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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), a
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Last modified: March 27, 2008