- 8 -
1988). In deciding whether a recourse note is included in basis,
the mere fact that the note is recourse on its face, however, is
not determinative. See Roe v. Commissioner, T.C. Memo. 1986-510,
affd. per order (8th Cir., Apr. 1, 1988), affd. without published
opinion sub nom. Sincleair v. Commissioner, 841 F.2d 394 (5th
Cir. 1988). When taking economic realities into account, if a
recourse debt has no reasonable likelihood of being paid, then
the recourse note lacks economic substance and should not be
included in basis. See Rose v. Commissioner, 88 T.C. 386, 421-
422 (1987), affd. 868 F.2d 851 (6th Cir. 1989); Waddell v.
Commissioner, supra; Bridges v. Commissioner, 39 T.C. 1064, 1077
(1963), affd. 325 F.2d 180 (4th Cir. 1963). In determining
whether there is a likelihood of repayment, we look at the facts
and circumstances of each case. See Waddell v. Commissioner,
supra at 903.
Where the purchase price greatly exceeds the fair market
value of the property, courts often find the transaction lacks
economic substance. See Rose v. Commissioner, supra at 419-420,
422. Corbin West reported the purchase price of the property as
$3,150,000. Respondent argues that the fair market value of the
property at the time of Corbin West's acquisition was only
$1,808,500; therefore, the purchase price greatly exceeds the
fair market value.
In this case, the most significant indicator of the fair
market value of the property is the first option entered into by
Corbin West and Norman 1 year before the acquisition of the
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