Frequently Asked Questions
Who is eligible for the At-Risk Exclusion for Closely Held Equipment Leasing?
Closely held C corporations where 50% or more of gross receipts are from equipment leasing (Section 1245 property).
How does the At-Risk Exclusion for Closely Held Equipment Leasing work?
Exempts certain closely held C corporations from the at-risk loss limitation rules for equipment leasing activities, allowing full deduction of losses against other corporate income.
What law authorizes the At-Risk Exclusion for Closely Held Equipment Leasing?
The At-Risk Exclusion for Closely Held Equipment Leasing is authorized under IRC §465(c)(4) of the Internal Revenue Code (Title 26, United States Code).
Statutory Text — IRC §465
Source: Internal Revenue Code, Title 26, United States Code
§ 465. Deductions limited to amount at risk(a) Limitation to amount at risk(1) In generalIn the case of—(A) an individual, and
(B) a C corporation with respect to which the stock ownership requirement of paragraph (2) of section 542(a) is met,
engaged in an activity to which this section applies, any loss from such activity for the taxable year shall be allowed only to the extent of the aggregate amount with respect to which the taxpayer is at risk (within the meaning of subsection (b)) for such activity at the close of the taxable year.
(2) Deduction in succeeding yearAny loss from an activity to which this section applies not allowed under this section for the taxable year shall be treated as a deduction allocable to such activity in the first succeeding taxable year.
(3) Special rules for applying paragraph (1)(B)For purposes of paragraph (1)(B)—(A) section 544(a)(2) shall be applied as if such section did not contain the phrase “or by or for his partner”; and
(B) sections 544(a)(4)(A) and 544(b)(1) shall be applied by substituting “the corporation meet the stock ownership requirements of section 542(a)(2)” for “the corporation a personal holding company”.
(b) Amounts considered at risk(1) In generalFor purposes of this section, a taxpayer shall be considered at risk for an activity with respect to amounts including—(A) the amount of money and the adjusted basis of other property contributed by the taxpayer to the activity, and
(B) amounts borrowed with respect to such activity (as determined under paragraph (2)).
(2) Borrowed amountsFor purposes of this section, a taxpayer shall be considered at risk with respect to amounts borrowed for use in an activity to the extent that he—(A) is personally liable for the repayment of such amounts, or
(B) has pledged property, other than property used in such activity, as security for such borrowed amount (to the extent of the net fair market value of the taxpayer’s interest in such property).
No property shall be taken into account as security if such property is directly or indirectly financed by indebtedness which is secured by property described in paragraph (1).
(3) Certain borrowed amounts excluded(A) In generalExcept to the extent provided in regulations, for purposes of paragraph (1)(B), amounts borrowed shall not be considered to be at risk with respect to an activity if such amounts are borrowed from any person who has an interest in such activity or from a related person to a person (other than the taxpayer) having such an interest.
(B) Exceptions(i) Interest as creditorSubparagraph (A) shall not apply to an interest as a creditor in the activity.
(ii) Interest as shareholder with respect to amounts borrowed by corporationIn the case of amounts borrowed by a corporation from a shareholder, subparagraph (A) shall not apply to an interest as a shareholder.
Showing first 3,000 characters of full section text.