Thomas F. and Therese Grojean - Page 16

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          contractual relationship was with American.  Petitioner advanced             
          the funds to American which, in turn, advanced the funds to                  
          Schanno.  If Schanno failed to pay, petitioner had no direct                 
          contractual rights against Schanno.  There was no “direct                    
          obligation” from Schanno to petitioner.  See Hitchins v.                     
          Commissioner, supra.  Whatever rights petitioner had against                 
          Schanno, if any, were derivative through American, and such                  
          derivative rights are insufficient to give petitioner basis.                 
          See id.                                                                      
               We also do not find helpful to petitioner’s cause the                   
          testimony of petitioner’s expert witness, Steven L. Harris.  We              
          recognized Harris as an expert on bankruptcy and creditor’s                  
          rights, and petitioner proffered his testimony to establish that             
          petitioner had economic and business reasons for structuring the             
          transaction as a participation as opposed to a direct loan.                  
          Harris opined that petitioner would enjoy a greater status as a              
          participant in the event Schanno went bankrupt.  Harris’                     
          testimony, however, fully supports our conclusion that there was             
          no direct obligation between petitioner and Schanno for basis                
          purposes, as he testified on cross-examination as to what                    
          petitioner’s rights would be if Schanno filed bankruptcy:                    
               Q:  The lead bank would be the holder of the claim?                     
               A:  The lead bank typically would be the holder of the                  
               claim in the bankruptcy.                                                
               Q:  And so if a proof of claim was filed, it would be                   
               under the lead bank’s name, not the participant’s name.                 

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