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intended section 465(b)(1) to operate when there is an overlap in
coverage between section 465(b)(1)(A) and (B):
The amounts borrowed by the taxpayer and then
contributed to the activity (or used to purchase
property which is contributed to the activity) are
"amounts borrowed with respect to" the activity (as
referred to in section 465(b)(1)(B)) and therefore are
subject to the rules of section 465(b)(3) even though
amounts (or property) are also described in section
465(b)(1)(A). [Staff of the Joint Comm. on Taxation,
General Explanation of the Tax Reform Act of 1976, at
39 n.12 (J. Comm. Print 1976).]
The General Explanation is in accord with our own conclusion as
to the operation of the statute. In short, petitioners fail to
marshal any meaningful support for their argument under section
465(b)(1)(A). Accordingly, we hold that the loan does not,
without consideration of section 465(b)(1)(B), constitute money
contributed to an activity under section 465(b)(1)(A).
Section 465(b)(1)(B)
Petitioners additionally contend that the loan should be
considered at risk pursuant to section 465(b)(1)(B). Petitioners
argue that the loan is not subject to the general prohibition of
section 465(b)(3)(A) against borrowing from parties with an
interest in the activity because of the exception provided by
section 465(b)(3)(B)(ii). Petitioners argue:
Van Wyk loaned funds to West View, thus fulfilling the
first clause of I.R.C. � 465(b)(3)(B)(ii). ("In the
case of amounts borrowed by a corporation from a
shareholder . . ."). Because this requirement is met,
Roorda's status as a shareholder is disregarded and
I.R.C. � 465(b)(3) does not apply. Since Van Wyk was
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