IRS Chief Counsel - LLC member’s guarantee of LLC debt and qualified nonrecourse financing 

April 7: The IRS publicly released a memorandum* from the IRS Office of Chief Counsel that addresses the tax consequences of guarantees made by a member of a limited liability company (LLC) under the “at risk” provisions of section 465. AM2014-003 (release date April 4, 2014, and dated February 12, 2014)

The Chief Counsel memo [PDF 76 KB] concludes that:


  • When a member of an LLC (that is classified and taxed as a partnership or disregarded entity for federal tax purposes) guarantees the LLC’s debt, the member is at risk with respect to the amount of the guaranteed debt—without regard to whether that member waives any right to subrogation, reimbursement, or indemnification from the LLC—but only to the extent that:

    • The member has no right of contribution or reimbursement from persons other than the LLC;
    • The member is not otherwise protected against loss within the meaning of section 465(b)(4); and
    • The guarantee is bona fide and enforceable by creditors of the LLC under local law.


  • When a member of the LLC guarantees qualified nonrecourse financing of the LLC, the member’s amount at risk is increased by the amount guaranteed, but only to the extent that:

    • Such debt was not previously taken into account by that member;
    • The guaranteeing member has no right of contribution or reimbursement from persons other than the LLC;
    • The guaranteeing member is not otherwise protected against loss within the meaning of section 465(b)(4); and
    • The guarantee is bona fide and enforceable by creditors of the LLC under local law.


  • When a member of an LLC guarantees qualified nonrecourse financing of the LLC, the amount of the guaranteed debt no longer meets the definition of “qualified nonrecourse financing” under section 465(b)(6)(B) if:

    • The guarantee is bona fide and enforceable by creditors of the LLC under local law; and
    • The amount of the guaranteed debt will no longer be includible in the at-risk amount of the other non-guarantor members of the LLC.

*The memorandum is legal advice, signed by executives in the National Office of the Office of Chief Counsel and issued to IRS personnel who are national program executives and managers. The memo is issued to assist IRS personnel in administering their programs by providing authoritative legal opinions on certain matters, such as industry-wide issues. It is not to be used or cited as precedent.




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