Form 6198 At-Risk Limitations: IRC 465 Calculations, Grouping, Elections and Schedules

Description

The at-risk loss limitation rules of IRC 465 have long challenged taxpayers and tax advisers alike. Section 465 serves as a barrier to prevent taxpayers holding partnership or S corporation shares from deducting current tax losses for activities in which they do not have an economic loss. For advisers and compliance professionals, determining which losses can be currently deducted and which must be deferred is complex.

Section 465(a) limits the current tax losses an individual may deduct from certain activities to the amount at which the taxpayer is “at risk” for that activity. The Section further defines amounts at risk as the amount the taxpayer contributed to the activity in cash and the adjusted basis of any other property, along with any recourse debt incurred directly for use in the activity. At-risk limitation calculations are reported on Form 6198.

Section 465 is one of three provisions taxpayers must contend with to claim losses from partnership or S corp ownership. Tax professionals must have a thorough and practical grounding of the at-risk rules, including activity grouping rules and how Section 465 works with basis limitations and Section 469 passive activity loss rules to avoid costly tax mistakes.

Listen as our experienced panel of practitioners offers a thorough and practical guide to the planning, calculation and reporting requirements of the Section 465 at-risk limitation rules.