-13- worst case scenario. See also Pritchett v. Commissioner, 827 F.2d 644, 647 (9th Cir. 1987) (a taxpayer is not at risk if the taxpayer’s obligation to repay borrowed funds is contingent), revg. on other grounds 85 T.C. 580 (1985). Under this test, if a taxpayer is a payor of last resort, then the taxpayer is at risk for the purpose of section 465(b). In determining whether the taxpayers in Emershaw v. Commissioner, supra, were payors of last resort, the Court of Appeals for the Sixth Circuit initially referenced a Tax Court Opinion stating that whether a taxpayer is at risk for purposes of section 465(b) “‘must be resolved on the basis of who realistically will be the payor of last resort if the transaction goes sour and the secured property associated with the transaction is not adequate to pay off the debt.’” Id. at 845 (quoting Levy v. Commissioner, 91 T.C. 838, 869 (1988)). The Court of Appeals gave detailed consideration to the Commissioner’s argument that the taxpayers’ investment could not be at risk because there was not a realistic possibility that the taxpayers would ever be called upon to make payments on the debt. Id. The court dismissed that argument as unpersuasive and found that the taxpayers were at risk because they could ultimately be required to make payment. Id. at 850. The court concluded that the taxpayers were payors of last resort because they might have to pay the debt.Page: Previous 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 NextLast modified: March 27, 2008