1310 (2d Cir. 1992). Waters
concerned taxpayers who invested in partnerships the financial
structures of which were similar to those in Thornock, in that
the partnerships used nonrecourse financing, guarantees, and the
offsetting of lease and note payments. This Court held that the
taxpayers in Waters were not "at risk" within the meaning of
section 465(b)(4) with respect to their investment in the
equipment leasing transaction. The Second Circuit affirmed,
holding that the result was required, as in Thornock, by the
Page: Previous 1 2 3 4 5 6 7 8 9 10 Next
Last modified: May 25, 2011