William and Arlene G. Kingston - Page 21

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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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