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Respondent does not contend that petitioners were protected by
guaranties 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, supra 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
single factor, id. at 127, but to whether the combination of
factors and characteristics of the transaction rises to the level
of an “other similar arrangement” with the effect of protecting
petitioners against risk.
Unfortunately in this case, both parties have had to deal
with a lack of documentation. We find, however, no significant
difference between the facts of this case and those of Estate of
Bradley v. Commissioner, T.C. Memo. 1997-341 (concerning a
partner in the Hambrose Leasing 1984-5 partnership).
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