Hubert Enterprises, Incorporated, Successor By Merger To Hubert Holding Company - Page 11




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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