I just couldn't comprehend this question. How are AT-RISK LOSSES related to RECOURSE LIABILITIES?
With regard to S corporations and their stockholders, the “at risk” rules applicable to losses:
a.
Apply at the shareholder level rather than at the corporate level.
b.
Take into consideration the S corporation's ratio of debt to equity.
c.
Depend on the type of income reported by the S corporation.
d.
Are subject to the elections made by the S corporation's stockholders.
Explanation
Choice “a” is correct. The “at risk” rules apply at the shareholder level rather than at the corporate level.
Rule: The “at risk” rules limit the deductibility of the distributive share of the losses of an S corporation to the amount the taxpayer has “at risk” (as opposed to non recourse loans) and could actually lose from an activity.
Choice “c” is incorrect. The character (type) of an S corporation's income only affects the (type) character of flow through to stockholders.
Choice “d” is incorrect. A far out distractor. The elections that affect the nature and timing of an S corporation income are made at the corporate level, not the shareholder level. The “at risk” provisions afford no elections.
Choice “b” is incorrect. A far out distractor. The S corporation's ratio of debt to equity is only an indication of whether or not the corporation has been properly capitalized.
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