-11- simply requires that HBW contribute funds equal to the amount of the deficit in HBW’s capital account, which may or may not be the same as the amount of HBW’s proportionate share of LCL’s recourse debt. Third, even if HBW actually makes an additional contribution to LCL’s capital under the DRO, the DRO does not require that any of the additional contribution be paid to one or more of LCL’s creditors. The DRO states specifically that LCL may transfer the additional contribution to its members with positive capital accounts. Congress enacted section 465 to limit the use of artificial losses created by deductions from certain leveraged investment activities. Section 465(a)(1) provides that a taxpayer who is engaged in certain activities may deduct losses occurring from these activities only to the extent that the taxpayer is “at risk” for such activities at the close of a taxable year. Equipment leasing, which is the type of activity involved in this case, comes within the terms of these at-risk activities. See sec. 465(c)(1)(C). Under section 465(b)(1)(A), a taxpayer is at risk for amounts of money and the adjusted basis of other property contributed by the taxpayer to the designated activity. The basis of property, under section 1012, is generally defined as cost and that cost is increased or decreased, i.e., adjusted, as permitted pursuant to section 1016. Under section 465(b)(2), aPage: Previous 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 NextLast modified: March 27, 2008