26 USC 49 - At-risk rules

View all text of Subpart E [§ 46 - § 50B]

§ 49. At-risk rules

(a) General rule

(1) Certain nonrecourse financing excluded from credit base

(A) Limitation

(B) Property to which paragraph applies

This paragraph applies to any property which—

(i) is placed in service during the taxable year by a taxpayer described in section 465(a)(1), and

(ii) is used in connection with an activity with respect to which any loss is subject to limitation under section 465.

For purposes of this paragraph, the term “credit base” means—

(i) the portion of the basis of any qualified rehabilitated building attributable to qualified rehabilitation expenditures,

(ii) the basis of any energy property,

(iii) the basis of any property which is part of a qualifying advanced coal project under section 48A,

(iv) the basis of any property which is part of a qualifying gasification project under section 48B,

(v) the basis of any property which is part of a qualifying advanced energy project under section 48C, and

(vi) the basis of any qualified property (as defined in subsection (b)(2) of section 48D) which is part of an advanced manufacturing facility (as defined in subsection (b)(3) of such section).

(D) Nonqualified nonrecourse financing

(i) In general

(ii) Qualified commercial financing

For purposes of this paragraph, the term “qualified commercial financing” means any financing with respect to any property if—

(I) such property is acquired by the taxpayer from a person who is not a related person,(II) the amount of the nonrecourse financing with respect to such property does not exceed 80 percent of the credit base of such property, and(III) such financing is borrowed from a qualified person or represents a loan from any Federal, State, or local government or instrumentality thereof, or is guaranteed by any Federal, State, or local government.

Such term shall not include any convertible debt.

(iii) Nonrecourse financing

For purposes of this subparagraph, the term “nonrecourse financing” includes—

(I) any amount with respect to which the taxpayer is protected against loss through guarantees, stop-loss agreements, or other similar arrangements, and(II) except to the extent provided in regulations, any amount borrowed from a person who has an interest (other than as a creditor) in the activity in which the property is used or from a related person to a person (other than the taxpayer) having such an interest.

In the case of amounts borrowed by a corporation from a shareholder, subclause (II) shall not apply to an interest as a shareholder.

(iv) Qualified person

For purposes of this paragraph, the term “qualified person” means any person which is actively and regularly engaged in the business of lending money and which is not—

(I) a related person with respect to the taxpayer,(II) a person from which the taxpayer acquired the property (or a related person to such person), or(III) a person who receives a fee with respect to the taxpayer’s investment in the property (or a related person to such person).

(v) Related person

(E) Application to partnerships and S corporations

For purposes of this paragraph and paragraph (2)—

(i) In general

(ii) Special rule for certain recourse financing of S corporation

A shareholder of an S corporation shall be treated as liable for his allocable share of any financing provided by a qualified person to such corporation if—

(I) such financing is recourse financing (determined at the corporate level), and(II) such financing is provided with respect to qualified business property of such corporation.

(iii) Qualified business property

For purposes of clause (ii), the term “qualified business property” means any property if—

(I) such property is used by the corporation in the active conduct of a trade or business,(II) during the entire 12-month period ending on the last day of the taxable year, such corporation had at least 3 full-time employees who were not owner-employees (as defined in section 465(c)(7)(E)(i)) and substantially all the services of whom were services directly related to such trade or business, and(III) during the entire 12-month period ending on the last day of such taxable year, such corporation had at least 1 full-time employee substantially all of the services of whom were in the active management of the trade or business.

(iv) Determination of allocable share

(F) Special rules for energy property

(2) Subsequent decreases in nonqualified nonrecourse financing with respect to the property

(A) In general

(B) Certain transactions not taken into account

(i) Credit determined by reference to taxable year property placed in service

(ii) Credit allowed for year of decrease in nonqualified nonrecourse financing

(b) Increases in nonqualified nonrecourse financing

(1) In general

(2) Transfers of debt more than 1 year after initial borrowing not treated as increasing nonqualified nonrecourse financing

(3) Special rules for certain energy property

(4) Special rule

(Added Pub. L. 99–514, title II, § 211(a), Oct. 22, 1986, 100 Stat. 2166; amended Pub. L. 100–647, title I, § 1002(e)(1)–(3), (8)(B), Nov. 10, 1988, 102 Stat. 3367, 3369; Pub. L. 101–508, title XI, § 11813(a), Nov. 5, 1990, 104 Stat. 1388–543; Pub. L. 105–206, title VI, § 6004(g)(6), July 22, 1998, 112 Stat. 796; Pub. L. 109–58, title XIII, § 1307(c)(1), Aug. 8, 2005, 119 Stat. 1006; Pub. L. 111–5, div. B, title I, § 1302(c)(1), Feb. 17, 2009, 123 Stat. 347; Pub. L. 111–148, title IX, § 9023(c)(1), Mar. 23, 2010, 124 Stat. 880; Pub. L. 115–141, div. U, title IV, § 401(a)(24), (d)(3)(B)(i), Mar. 23, 2018, 132 Stat. 1185, 1209; Pub. L. 117–167, div. A, § 107(d)(2), Aug. 9, 2022, 136 Stat. 1398; Pub. L. 117–169, title I, § 13702(b)(2), Aug. 16, 2022, 136 Stat. 1997.)