Question

Before the passage of the 1986 Act, Congress attempted to impose restrictions on the abuses associated with the at-risk provisions of 1976 as set out in Code Section 465. In summary, the at-risk rules disallowed losses in excess of the investment. Discuss the at-risk limitations relating to individuals and closely held corporations.

Answer in ur own words

Answer 1

In case of individual and a C corporation deduction shall be allowed only to the extent of aggregate amount with respect of which tax payer is at risk

For purpose of this section taxpayer shall be considered at risk for an activity in respect of amount including

1) the amount of money or adjusted basis of property contributed by the taxpayer for the activity and

2) amounts borrowed for such activity

Thus if loss is more that the above amount , the loss in excess of above amount would not be allowed as deduction