I AM BEING AUDIT BY IRS CONCERNING SECTION 465 CARRY OVER LOSS AMOUNT, NOT SURE WHY A LARGE AMOUNT WAS CARRIED OVER ON MY TAXES, HOW DO I TRACE IT BACK TO SEE WHERE IT STARTED FROM? TRYING TO UNDERSTAND IT, SO I CAN EXPLAINED IT TO IRS OR FIGURE OUT HOW TO GIVE THEM THE DOCUMENTATION THEY NEED FOR THE AUDIT.
NEED URGENT HELP OR ADVICE !!
If you have a loss carried forward you need to look at the older returns ... start with 2016.
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A Section 465 (d) carryover refers to the ‘at-risk’ rules of Section 465 of the Internal Revenue Code. Under that section, your losses are limited to the amount you have at risk in the activity. A loss that was disallowed because of the at-risk rules is generally treated as a deduction from the same activity in the following tax year (ie. carried over).
The amount you see for Section 465(d) carryover is the amount of loss you weren't able to take last year, but may be able to take this year.
If you are certain you didn't have a Section 465 (d) carryover from prior years, you can clear this up by adding a negative "Miscellaneous" expense and describe it as "Section 465 (d) carryover offset".
For more information see IRS Pub. 925 - Passive Activity and At-Risk Rules
have to agree with the advice to seek professional help. depending on the activity there are different rules for determining at risk. for an individual or even a single-member LLC an at-risk limit would be highly unusual. for an S-Corp or Partnership (including a multimember LLC) the rules are completely different for each and at-risk limits are much more common. To complicate things basis and at-risk can be completely different. if the entity terminates, unless at-risk is positive before the suspended at-risk, those losses can never be used.