Larry W. and Cynthia J/ Van Wyk - Page 11

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               personally liable to repay the loan to Roorda, I.R.C. �                
               465(b)(2) has been satisfied and Van Wyk has amounts                   
               "at risk" under I.R.C. � 465(b)(1)(B).                                 
          In essence, petitioners argue that section 465(b)(3)(B)(ii) is              
          meant to allow at-risk status for a shareholder who borrows money           
          from another shareholder and then lends it to a corporation owned           
          by both of the shareholders.  Respondent contends that section              
          465(b)(3)(B)(ii) bears only upon the at-risk status of a                    
          corporation, not its shareholders.                                          
               We agree with respondent that the proper interpretation is             
          that section 465(b)(3)(B)(ii) applies only to allow at-risk                 
          status for a corporate borrower, not to an individual shareholder           
          merely because he made the loan in question to his corporation.             
          Section 465(b)(1)(B) and (2) speaks to amounts borrowed by a                
          taxpayer–-in the instant case, the reference to a taxpayer is to            
          petitioner.  Section 465(b)(3)(A) prohibits at-risk treatment for           
          those amounts, i.e., the amounts borrowed by the taxpayer (in the           
          instant case petitioner), if those amounts are borrowed from a              
          person with an interest in the activity or from a person related            
          to such a person.  Section 465(b)(3)(B)(i) excepts those borrowed           
          amounts, i.e., allows at-risk treatment, where the only interest            
          in the activity possessed by the lender (the person from whom the           
          taxpayer borrowed the money) is a creditor's interest.  That                
          exception does not apply to the instant case because Keith                  
          Roorda's interest in the activity is an equity interest, which is           

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Last modified: May 25, 2011