One of the reasons the at-risk rules did not achieve their objective and the passive loss rules were required concerned

Question

Quizplus · Accepted Answer

The at-risk rules only limited the amount a taxpayer could deduct to their investment in an activity, but did not consider the debt used to finance that investment. Taxpayers could use nonrecourse debt to increase their investment and therefore increase their deductions, without truly risking their own resources. This loophole was closed with the passive loss rules, which limited deductions based on the amount of the taxpayer's economic investment in the activity, including both equity and debt.

One of the Reasons the At-Risk Rules Did Not Achieve