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increased in the amounts of $252,503, $438,811, $115,230, and
$165,277 for the taxable years 1988, 1991, 1992, and 1993,
respectively, on account of the disallowance of petitioners'
deductions of West View's losses for those years. Additionally,
respondent determined that, for 1993, petitioners' income should
be increased by $93,239, on account of the disallowance of
petitioners' deduction of West View's loss for the 1991 taxable
year, which petitioners carried forward to 1993. Finally,
respondent determined that petitioners are liable for a
substantial understatement penalty pursuant to section 6662 for
taxable years 1991, 1992, and 1993.
Discussion
We have been asked to resolve whether petitioner is at risk
with respect to the loan.2 Petitioners argue that petitioner
should be considered at risk with respect to the loan pursuant to
section 465(b)(1)(A). Additionally, petitioners argue that
petitioner should be considered to be at risk with respect to
the loan pursuant to section 465(b)(1)(B). Specifically,
2 The parties have stipulated the losses which petitioners
will be entitled to deduct in accordance with our decision as to
whether petitioner is at risk with respect the loan.
Accordingly, other than the penalty issue discussed below, this
is the only issue which we are called upon to decide. The
parties also agree that the at-risk determination is to be made
at the shareholder level and not at the S corporation level.
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