I will add a few comments:
- Just reiterating what has been mentioned, but it is a critical component, in order to be able to prevail in a worthless investment deduction, this deduction must be taken in the appropriate year.
- Your facts indicate that others wrote off the investment in other years, and you are now wanting to write this off in 2023. If audited, you will need to be able to support your position as to why 2023 and not an earlier year, or for that matter, see bullet 4. Just because others have taken a worthless investment deduction in the past, does not mean that the investment is truly worthless. It just means that there was no trigger for an audit, and not having to support their position.
- I'm not sure after 10 years I would call this entity a start-up. Regardless, you are actually receiving K-1's. Are the other investors that wrote off the investment also still receiving K-1's?
- Bullet 3 could be a key component. While you may not be currently (nor in the past) receiving any income, deduction, etc., what would happen upon a liquidation of the LLC? Would you receive any proceeds in a liquidating distribution?
- As a member, you should ask for a copy of the financial statements. What does the balance sheet look like? This would be a key factor in being able to support a worthless investment deduction.
- Take this slowly and make sure that you have the documentation to support a worthless investment deduction for 2023 if that is what you decide.
*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.
