Instructions for Form 6198 |
2003 Tax Year |
General Instructions
This is archived information that pertains only to the 2003 Tax Year. If you are looking for information for the current tax year, go to the Tax Prep Help Area.
Use Form 6198 to figure:
- The current year profit (loss) from an at-risk activity for 2003 (Part I).
- The amount at risk for 2003 (Part II or Part III).
- The deductible loss for 2003
(Part IV).
The at-risk rules of section 465 limit the amount of the loss you can deduct to the amount at risk.
For more details, see Pub. 925, Passive Activity and At-Risk Rules.
Form 6198 is filed by individuals (including filers of Schedules C, E, and F (Form 1040)), estates, trusts, and certain closely
held C corporations
described in
section 465(a)(1)(B), as modified by
section 465(a)(3).
File Form 6198 if during the tax year you, a partnership in which you were a partner, or an S corporation in which you were
a shareholder had any
Amounts Not at Risk (see this page) invested in an at-risk activity (defined below) that incurred a loss.
The at-risk limitation rules apply to losses from the following activities carried on as a trade or business or for the production
of income.
- Holding, producing, or distributing motion picture films or video tapes.
- Farming as defined in
section 464(e)(1).
- Leasing any section 1245 property, as defined in
section 1245(a)(3).
Certain equipment leasing activities by closely held C corporations are not subject to the at-risk rules. See
sections 465(c)(4), (5), and (6).
4. Exploring for or exploiting oil and gas resources.
5. Exploring for or exploiting geothermal deposits as defined in section 613(e)(2).
6. Any other activity that is not included in 1 through 5 above.
Exception.
Holding real property placed in service before 1987 and holding an interest acquired before 1987 in a partnership,
an S corporation, or other
pass-through entity already engaged in an activity of holding real property before 1987 are not affected by the at-risk rules.
This exception does not
apply to holding mineral property.
Note:
A special exception to the at-risk rules applies to a qualifying business of a qualified C corporation. See Pub. 925 for details.
You are not considered at risk for any of the following.
- Nonrecourse loans used to finance the activity, to acquire property used in the activity, or to acquire your interest in the
activity
(unless the nonrecourse loan is secured by your own property that is not used in the activity). However, you are considered
at risk for qualified
nonrecourse financing secured by real property used in the activity of holding real property (other than mineral property).
See Qualified
Nonrecourse Financing on this page.
- Cash, property, or borrowed amounts used in the activity that are protected against loss by a guarantee, stop-loss agreement,
or other
similar arrangement (excluding casualty insurance and insurance against tort liability).
- Amounts borrowed for use in the activity from a person who has an interest in the activity other than as a creditor or who
is related under
section 465(b)(3)(C) to a person (except you) having such an interest. However, this does not apply to an interest of a shareholder
in the case of
amounts borrowed by a corporation from the shareholder. See Pub. 925 for definitions.
- Any cash or property contributed to the activity or to your interest in the activity that is:
- Financed through nonrecourse indebtedness or protected against loss through a guarantee, stop-loss agreement, or other similar
arrangement
or
- Borrowed from a person who has an interest in the activity other than as a creditor or who is related under section 465(b)(3)(C)
to a person
(except you) having such an interest. However, this does not apply to an interest of a shareholder in the case of amounts
borrowed by a corporation
from the shareholder. See Pub. 925 for definitions.
You do not have to file Form 6198 if you are engaged in an activity included in 6 under At-Risk Activities and you only have
borrowed amounts described in 3 under Amounts Not at Risk.
Qualified Nonrecourse Financing
Qualified nonrecourse financing is financing for which no one is personally liable for repayment and is:
- Borrowed by you in connection with holding real property,
- Secured by real property used in the activity,
- Not convertible debt, and
- Loaned or guaranteed by any Federal, state, or local government, or borrowed by you from a qualified person.
See Regulations section 1.465-27 for details, including rules for partnership liabilities and disregarded entities. This section
is effective for
any financing incurred on or after August 4, 1998, but taxpayers can apply the section retroactively.
A qualified person is a person who actively and regularly engages in the business of lending money (for example, a bank or
savings and loan
association).
A qualified person is not:
- A person related to you unless the person would be a qualified person but for the relationship and the nonrecourse financing
is commercially
reasonable and on the same terms as loans to unrelated persons,
- The seller of the property (or a person related to the seller), or
- A person who receives a fee as a result of your investment in the property (or a person related to that person).
Aggregation or Separation of Activities
File one form if your activities are listed under the aggregation rules. File a separate form for each activity if your activities
are listed under
the separation rules.
Aggregation rules.
All section 1245 properties that are leased or held for lease and placed in service in any tax year of a partnership
or an S corporation are
treated as one activity. A partner in a partnership or an S corporation shareholder can aggregate and treat as a single activity
all of the properties
of that partnership or S corporation that are included within each of categories 1, 2, 4, and 5 under At-Risk Activities
on page 1.
Activities described in 6 under At-Risk Activities on page 1 that constitute a trade or business are treated as one activity
if (a) the taxpayer actively participates in the management of that trade or business or (b) the business is carried on by a
partnership or an S corporation and 65% or more of the losses for the tax year are allocable to persons who actively participate
in the management of
the trade or business. Similar rules apply to activities described in 1 through 5 under At-Risk Activities on page 1.
Separation rules.
Your activity with respect to each film, video tape, section 1245 property that is leased or held for lease, farm,
holding of real property, oil
and gas property (as defined in section 614), or geothermal property (as defined in section 614) that is not aggregated with
other activities under
the above rules is treated as a separate activity.
Each investment that is not a part of a trade or business is treated as a separate activity.
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