What Are Aggregated Activities for Section 465 At-Risk?

Aggregated activities for Section 465 at-risk purposes are two or more ventures that a taxpayer treats as a single activity so their at-risk amounts and their income and losses pool together on one Form 6198. The point of doing it is practical: when ventures are kept separate, a loss in one cannot draw on the at-risk basis sitting in another, and the loss gets suspended even if your overall economic position is healthy. Aggregation changes that. But it is available only on specific terms, it is sometimes mandatory and sometimes elective, and once you have taken a position the IRS expects you to stick with it.

The Default Rule: Each Venture Stands Alone

For the five categories Congress singled out in Section 465(c)(1), the statutory default is separation. Each film or video tape is one activity. Each farm is one activity. Each oil and gas property is one activity. Each geothermal property is one activity. Each piece of leased Section 1245 property is one activity.¹

Separation means separate at-risk computations and separate suspended-loss tracking. Run two farms, one losing $80,000 and the other earning $100,000, and you cannot automatically net them. The losing farm needs its own at-risk basis to absorb its own loss, or that loss is suspended regardless of how well the other farm did.

Aggregation is the exception to this default. The route you take to get there depends on which category you are in.

Aggregation for the Five Enumerated Categories

Partners in a partnership and S corporation shareholders may elect to aggregate ventures within four of the enumerated categories: films and video tapes, farming, oil and gas, and geothermal deposits. The temporary Treasury regulation uses “may,” so this is permissive, not required.² A partner whose partnership runs three farms can treat them as one activity or keep them separate.

Leasing of Section 1245 property works differently, and the difference matters. Section 465 itself provides that when a partnership or S corporation leases Section 1245 property, all such properties placed in service during the same taxable year of the entity are treated as a single activity. That is automatic, not elective.¹ Properties placed in service in different years remain separate activities from each other.

The statute also says that rules similar to the aggregation rules for non-enumerated activities apply to the enumerated ones. That cross-reference means the active-participation and 65% tests described below can serve as a basis for combining enumerated ventures as well.

Aggregation for Other Trade or Business Activities

Everything that is not one of the five enumerated categories falls into the catch-all for any other activity carried on as a trade or business or for the production of income. Section 465(c)(3)(B) offers two paths to treat multiple such activities as one, provided they together constitute a single trade or business:¹

The taxpayer actively participates in the management of the trade or business, or
The trade or business is carried on by a partnership or S corporation and 65% or more of the losses for the tax year are allocable to persons who actively participate in management.

The statute does not define active participation for this purpose, and Treasury has never issued final regulations fleshing it out. In practice, the IRS and courts look at involvement in day-to-day operations, participation in significant decisions, and performance of services for the business. A passive investor who writes checks and reviews quarterly statements will have trouble clearing the bar.

The 65% loss-allocation test is calculated fresh each year. If losses shift among partners from one year to the next, a group of activities might qualify for aggregation one year and fail to qualify the next. A taxpayer with three retail locations in a partnership can group them only if the active managers’ share of the losses clears 65% in that specific tax year.

Congress directed Treasury to issue regulations prescribing when non-enumerated activities should be aggregated or separated, and those regulations have not been issued. The result is real ambiguity for activities that do not clearly fit either path above.

Your Interest in One Entity Is Usually One Activity

A partner’s or S corporation shareholder’s entire interest in a single pass-through entity is generally treated as one activity for at-risk purposes. If the partnership runs a restaurant, a catering operation, and a food truck, you do not automatically get three separate at-risk calculations for your share. Your interest is one activity.¹

The exception comes when the same entity operates in two or more of the five enumerated categories. A partnership that both farms and leases equipment must treat the farming activities and the leasing activities as separate, preserving the distinct rules Congress wrote for each category. You cannot pool farming at-risk basis with equipment-leasing at-risk basis just because they flow through the same K-1.

How You Signal the Choice, and Whether You Can Change It

Where aggregation is permissive, the taxpayer signals the choice through the reporting position on the return. Form 6198 is filed for each activity, so a single Form 6198 covering multiple ventures reflects aggregation, and separate forms reflect separation.³

Once a position is taken, changing it is difficult. The IRS expects year-to-year consistency. Revoking an aggregation generally requires a material change in the facts and circumstances of the business, not a late realization that a different grouping would produce a better tax result. If you aggregated three consulting practices because they shared management and clients, you cannot pull them apart simply because one turned unprofitable and you would prefer to isolate the loss.

What Aggregation Actually Does to Your Losses

Aggregation pools both the at-risk amounts and the operating results of the combined ventures. That is its main benefit, and its main risk.

Take two equipment-leasing ventures in the same partnership, placed in service in the same year of the entity (so aggregation is mandatory for them under the Section 1245 leasing rule). Venture A has a $50,000 loss. Venture B has $75,000 of income. Combined, the activity shows $25,000 of net income, and nothing is limited by Section 465 at all.

Keep two ventures separate and the picture changes. The $50,000 loss from A is deductible only up to your at-risk amount in A specifically. If that figure is $10,000, you deduct $10,000 this year and carry $40,000 forward as a suspended loss, usable only when your at-risk amount in A grows enough to absorb it.¹ The income from B does nothing for you under the at-risk rules because it belongs to a different activity.

Once activities are aggregated, you maintain one at-risk computation. The starting figure for the combined activity is the sum of the individual at-risk amounts from each component immediately before aggregation. From then on, income from any component increases the combined at-risk amount, and losses, deductions, distributions, and withdrawals from any component decrease it.⁴ Pre-aggregation suspended losses carry into the combined activity and become deductible as soon as the combined at-risk amount is large enough.

If the aggregated activity is later disaggregated because of a material change, the combined at-risk basis has to be allocated back to the individual activities based on your economic interest in each.

The Downside: Aggregation Can Trigger Recapture

Section 465(e) requires you to include in gross income any amount by which your at-risk basis in an activity drops below zero at year-end. This usually happens when a distribution or withdrawal pushes the balance negative. The amount recaptured is capped at the total losses you have previously deducted from the activity, net of prior recapture.¹ The recaptured amount is then treated as a deduction for the same activity in the following year, so the income recognition is accelerated rather than permanent, and the deduction waits for at-risk basis to rebuild.

Aggregation changes the geography of this risk. Because the combined group has one at-risk amount, a single large distribution from one component can pull the whole group negative even when most components are performing well. A group that looks healthy in aggregate can also hide a steadily deteriorating position in one component; if the group is later broken apart, that component may surface with a negative balance and trigger recapture that would not have occurred under separate treatment.

The Section 469 Boundary

The at-risk rules in Section 465 and the passive activity loss rules in Section 469 are separate limitations with separate grouping regimes. Section 465 applies first; only losses that survive it move on to Section 469. The grouping decisions are independent. Two activities aggregated for at-risk purposes may be grouped differently for passive activity purposes under Treasury Regulation 1.469-4, and the grouping that is best for one is not necessarily best for the other.

Documentation and Penalty Exposure

Aggregation is audit-prone precisely because the line between one trade or business and separate activities is often genuinely ambiguous, especially for the non-enumerated catch-all where Treasury has never issued final regulations. If you are relying on the active-participation path, document your involvement thoroughly: meeting notes, operational decisions, time logs, and evidence of management control all strengthen the position if the IRS challenges the grouping. The burden of proving the grouping is correct falls on the taxpayer.

Getting the at-risk limitation wrong, whether through improper aggregation, overstated at-risk amounts, or missed recapture, can draw a 20% accuracy-related penalty on the resulting tax underpayment. The IRS applies this when the error reflects negligence or disregard of the rules, or when the underpayment crosses the substantial understatement threshold: the greater of 10% of the tax that should have been shown on the return or $5,000 for individuals.⁵

1
Office of the Law Revision Counsel. 26 USC 465 – Deductions Limited to Amount at Risk
2
eCFR. 26 CFR 1.465-1T – Aggregation of Certain Activities (Temporary)
3
Internal Revenue Service. About Form 6198, At-Risk Limitations
4
Internal Revenue Service. Instructions for Form 6198
5
Internal Revenue Service. Accuracy-Related Penalty