Probably easiest to answer this by answering each bullet point at a time:
- The original facts indicate that a LLC that you were a member of invested in the R&D project.
Yes - I owned 50% of the LLC and had 7% of the investment costs (yes llc ownership was different to investment split - the majority of the investors were not LLC owners and were SEC registered investors).
- Then the facts indicate that you, and I'm assuming other members, then recorded your share of the "bills" on your personal tax return.
Mostly no - I was allowed losses of 7% of the total because thats what my investment share was - the rest were disallowed losses
- At this point, I believe we are missing some details:
- Were you active or passive in the LLC?
Yeah sorry - never understood the rule on this and not sure what I am listed as
- Did the LLC pay the legal fees for the lawsuit?
Yes - to avoid confusion original R&D was about 700k (2014/2015) then +400k in legal fees (2105 through 2022)
- What exactly were you "deducting" on your personal tax return?
My 7% was allowed as that was my money - those were allowed deductions so about 80k or so total (yes I fully expect to compensate the gov back for that since i got 50k returned to me). The disallowed losses were recorded but not taken (and this is where issue seems to be as the carried forward nature of these was lost in 2016)
- The LLC should have had an "investment in R&D" line on the balance sheet of the original $1 million
Id have to check how the business filed and what it called this each year and what they called it - there is a filing every year for the LLC from 2014 through 2022
- When the $600,000 was received, this would have just been a return of capital of the original investment.
Thats what I assumed. It was then disbursed to all investors (I got 7% back)
- All of this activity should have been reflected on the LLC tax return and the member's should have received a K-1.
Yes but to add a little clarity only 2 of us were members of LLC so received K1s. The rest were investors with profit interests so just received a statement and 60% of their money back.
- When was the last year the LLC filed a tax return?
2022
- Did you have tax basis in your LLC when all of this took place?
Not sure what this means
- What was the trade or business of your LLC?
Pharmaceutical investment R&D
- I'm not sure why there isn't documentation. I assume there is support for the original $1 million of funds to the R&D project?
There are all records and business filing for business entity for every year that show losses mounting until the end. I think the main hangup seems to be around the disallowed losses on my personal return which somehow got reset in 2016 when they were forgotten to be carried forward. The business filings show consistent losses from 2014 to 2021 up to over a million then obviously a positive of +600k in 2022.
- Addressing the above will allow at least a start in addressing your questions and issue.
- I'm also going to suggest that you find a new accountant once we begin to piece together the history.
Hoping someone would say that because at the moment I'm not particularly loving the idea of paying +150k in taxes for something I lost money on.
