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Sixth Circuit held that, under the "worst-case scenario"
standard, neither the existence of an indemnification clause in
the taxpayer's purchase agreement nor the nonrecourse nature of
the note to the original purchaser of the equipment protected the
taxpayer from loss within the meaning of section 465(b)(4).
Respondent has failed to present facts in this case that would
distinguish the transaction in the instant case from those in
Emershaw v. Commissioner, supra, and Martuccio v. Commissioner,
supra. Therefore, the reasoning applied, and results reached in
those cases equally apply to the instant case.
On this record, under the standards prescribed by the Court
of Appeals for the Sixth Circuit, the Court here holds that
petitioner is not "protected from loss" within the meaning of
section 465(b)(4). Petitioners are, therefore, entitled to the
loss and investment interest expense deductions claimed on their
1985 and 1986 Federal income tax returns. Petitioners are
sustained on this issue.
Additions
The remaining issue is whether petitioners are liable for
the additions to tax under sections 6653(a) and 6661(a), and the
increased interest under section 6621(c), for each of the years
in question. Since the Court holds for petitioners on the at
risk issue, there exists no underpayment to which the additions
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