- 37 -
scenario” is generally inappropriate for purposes of section
465(b)(4). Moser v. Commissioner, 914 F.2d at 1048.26 Examining
whether a greater than $34 million lawsuit was plausible would
require us to utilize such a “doomsday” approach. We decline
petitioners’ invitation to do so.
Accordingly, we hold that the loans that Mr. Oren made to HL
and HS did not increase petitioners’ basis in those companies for
purposes of section 1366(d)(1)(B). Petitioners’ ability to
deduct losses for taxable years 1993, 1994, and 1995 is therefore
limited to basis amounts determined under section 1366(d) that do
not include those loans. We also hold that petitioners were not
at risk for the amounts borrowed by Mr. Oren for use in HL and
HS. Therefore, petitioners’ loss deductions from those companies
are limited under section 465(a) to amounts for which petitioners
are otherwise at risk.
Decision will be
entered for respondent.
25(...continued)
application of sec. 465(b)(4) unless and until the bankruptcy
actually occurs”).
26But see Emershaw v. Commissioner, 949 F.2d 841, 845-848
(6th Cir. 1991), affg. T.C. Memo. 1990-246.
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