Thank you, Thomas, for your reply.
@ThomasM125 wrote:
First of all, you mention common and preferred stock, which would indicate that you own stock in a corporation even though you call it an LLC, which would indicate it is a partnership.
It is an LLC - Limited Liability Corporation. It is a private corporation, not publicly traded. I am a qualified investor in it and am a limited partner in it for tax purposes (I have not operational responsibility or voting rights).
I do believe the distribution is taxable, as the amount in Box L, Ending Capital Account on my K-1 is showing $0; and the amount on the Withdrawals and Distributions line equals the total of my opening capital balance plus the increase in value in my investment due to a combination of the appreciated value of the underlying stock plus a dividend distribution.
So in effect my five-year-old investment in this LLC terminated at the end of 2020. I chose to participate in a new round of investment offered to me by the company, but as far as the IRS is concerned, that is a new and separate investment from the one I had in closed in 2020.
