The end of the year is approaching, and Jasper Jax has begun to focus on ways of minimizing his income tax liability. Several years ago he purchased an investment in Corinthos partnership, which is subject to the at-risk and the passive activity loss rules. (Last year Jasper sold a different investment that was subject to these rules and that produced passive activity income.) He believes that his investment in Corinthos has good long-term economic prospects. However, it has been generating tax losses for several years in a row. In fact, when he was discussing last year's income tax return with his tax accountant, the accountant said that unless "things change" with respect to his investments, he would not be able to deduct losses this year.

Required:

1. What was the accountant referring to in his comment?
2. You learn that Jasper's current at-risk basis in his investment is $2,000 and that his share of current loss is expected to be $12,000. Based on these facts how will his loss be treated?
3. After reviewing his situation, Jasper's financial adviser suggests that he invest at least an additional $10,000 in Corinthos to ensure a full loss deduction in the current year. How do you react to his suggestion?
4. What would you suggest Jasper consider as he attempts to maximize his current-year deductible loss?