- 38 -
T.C. 1003, 1016-1017 (1989), affd. sub nom. Hildebrand v.
Commissioner, 28 F.3d 1024 (10th Cir. 1994). However, a taxpayer
will not be considered "at risk" with respect to borrowed amounts
if the amounts are protected against loss "through nonrecourse
financing, guarantees, stop loss agreements, or other similar
arrangements." Sec. 465(b)(4); see also Oren v. Commissioner, 357
F.3d at 859.
In analyzing whether a particular transaction runs afoul of
section 465(b)(4), the standard we have generally employed is
whether the taxpayer faces any "realistic possibility of economic
loss" on the transaction. Levien v. Commissioner, 103 T.C. 120,
126 (1994), affd. without published opinion 77 F.3d 497 (11th Cir.
1996).27 Stated differently, where a transaction is structured so
as to remove any realistic possibility of the taxpayer suffering
an economic loss, the taxpayer is not "at risk" for the borrowed
amounts. Id.; see also Oren v. Commissioner, supra.
Respondent argues that petitioners were not "at risk" with
respect to the Huntington indebtedness because the guarantor
waivers executed by the Rapp Group resulted in petitioners’ being
27 By comparison, the Court of Appeals for the Sixth Circuit
employs a "worst-case scenario" standard in analyzing whether a
transaction runs afoul of sec. 465(b)(4). See, e.g., Pledger v.
United States, 236 F.3d 315, 319 (6th Cir. 2000). Although the
Court of Appeals for the Seventh Circuit, to which this case is
appealable, has not expressly adopted either standard, we note
that it has cited the "realistic possibility of loss" standard
with approval. See HGA Cinema Trust v. Commissioner, 950 F.2d
1357, 1362-1363 (7th Cir. 1991), affg. T.C. Memo. 1989-370.
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