Alto Finance Inc. carries on a highly profitable business as an investment dealer. Alto is considering buying an interest in a partnership that had been carrying on a diamond mining business without success. The mine is now closed and has no current operations. Alto is interested in becoming a 50 percent partner because the partnership has losses of $5 000 000 and it would like to deduct a half of those losses against its other income. Alto can deduct the losses if it acquires a 50 percent interest in the partnership.

Question

Quizplus · Accepted Answer

Alto cannot deduct the losses because tax laws generally do not allow new partners to claim losses incurred before they joined the partnership.