Mastering S Corporation At-Risk Loss Limitations: Beyond Calculations to Proactive Planning

Description

Taxpayers with ownership shares of an S corporation are subject to the “at-risk” loss limitation rules stated in IRC Secion 465. The Code specifies that a shareholder of an S corporation may only deduct losses from the S corp, but the deductions are limited to the amount the shareholder has “at risk” in a trade or business. Tax advisers must accurately identify at-risk amounts, as well as maintaining basis schedules and other calculations, in order to properly recognize current-year losses.

While the at-risk rules are designed to limit loss deductions, the regulations also provide planning opportunities for tax advisers to go beyond the calculations and offer tax saving strategies by leveraging exceptions to the at-risk provisions in Section 465, which are different than in other Code sections.

Among the strategies tax advisers must thoroughly understand are tracing rules for at-risk amounts where the taxpayer owns interests in multiple S corporations, activity aggregation and grouping rules, and merger of one S corporation with at-risk amounts with another S corp that does not have at-risk amounts. The tax strategies available are complex and require careful and sophisticated planning to avoid loss disallowance.

Listen as our expert panel goes beyond the calculations to provide practical guidance in the management of at-risk amounts and planning opportunities to maximize tax benefits working within the at-risk loss limitations.