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a prohibited interest.3 Moreover, Linda Roorda, as the wife of
Keith Roorda, is a "related person to a person with an interest
in the activity" within the meaning of section 465(b)(3)(A).4 As
we read section 465(b)(3)(B)(ii), it excepts borrowed amounts
only where the borrower that is claiming to be at risk on those
amounts is a corporation.5 In the instant case, because the
3 In Jackson v. Commissioner, 86 T.C. 492, 529 (1986), affd.
864 F.2d 1521 (10th Cir. 1989), we held that a prohibited
interest is a capital interest in the activity or an interest in
the net profits of the activity. We have applied the holding in
Jackson in later cases. See Levy v. Commissioner, 91 T.C. 838,
868 (1988); Larsen v. Commissioner, 89 T.C. 1229, 1270 (1987),
affd. in part and revd. on another issue sub nom. Casebeer v.
Commissioner, 909 F.2d 1360 (9th Cir. 1990); Bennion v.
Commissioner, 88 T.C. 684, 698 (1987). In these cases, we
defined a capital interest as an interest in the assets of the
activity which is distributable to the owner of the capital
interest upon liquidation of the activity.
4 "Related person" includes a spouse. See secs. 465(b)(3)(C),
267(b)(1) and (c)(4).
5 Put more technically, the following analysis was set forth
in respondent's brief:
"Taxpayer" in * * * paragraph 465(b)(1) is the
antecedent to which "amounts borrowed by a corporation"
found in subparagraph 465(b)(3)(B)(ii) refers. The
clause "amounts borrowed by a corporation" found in
subparagraph 465(b)(3)(B)(ii) relates back to the
phrase "amounts borrowed" found in subparagraph
465(b)(3)(A). The phrase "amounts borrowed" found in
subparagraph 465(b)(3)(A) relates back to the phrase
"amounts borrowed" found in subparagraph 465(b)(1)(B).
The phrase "amounts borrowed" found in subparagraph
465(b)(1)(B) relates back to the term "taxpayer" found
in both * * * paragraph 465(b)(1) and paragraph
465(b)(2). This * * * [syntactical] analysis reveals
the clause "by a corporation" to be a term of
(continued...)
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