Document Type


Publication Title

Tax Law Review



Publication Date



nonrecourse debt


This article suggests that the foundation for the tax treatment of nonrecourse debt under current law-the true debt approach-is unworkable. It does not reflect economic reality or correctly measure income. It leads to bizarre and unpredictable consequences, and invites abuse, such as inflated seller financing and deduction shifting from low bracket to high bracket taxpayers. Much has been written about the role of nonrecourse debt in making abusive tax shelters profitable, and while abusive tax shelters no longer abound as they once did, nonrecourse debt continues to pose serious problems, even in the post-Tax Reform Act of 19862 era. If inflated seller financing were the only problem, nonrecourse debt would no longer be an issue. This Article argues that nonrecourse debt is not simply a tax shelter problem.