- 36 -
Furthermore, we do not believe it appropriate to engage in
the type of speculation petitioners would have us make. Indeed,
the legislative history of section 465(b)(4) indicates that
Congress intended to exclude financial difficulties from the at-
risk determination:
For purposes of * * * [section 465(b)(4)], it will
be assumed that a loss-protection guarantee, repurchase
agreement or insurance policy will be fully honored and
that the amounts due thereunder will be fully paid to
the taxpayer. The possibility that the party making
the guarantee to the taxpayer, or that a partnership
which agrees to repurchase a partner’s interest at an
agreed price, will fail to carry out the agreement
(because of factors such as insolvency or other
financial difficulty) is not to be material unless and
until the time when the taxpayer becomes
unconditionally entitled to payment and, at that time,
demonstrates that he cannot recover under the
agreement. [S. Rept. 94-938, at 50 n.6 (1976), 1976-3
C.B. (Vol. 3) 49, 88.]
In the Eighth Circuit, to which this case is appealable, and in
at least one other circuit,25 examination of “the worst-case
25See, e.g., Am. Principals Leasing Corp. v. United States,
904 F.2d 477, 483 (9th Cir. 1990):
A theoretical possibility that the taxpayer will suffer
economic loss is insufficient to avoid the applicability
of this subsection. We must be guided by economic
reality. If at some future date the unexpected occurs and
the taxpayer does suffer a loss, or a realistic
possibility develops that the taxpayer will suffer a loss,
the taxpayer will at that time become at risk and be able
to take the deductions for previous years that were
suspended under this subsection. [Citations omitted.]
See also Thornock v. Commissioner, 94 T.C. 439, 454 (1990) (“the
potential bankruptcy of entities providing guarantees or loss
protection to investors is not a consideration in determining the
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