In an IRS Chief Counsel Legal Advice, the IRS has provided guidance as to the tax effect of guaranteeing debt in an LLC. Under I.R.C. Sec. 465, losses incurred in the conduct of a trade or business or in an activity where the production of income is desired are deductible to the extent the taxpayer is "at risk." The amount "at risk" is generally measured by the amount of money and adjusted basis of other property that the taxpayer contributes to the activity and amounts borrowed with respect to the activity. For an LLC member that guarantees the LLC's debt, the member will be treated as being "at risk" for the amount guaranteed, but only to the extent that the member can't be reimbursed from persons other than the LLC and the debt is bona fide and the LLC's creditors can enforce it. With respect to LLCs that hold real estate, the IRS position is that LLC liabilities constitute amounts "at risk" if (1) the debt is held for the purpose of holding real estate; (2) the debt is borrowed from a qualified person such as a bank; (3) there is no personal liability for the indebtedness (which eliminates the possibility that one LLC member can make the guarantee, and if so guaranteed, eliminates such guaranteed amount from being included in the amount at-risk by any other member and could cause recapture of previously deducted losses if a member's at-risk amount becomes negative as a result of the member's guarantee); and (4) the indebtedness cannot be converted. AM2014-003 (Aug. 27, 2013).