An Empirical Examination Of The Effect Of The Section 465 At-Risk Rules On Equipment Leasing Tax Shelters

Abstract

Congress enacted the at-risk rules in the Tax Reform act of 1976 to curb tax shelter abuses.  It later added a recapture provision to the at-risk rules in the Revenue Act of 1978 designed to prevent taxpayers from temporarily increasing the amount at risk at year end.  Tax Shelter promoters have attempted to avoid the at-risk rules through questionable interpretations of the law.  This study examines various interpretations of the at-risk rules and the impact of the recapture provision.  It concludes that (1) the inclusion of debt assumed in the amount at risk significantly affects the tax benefits accruing to investors whereas the inclusion of the note payable in the amount at risk does not; and (2) the recapture provision applies in many cases to equipment leasing tax shelters and operates as intended to limit tax benefits to investors.