Larry W. and Cynthia J/ Van Wyk - Page 1

                                   113 T.C. No. 29                                    

                               UNITED STATES TAX COURT                                

                   LARRY W. AND CYNTHIA J. VAN WYK, Petitioners v.                    
                    COMMISSIONER OF INTERNAL REVENUE, Respondent                      

               Docket No. 15467-97.                Filed December 21, 1999.           

                    P and L each own 50 percent of the stock in W, an                 
               S corporation engaged in the business of farming.  P                   
               and his wife borrowed funds from L and his wife.  On                   
               the same day, P transferred to W funds equal in amount                 
               to the loan from L and his wife.  Part of the funds P                  
               transferred to W paid off preexisting debts P owed to                  
               W, and the remainder represents a new debt from W to P                 
               (the loan).  R determined that P is not at risk with                   
               respect to the loan to W and disallowed P’s share of                   
               W’s losses.                                                            
                    1.  Held:  Pursuant to sec. 465(a), I.R.C., P is                  
               not at risk with respect to the loan.  The at-risk                     
               treatment of amounts borrowed by a taxpayer and                        
               contributed to an activity is governed by sec.                         
               465(b)(1)(B), I.R.C.  P is not considered to be at risk                
               with respect to the loan because sec. 465(b)(3)(A),                    
               I.R.C., bars at-risk treatment with respect to amounts                 
               that are borrowed from a person with a prohibited                      
               interest in the activity, and L’s equity interest is                   

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

Last modified: May 25, 2011