Marcus W. Melvin and Marilyn E. Melvin v. Commissioner of Internal Revenue Service

Marcus Melvin appeals the Tax Court’s partial disallowance of a deduction for a bad partnership loan. The Tax Court held that Melvin was “at risk” for, and therefore could deduct under 26 U.S.C. § 465 , only for his pro rata share of the loan. The court disallowed the deduction of the remaining portion of the loan, even though Melvin was personally liable for the entire amount, because any portion over the pro rata share was recoverable by right of contribution under California law. We affirm.

FACTS AND PROCEEDINGS

During 1979, Marcus Melvin owned a 71.4286 percent interest in Medici Film Partners (“Medici”), an Oregon general partnership. In 1979, Medici purchased a .872466 percent interest in ACG Motion Picture Investment Fund (“ACG”), a California limited partnership. The ACG partnership agreement provided that all rights and responsibilities of the general and limited partners would be governed by California law. Through his investment in Medici, Marcus owned a .6232 percent share of ACG as a limited partner.

Medici purchased its interest in ACG for $105,000, by making a cash down payment of $35,000 and giving a $70,000 recourse promissory note to ACG for a deferred capital…