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the result of a flood. Flooding is and secured by real property used in the the tax year are allocable to partners
generally not a concern in the area activity, is not subject to the limitations actively participating in its manage-
in which M operates. of Sec. 465(b)(3). ment.
■ Nonrecourse loans (either within
M’s amount at risk will not be in- the activity or to acquire an interest Example 2. Aggregating separate
creased unless flooding actually occurs in the activity) that are not secured activities to meet the at-risk test: G
and destroys the crops. The likelihood by the taxpayer’s own property (i.e., Corp. is 100% owned by J. G has a
of flooding is so remote that M is es- property not used in the activity) 50% interest in two separate partner-
sentially protected against loss. However, (Sec. 465(b)(6)). ships, one with a bowling alley and a
if the contingency (in this case flooding) In Moreno, No.6:12CV2920 (W.D. second that is involved in computer
does occur, M’s amount at risk will be La. 5/19/14), the taxpayer (through sales. G’s employees (along with those
increased at the end of the year in which his single-member LLC) was at risk of the other 50% partner in each
the flood loss occurs (Prop. Regs. Sec. for only 50% of the amount of debt he partnership) are actively involved in
1.465-6(e), Example (3)). personally guaranteed. Amounts bor- the management of both partner-
A corporation is potentially subject to rowed were used by the taxpayer’s single- ships. G’s amount at risk is positive
the at-risk limitations if a loss is incurred member LLC to purchase an aircraft for the bowling alley but negative
(either directly or via a partnership or that was leased to customers. The loan for the computer sales partnership. If
other passthrough entity) in a business was secured by the purchased aircraft, the two partnerships were combined,
or production-of-income activity in by the taxpayer personally, and then by a G would have a positive amount
which an investment was made in the guaranty from a corporation controlled at risk of $10,000. The computer
form of: by the taxpayer. The taxpayer, however, sales operation incurred a loss in the
■ Amounts contributed to or used in also had a right of reimbursement from current year of which G’s share was
the activity that are protected against the controlled corporation for half the $13,000. G and the partnerships use a
loss by guarantee, stop-loss agree- amount if he ultimately was required calendar year.
ment, or similar arrangement (Sec. to pay the obligation. The taxpayer
465(b)(4); Prop. Regs. Sec. 1.465-6). was at risk with respect to the loan, G is unable to claim any loss on its
■ Amounts borrowed, whether recourse except to the extent there was a right current-year return. G is not at risk
or nonrecourse, for use in, or contri- of reimbursement. with respect to the loss because its
bution to, the activity from a person amount at risk in the computer sales
who has an interest in the capital or Aggregation of activities partnership is negative. It is not al-
profits of the activity (other than as a Normally, a corporation must test each lowed to aggregate its interest in the
creditor) or who is related to a person separate activity it holds an interest in to bowling alley with the computer sales
(other than the taxpayer) who has determine if it is at risk for that activity. partnership because they are separate
such an interest in the activity (other If the corporation holds an interest in a trades or businesses (IRS Letter Rul-
than as a creditor) (Sec. 465(b)(3); partnership, however, separate activities ing 9035005). Assuming the two sales
Regs. Sec. 1.465-8). may be combined that are of the same partnerships qualified as a single trade
Note: An exception exists for type (e.g., two farms or four oil-and-gas or business, G could deduct $10,000 of
amounts a corporation borrows from properties) and constitute one of the five the loss (its net positive amount at risk
its shareholder (Sec. 465(b)(3)(B)). activities originally subject to the at-risk in the two partnerships). ■
The IRS issued regulations that apply rules (see Sec. 465(c)(2)(B) and Temp.
Sec. 465(b)(3) to all trade, business, or Regs. Sec. 1.465-1T).
income-producing activities of the tax- For a corporation to be allowed to
payer (Regs. Sec. 1.465-8). The regula- combine like-kind activities other than
tions also clarify that a taxpayer’s amount the original five, the activities must Contributor
at risk can be increased by amounts bor- constitute a single trade or business (Sec.
rowed from a related person who does 465(c)(3)(B)): Trenda Hackett, CPA, is an executive
not have a disqualifying interest in the ■ In whose management the corpora- editor with Thomson Reuters
activity and by amounts borrowed by a tion’s employees actively participate; Checkpoint. For more information
corporation from its shareholders. Also, or about this column, contact
qualified nonrecourse financing, if used ■ That is carried on by a partnership in thetaxadviser@aicpa.org.
in an activity of holding real property which at least 65% of the losses for

www.thetaxadviser.com January 2022 41