-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.
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