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be allowed as a deduction at the end of the first succeeding
partnership taxable year, and subsequent partnership taxable
years, to the extent that the partner’s adjusted basis for his
partnership interest at the end of any such year exceeds zero
(before reduction by such loss for such year).”).
Section 465 imposes a further limitation on a partner’s
distributive share of partnership losses. Under section 465,
losses relating to activities engaged in by a taxpayer in
carrying on a trade or business or for the production of income
are allowed as deductions only to the extent that the taxpayer is
at risk financially with respect to the activities. Sec.
465(a)(1), (c)(3). Investors generally are considered to be at
risk financially to the extent that they contribute money to the
activities. Sec. 465(b)(1)(A). In addition, investors are
considered to be at risk financially with respect to third-party
debt obligations relating to the activities to the extent that
they are personally liable for repayment of the debt obligations
or to the extent that they have pledged property, other than
property used in the activities, as security for the debt
obligations. Sec. 465(b)(1)(B) and (2). The determination of
whether a taxpayer is to be regarded as at risk on a particular
debt obligation is to be made at the end of each taxable year.
Sec. 465(a)(1); Levy v. Commissioner, 91 T.C. 838, 862 (1988).
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