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with respect to the $18,500 cash payment and the three Equity
Promissory Notes. Respondent argues, however, that, as to the
long-term Buyer Acquisition Note, petitioner is not at risk
because: (1) The Buyer Acquisition Note, though labeled
recourse, is, in substance, nonrecourse and (2) even if the Buyer
Acquisition Note is recourse, the transaction protects petitioner
against loss under section 465(b)(4). Because we hold that,
under section 465(b)(4), the transaction protects petitioner from
loss, we need not decide whether the Buyer Acquisition Note is
recourse. Petitioner, therefore, is not at risk with respect to
the Buyer Acquisition Note.
Section 465(a)(1) provides that losses from certain
activities are deductible only to the extent that the taxpayer is
at risk with respect to each activity at the close of the taxable
year. A taxpayer's amount at risk includes the amount of money
and the bases of property contributed to an activity. See sec.
465(b)(1)(A). The amount at risk also includes amounts borrowed
with respect to such activity. See sec. 465(b)(1)(B). Pursuant
to section 465(b)(2)(A), amounts borrowed with respect to an
activity include "amounts borrowed for use in an activity to the
extent that * * * [the taxpayer] is personally liable for the
repayment of such amounts." Notwithstanding the foregoing
provisions, a taxpayer's amount at risk does not include amounts
protected against loss through nonrecourse financing, guarantees,
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Last modified: May 25, 2011