§ 49. At-risk rules
(a)
General rule
(1)
Certain nonrecourse financing excluded from credit base
(A)
Limitation
The credit base of any property to which this paragraph applies shall be reduced by the nonqualified nonrecourse financing with respect to such credit base (as of the close of the taxable year in which placed in service).
(B)
Property to which paragraph applies
This paragraph applies to any property which—
(ii)
is used in connection with an activity with respect to which any loss is subject to limitation under section
465.
(C)
Credit base defined
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,
(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
(D)
Nonqualified nonrecourse financing
(i)
In general
For purposes of this paragraph and paragraph (2), the term “nonqualified nonrecourse financing” means any nonrecourse financing which is not qualified commercial financing.
(ii)
Qualified commercial financing
For purposes of this paragraph, the term “qualified commercial financing” means any financing with respect to any property if—
(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 share-holder.[1]
(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—
(v)
Related person
For purposes of this subparagraph, the term “related person” has the meaning given such term by section
465
(b)(3)(C). Except as otherwise provided in regulations prescribed by the Secretary, the determination of whether a person is a related person shall be made as of the close of the taxable year in which the property is placed in service.
(E)
Application to partnerships and S corporations
For purposes of this paragraph and paragraph (2)—
(i)
In general
Except as otherwise provided in this subparagraph, in the case of any partnership or S corporation, the determination of whether a partner’s or shareholder’s allocable share of any financing is nonqualified nonrecourse financing shall be made at the partner or shareholder level.
(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—
(iii)
Qualified business property
For purposes of clause (ii), the term “qualified business property” means any property if—
(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
(iv)
Determination of allocable share
The determination of any partner’s or shareholder’s allocable share of any financing shall be made in the same manner as the credit allowable by section
38 with respect to such property.
(2)
Subsequent decreases in nonqualified nonrecourse financing with respect to the property
(A)
In general
If, at the close of a taxable year following the taxable year in which the property was placed in service, there is a net decrease in the amount of nonqualified nonrecourse financing with respect to such property, such net decrease shall be taken into account as an increase in the credit base for such property in accordance with subparagraph (C).
(B)
Certain transactions not taken into account
For purposes of this paragraph, nonqualified nonrecourse financing shall not be treated as decreased through the surrender or other use of property financed by nonqualified nonrecourse financing.
(C)
Manner in which taken into account
(i)
Credit determined by reference to taxable year property placed in service
For purposes of determining the amount of credit allowable under section
38 and the amount of credit subject to the early disposition or cessation rules under section
50
(a), any increase in a taxpayer’s credit base for any property by reason of this paragraph shall be taken into account as if it were property placed in service by the taxpayer in the taxable year in which the property referred to in subparagraph (A) was first placed in service.
(ii)
Credit allowed for year of decrease in nonqualified nonrecourse financing
Any credit allowable under this subpart for any increase in qualified investment by reason of this paragraph shall be treated as earned during the taxable year of the decrease in the amount of nonqualified nonrecourse financing.
(b)
Increases in nonqualified nonrecourse financing
(1)
In general
If, as of the close of the taxable year, there is a net increase with respect to the taxpayer in the amount of nonqualified nonrecourse financing (within the meaning of subsection (a)(1)) with respect to any property to which subsection (a)(1) applied, then the tax under this chapter for such taxable year shall be increased by an amount equal to the aggregate decrease in credits allowed under section
38 for all prior taxable years which would have resulted from reducing the credit base (as defined in subsection (a)(1)(C)) taken into account with respect to such property by the amount of such net increase. For purposes of determining the amount of credit subject to the early disposition or cessation rules of section
50
(a), the net increase in the amount of the nonqualified nonrecourse financing with respect to the property shall be treated as reducing the property’s credit base in the year in which the property was first placed in service.
(2)
Transfers of debt more than 1 year after initial borrowing not treated as increasing nonqualified nonrecourse financing
For purposes of paragraph (1), the amount of nonqualified nonrecourse financing (within the meaning of subsection (a)(1)(D)) with respect to the taxpayer shall not be treated as increased by reason of a transfer of (or agreement to transfer) any evidence of any indebtedness if such transfer occurs (or such agreement is entered into) more than 1 year after the date such indebtedness was incurred.
[1] So in original. Probably should not be hyphenated.