If the rear suspension is bottomed out the tire can grab the bottom edge of the license plate.  At the least, this will fold over a littlelip at the bottom of the plate; at worst, it will tear off the rear inner fender and leave it on the trail somewhere. 

This is most likely to occur when using a taller knobby; or when using a smaller countershaft sprocket or an older chain, as the rear axle will be moved further back when the chain is adjusted.  One solution is to bend the bottom of the license plate back, away from the tire.  Better is to move the bracket up.  Remove the reflector located above the license plate, and install the bracket on that part of the fender (the reflector pad is just wide enough for the bolts).  For the ultimate solution, remove the bracket completely, and bolt the plate directly to the outer fender, below the taillight. 

Note that (legally) you will probably have to supply lighting for the license plate; it is possible to cut a rectangular section out of the bottom of the taillight lens, and glue a piece of clear plexiglass in place to seal the lens.  It may also be illegal to move the plate, or remove the aforementioned reflector.

* Excerpt from: http://www.bigcee.com/klr650faq.html

** addl. notes: I was able to mount my Kansas tag by snugging it up under the lighting fixture and using the bottom mounting holes on the tag rather than the top ones. The plate is still fully illuminated, and has escaped damage even at full compression of the swing arm .... rb