26 U.S.C. § 49 — At-risk rules

(a) General rule (1) Certain nonrecourse financing excluded from credit base. - (A) Limitation: for certain property, the "credit base" used to figure a tax credit gets reduced by any "nonqualified nonrecourse financing" tied to it, measured at the end of the year the property is placed in service. - (B) This applies to property that (i) is placed in service that year by a taxpayer described in section 465(a)(1) (someone subject to the at-risk loss rules), and (ii) is used in an activity where losses are limited by section 465. - (C) "Credit base" means the cost basis tied to several kinds of credit-eligible property: rehabilitated-building expenditures, energy property, qualifying advanced coal projects (section 48A), qualifying gasification projects (section 48B), qualifying advanced energy projects (section 48C), qualified property under section 48D's advanced manufacturing rules, and both qualified facilities and energy storage technology under section 48E. - (D) "Nonqualified nonrecourse financing" is financing that doesn't meet the "qualified commercial financing" test. Financing only counts as "qualified commercial financing" if the property was bought from someone unrelated to the taxpayer, the nonrecourse loan is no more than 80% of the property's credit base, and the loan comes from a "qualified person" or from a government loan or government-guaranteed loan; convertible debt never qualifies. "Nonrecourse financing" includes any amount the taxpayer is protected from having to repay through guarantees or similar arrangements, and (with some regulatory exceptions) money borrowed from someone with a non-lender stake in the business, or that person's relatives — except a corporate shareholder lending to their own corporation. A "qualified person" is someone regularly in the lending business who isn't related to the taxpayer, isn't the seller of the property, and doesn't get a fee tied to the taxpayer's investment. "Related person" has the meaning in section 465(b)(3)(C), generally determined as of the end of the year the property is placed in service. - (E) For partnerships and S corporations: normally, whether a partner's or shareholder's share of financing is "nonqualified" is decided at the partner or shareholder level. But an S corporation shareholder is treated as liable for their share of financing if it's recourse financing at the corporate level tied to "qualified business property" — property the corporation actively uses in a business where it had at least 3 full-time non-owner employees all year and at least 1 full-time employee actively managing the business all year. A partner's or shareholder's share of financing is figured the same way their credit share is figured under section 38. - (F) Special energy-property rules from the pre-1990 version of section 46(c)(8)(F) apply here too. (2) Subsequent decreases in nonqualified nonrecourse financing. - (A) If, in a later year, the nonqualified nonrecourse financing on the property goes down, that decrease adds back into the credit base, following the method in (C). - (B) Giving up or otherwise disposing of the financed property doesn't count as a "decrease" in financing. - (C) The credit-base increase is treated as if it happened in the year the property was originally placed in service, but the actual credit for it is treated as earned in the year the financing decreased. (b) Increases in nonqualified nonrecourse financing. (1) If nonqualified nonrecourse financing on the property goes up during a year, the taxpayer's tax for that year goes up too — by the amount of credit that would have been lost in earlier years if the credit base had been smaller by that increase. For the early-disposition recapture rules of section 50(a), that increase is treated as reducing the credit base back in the year the property was first placed in service. (2) A transfer of debt (or an agreement to transfer it) doesn't count as increasing nonqualified nonrecourse financing if it happens, or is agreed to, more than a year after the debt was originally taken out. (3) Special energy-property rules from the pre-1990 version of section 47(d)(3) apply here too. (4) Any extra tax charged under paragraph (1) isn't treated as a tax "imposed by this chapter" when figuring other credits.