Cory and Matt are equal members in Capri, LLC. Capri, LLC purchased equipment subject to a lease. Capri also partially financed equipment purchased using promissory notes. Part of the notes were recourse, the remaining were nonrecourse. Neither Cory nor Matt signed any of the notes or otherwise guaranteed repayment of the notes. In addition, Capri, LLC owns the building in which their business is located, subject to a mortgage. Cory and Matt personally guaranteed the mortgage.

In 2017, Capri LLC reported a very large loss.

The LLC operating agreement contained the following provision:

If any Member has a deficit Capital Account following the liquidation of his, her or its interest in the LLC then he, she or it shall restore the amount of such deficit balance to the LLC by the end of such taxable year or, if later, within 90 days after the date of such liquidation, for payment to creditors or distribution to Members with positive capital account balances.

On his 2017 individual tax return, Matt took into account the leases, the promissory notes and the mortgage in calculating his amount at-risk, allowing him to report his entire portion of the LLC loss. In November, 2018, the IRS audited Matts 2017 tax return and disallowed all of the loss, claiming that Matt was not at-risk for any of the debt.

1. Is Matt at risk for the lease on the equipment purchased by Capri, LLC?

2. Is Matt at risk for the recourse note Capri, LLC used to finance equipment?

3. Is Matt at risk for the non-recourse note Capri, LLC used to finance equipment?

4. Is Matt at risk for the mortgage for the building held by Capri, LLC?