8691 / Who is subject to the at risk rules? Do the at-risk rules apply to partnerships and S corporations?

Generally, the at-risk rules apply to individuals, estates, trusts, and certain closely-held C corporations.¹ A C corporation is considered to be closely-held, and thus subject to the at risk rules, if more than 50 percent of its stock is owned, directly or indirectly, by five or fewer individuals.²

In the case of pass-through entities (such as partnerships and S corporations), the at-risk rules will apply at the individual taxpayer level (e.g., to the partner or S corporation shareholder), rather than directly to the entity itself.

1. IRC § 465(a); IRS Pub. 925, supra.