At-Risk Limitations

In general, section 465 limits the amount of deductible losses partners can claim from certain activities. The at-risk limitations don’t apply to the partnership, but instead apply to each partner’s share of net losses attributable to each activity. Because the treatment of each partner’s share of partnership losses depends on the nature of the activity that generated it, the partnership must report the items of income, loss, and deduction separately for each activity. The at-risk limitations apply to individuals, estates, trusts, and certain closely held C corporations. See Pub.

925, Passive Activity and At-Risk Rules, for additional information.

Activities covered by the at-risk rules. If the partnership is involved in one of the following activities as a trade or business or for the production of income, the partner may be subject to the at-risk rules.

1. Holding, producing, or distributing motion picture films or videotapes.

2. Farming.

3. Leasing section 1245 property, including personal property and certain other tangible property that’s depreciable or amortizable.

4. Exploring for, or exploiting, oil and gas.

5. Exploring for, or exploiting, geothermal deposits (for wells started after September 1978).

6. Any other activity not included in items 1 through 5, above, that’s carried on as a trade or business or for the production of income.

Aggregation of activities. Activities described in item 6 above that constitute a trade or business are treated as one activity if:

• You actively participate in the management of the trade or business, or

• The trade or business is carried on by a partnership or S corporation and 65% or more of its losses for the tax year are allocable to persons who actively participate in the management of the trade or business.

Similar rules apply to activities described in items 1 through 5 above. For more information, see Pub. 925.

If you aggregate your activities under these rules for section 465 purposes, check the appropriate box in item K below the name and address block on page 1 of Form 1065.

At-risk activity reporting requirements. If the partnership items of income, loss, or deduction reported on Schedule K-1 are from more than one activity covered by the at-risk rules, the partnership should report on an attachment to Schedule K-1 information relating to each activity as is required by Item K1, later. See the Instructions for Form 6198 and Pub. 925 for additional information needed to help the partner compute the profit or loss from each at-risk activity and the amount at risk that may be required to be separately reported.