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valued. Respondent has also conceded that decedent was at risk
in the amount of his $450,000 cash investment and was personally
liable for the debt which decedent assumed upon purchasing his
interest in the partnership. Nevertheless, respondent contends
that decedent was not at risk, for the amount of assumed
partnership debt under section 465(b)(4), which provides:
(4) Exception.--Notwithstanding any other
provision of this section, 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.
Respondent does not contend that decedent was protected by
guarantees or stop loss agreements, but rather by nonrecourse
financing and "other similar arrangements".
When analyzing a transaction under section 465(b)(4), we use
the "realistic possibility" or "economic reality" test set forth
in American Principals Leasing Corp. v. United States, 904 F.2d
477, 483 (9th Cir. 1990) (sometimes cited as Baldwin v. United
States), and approved by this Court in Levien v. Commissioner,
103 T.C. 120, 126 (1994), affd. without published opinion 77 F.3d
497 (11th Cir. 1996).
This test asks:
whether there is any realistic possibility that the
taxpayer ultimately will be subject to economic loss on
the investment at issue. * * * [Levien v.
Commissioner, 103 T.C. at 126]
In applying this standard, we are guided by the substance of the
transaction, not its form. Id. at 129. We look not to any
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