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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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