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rights or remedies hereunder or by reason hereof.” We also note
the illogic of petitioner’s argument that the DRO in and of
itself makes HBW at risk for the repayment of LCL’s recourse
debt. As we have stated, a DRO is routinely inserted into a
partnership agreement to meet the substantial economic effect
requirements of section 704(b). If a member of a limited
liability company is automatically “at risk” for repayment of the
company’s recourse debt simply by inserting a DRO in the
operating agreement in order to meet the requirements of section
704(b), then the at-risk rules of section 465 have little purpose
in that seemingly every member of a limited liability company is
at risk for the repayment of the company’s recourse debt.
The limited amount of any capital contribution under the DRO
further supports our conclusion that HBW was not a payor of last
resort as to LCL’s recourse debt. Under the DRO, HBW’s
obligation is limited to restoring the amount of any deficit in
its capital account. However, the amount of that deficit, if in
fact one occurs, is not necessarily the same amount as HBW’s
proportionate share of LCL’s recourse debt. Moreover, as just
noted, the revised operating agreement does not require LCL to
pay any or all of the restored deficit to creditors; it allows
LCL to distribute any restored funds to members with positive
capital account balances.
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