- 16 - 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.Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Next
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