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petitioners were protected from loss within the meaning of
section 465(b)(4).
Respondent acknowledges, on brief, that no single feature of
a transaction controls as to whether a taxpayer is protected from
loss. However, respondent contends that, in this case, a
combination of factors, including the nonrecourse nature of the
indebtedness involved in the transaction, the circularity of
payments, and the deferral provisions in the Limited Recourse
Note, effectively protected petitioner from loss within the
meaning of section 465(b)(4).
The Court first examines respondent's assertion that the
existence of nonrecourse financing protected petitioner from loss
under section 465(b)(4). Where a partner is personally liable
for his share of partnership nonrecourse debt by virtue of his
assumption of the nonrecourse liability, the presence of that
same nonrecourse liability cannot also be said to be a factor
insulating him from risk. See Hayes v. Commissioner, T.C. Memo.
1995-151; Wag-A-Bag Inc. v. Commissioner, T.C. Memo. 1992-581,
and cases cited therein.
Respondent next asserts that the circular nature of the
payments, i.e., the fact that the partnership's debt payments
under the Limited Recourse Note were exactly offset by the rental
payments it received from Charterhouse, protected petitioner from
loss. The circularity of the payments is set forth in the
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