Reference no: EM131067211

The end of the year is approaching and your new tax client, Maxine, has begun to focus on ways of minimizing her 2015 income tax liability. Several years ago she purchased an investment in Teal Limited Partnership, which is subject to the "at risk" and the "passive activity loss" rules. Last year Maxine sold different investment that was subject to these rules and that had produced large amounts of passive income each year. Maxine believes that her investment in Teal has good long-term economic prospects. However, it has been generating tax losses for several years in a row. In fact, when she was discussing the last year's income tax return with her prior tax accountant, he said that unless "things change" with respect to her investments, she would not be able to deduct losses from Teal this year. Your posting will be an explanation to Maxine on the following: Try to be specific: a. What was her prior tax accountant referring to in his comment? b. You learn that Maxine's current "at risk" basis in her Teal investment is $1,000 and that her share of the current loss is expected to be $13,000. Based on these facts, how will her current year loss be treated? c. After reviewing her situation, Maxine's financial advisor suggested that she invest at least an additional $12,000 in Teal to ensure a full loss deduction in the current year. How do you react to his suggestion? d. What other suggestions would you make to Maxine for her to consider as she attempts to maximize her current year deductible losses. e. Finally, the "at risk" rules did not exist prior to 1987. Prior to that all investment losses were deductible. What do you think about the current "at risk" and 'passive activity loss" rules (besides the fact that they are complicated)? Should taxpayers be allowed to write off investment losses beyond their investment basis?