How to record an investment loss in an LLC that has never sent a k-1?

[dw6969]

This was an E-commerce company structured as an LLC that was poorly run.  They had raised money through debt, equity positions, and preferred dividend units.  They eventually filed bankruptcy in 2023.  They had issued 1099-INTs and 1099-DIVs, but never K-1s.

[Mike9241]

if the LLC was a Partnership or S-Corportion in which you own a portion, there would be no 1099-Div issued and a 1099-INT would only be issue if you invested in company debt. Also issuing a K-1 is mandatory for these types of businesses.

The IRS position is that you are not entitled to any deduction unless the investment is totally worthless. While the company filed for bankruptcy, that does not mean it's totally worthless. there could have been a restructuring, or it could have been liquidated to pay off secured creditors to the extent possible. unsecured crediors would share in any remaining proceeds and last to get money would be shareholders.

I THINK this was a C-Corp but can't be sure. If your investments are totally worthless then you are entitled to a capital loss deduction.

you should review the paperwork for your investment and any other communications from the company to determine exactly what you investment was. 

generally, unless this was totally a private venture, there would be some form of memorandum or prospectus discussing the company and potential tax consequences.  If you know who their accounting firm was perhaps contact them. 

[Rick19744]

After reading the initial limited facts, and the comments that followed, I believe we need more facts to provide any further assistance outside of @Mike9241 comments.

[dw6969]

This is not a C Corp and the investment is totally worthless.  This was not a restructure.  They do not exist anymore.  Their assets were transferred and liquidated.  I am not concerned about proving that the investment is worthless.  I could prove that if questioned by the IRS.  My only concern is how to record it using turbotax.  I need help in being pointed in the right direction of how to do it.

[Rick19744 · Accepted solution]

Based on the limited information:

• If you never received a K-1, then I am assuming that you have never entered any information into TT regarding this investment; i.e. Schedule E and potentially reflected as a passive activity.
• As a result, I would just enter the information directly on form 8949 which will then flow to Schedule D
• You would enter it just as a stock sale as you received no proceeds and you know what you invested.  Just use the name of the investment entity in the description column.
• TT will handle the rest

[cswn]

What if once upon a time they did send a K1 and now a couple of years later, after investigation, find out the partnership is worthless and closed up. No K1 to be sent out -- ever. How do I show the $20K loss?

[PatriciaV]

If you have entered this investment from Schedule K-1 at any time in the past, you would need to report this under Investment Income >> Schedules K-1. 

1. Either enter the existing K- 1 or add a new K-1.
2. Enter/confirm the information from the last K-1 you received.
3. Indicate the partnership ended this year. This will remove the K-1 from your return next year.
4. Work through the interview to the page "Describe this partnership" and enter any passive loss carryovers you have from this investment. You'll need to check your prior year return(s) to find this information.
   This is important because when you completely dispose of a passive activity there is a final accounting of whether you actually made or lost money on this investment.
5. Do not report any "sale" information under this topic.

Now go to Investment Income >> Stocks, Cryptocurrency, etc. and report the partnership dissolution as a sale under "Other." 

1. Enter the date you first invested in the company and the date you determined it was worthless (sale date).
2. Enter zero sales price and your total investment as cost/basis.
3. TurboTax will calculate the loss on the dissolution.

@cswn