Final answer:
The at-risk limitation provisions of the Internal Revenue Code may limit the amount of losses that a taxpayer can claim on their tax return. If a taxpayer's losses from certain business activities exceed their at-risk amount, the excess losses may be limited and carried forward to future tax years.
Step-by-step explanation:
The at-risk limitation provisions of the Internal Revenue Code may limit the amount of losses that a taxpayer can claim on their tax return. These provisions apply to taxpayers who have invested in certain types of business activities that are considered at risk for a loss. If a taxpayer's losses from these activities exceed their at-risk amount, the excess losses may be limited and carried forward to future tax years.
For example, let's say a taxpayer invests $100,000 in a business venture. Their at-risk amount is determined by subtracting any borrowed funds used to invest the total investment amount. If the taxpayer's losses from the business venture exceed their at-risk amount, the excess losses may be subject to the at-risk limitation provisions and may be carried forward to offset income in future tax years.