Some tax laws limit the amount of losses an investor in a partnership can claim as a deduction.

Some tax laws limit the amount of losses an investor in a partnership can claim as a deduction. If the amount of a distributable loss exceeds the amount an investor owns in the business, the excess amount cannot be deducted. These are the at-risk rules, and they have been known to come as a surprise to numerous investors.

Provide at least one example of how at-risk rules are applied. Identify when these rules were added to the Tax Code, as well as their primary purpose.   Are these at-risk rules fair, or do they discourage partnership investors? Explain your reasoning.