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funds--and re-lent the funds to MMS in exchange for MMS's note and
related security agreement, creating a direct debtor-creditor
relationship between petitioner and MMS. Thus, petitioner
"procured" funds for MMS, making him a lender rather than a
guarantor under the Court of Appeals analysis, and petitioner had
direct rights against MMS as a creditor, distinguishing this
arrangement from the participation interest at issue in Grojean.
In sum, we conclude that the restructuring transaction,
wherein petitioner borrowed from Huntington on a recourse basis
and re-lent to MMS, with both loans fully documented so as to
create enforceable legal obligations, contains "adequate
substance" so that it is "not to be disregarded." Hitchins v.
Commissioner, 103 T.C. at 719. After the restructuring, MMS was
directly indebted to petitioner, and petitioner had enforceable
creditor's rights against MMS. Consequently, there was
indebtedness "of" MMS "to" petitioner within the meaning of
section 1366(d)(1)(B), so that the outstanding indebtedness under
the MMS/Miller Loan at the close of 1992, 1993, and 1994 generated
basis in those amounts.
Issue 2. "At Risk" Limitation
Respondent argues, in the alternative, that in the event it
is concluded that petitioners had sufficient basis to deduct the
25(...continued)
also obtained a second mortgage on petitioner's parents'
residence as security for the indebtedness.
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