At-risk rules and LLCs.

• Jurisdiction: United States
• Date: 01 October 2000
• Author: Moore, Philip E.

The at-risk rules are designed to prevent a taxpayer from deducting losses in excess of his economic investment in an activity. Under Sec. 465, a taxpayer's deductible loss prior to applying any passive activity loss rules is generally limited to the amount he is considered to be at-risk. A taxpayer is considered to be at-risk for an activity by taking into account his cash contributions, adjusted basis of property contributed to the activity and amounts borrowed with respect to that activity. Under Sec. 465, the amounts borrowed can be used for an activity in calculating the at-risk amount to the extent that the taxpayer is personally liable for the repayment of such amount or has pledged assets not used in the activity as security for the borrowed...