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however, that petitioner was not at risk for his pro rata share
of the Limited Recourse Note as to which he assumed personal
liability because of section 465(b)(4). Section 465(b)(4)
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 petitioner was protected from
loss by guarantees or stop loss agreements. However, respondent
argues that petitioner was protected from loss by nonrecourse
financing and "other similar arrangements", as provided in
section 465(b)(4).
In determining whether a taxpayer is protected from loss
within the meaning of section 465(b)(4), the majority of Courts
of Appeals that have addressed this issue have applied the
"realistic possibility" or "economic reality" test. See Waters
v. Commissioner, 978 F.2d 1310 (2d Cir. 1992), affg. T.C. Memo.
1991-462; Young v. Commissioner, 926 F.2d 1083 (11th Cir. 1991),
affg. T.C. Memo. 1988-440 and Cohen v. Commissioner, T.C. Memo.
1988-525; Moser v. Commissioner, 914 F.2d 1040 (8th Cir. 1990),
affg. T.C. Memo. 1989-142; American Principals Leasing Corp. v.
United States, 904 F.2d 477 (9th Cir. 1990) (sometimes cited as
Baldwin v. United States). Under the economic reality test, the
courts examine whether "a transaction is structured--by whatever
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