<p>An example… A company raises 1 million. A limited partner invests 100,000 for a 10 percent stake. </p>
<p>Year 1… The company loses 100,000 in operating losses.</p>
<p>The limited partner has a 10,000 operating loss on the k1. </p>
<p>The company restructures and the company is worth 400,000.</p>
<p>So… Investor has a capital loss of 60,000. </p>
<p>On the k1… The operating loss of 10,000 is listed.
The capital section of the k1 says 100,000 invested. Capital loss of 60,000. Capital now 40,000. </p>
<p>My question, is the operating loss reflected in the capital numbers?</p>
<p>Does the investor write off the 10,000 operating loss and 50,000 or 60,000 in capital losses?</p>
<p>I’m not sure you’ll get the restructuring loss until you dispose of the partnership. It would depend on exactly what form the restructuring took. Obviously the losses from operations flow through on the K-1 to your own return.</p>
<p>But if, for instance, the partnership diluted itself by giving partnership interests to a lender in lieu of a foreclosure, I don’t think that would be a taxable item one way or the other, unless you sold your interest, or unless the partnership was liquidated. In that case, the loss would be reflected in the diminished value of the partners’ stake.</p>
<p>If the restructuring involved writing down an asset becuase of value impairment, then that would flow through on the same K-1 as a capital loss of some sort. </p>
<p>A partnership accountant could give you a better idea. Are you the one who has to prepare the K-1s?</p>
<p>There was a change of ownership. The example I used was to simplify things. New partners were brought in and the general was canned. The new partners ended up with 98 percent of the company. The original partners divided up 2 percent of the company. It is a mess. </p>
<p>There is a sole proprietor loss on the k1. I didnt work there. :)</p>
<p>sounds like they may be saving some money on tax preparation. </p>
<p>Did the limiteds vote to remove the general partner? Usually you don’t have that level of participation as limited partners, but it all depends on the partnership agreement.</p>
<p>THere is no change in securities holdings here I guess, unless one deems that an old partnership interest was exchanged for a new one, in which case I suppose you could argue that a capital loss has been incurred. Not sure of how to advise you.</p>
<p>The capital account reconciliation is not necessarily tax basis, and even tax basis capital accounts aren’t necessarily reflective of any individual partner’s tax treatment. The loss from the boxes on the right is reflected in the current year increase (decrease) line. The reshuffling of the capital interests may be there, or may be shown on the withdrawals and distributions line. There’s often a statement to the K-1 detailing the capital account changes.</p>
<p>The capital account reshuffling would not normally result in any tax consequence to you. You have no capital loss, and you have no change to your (outside) basis. (Obvious caveat that none of us have seen the restructuring document, but the IRS position is that you have only and exactly one interest in a partnership, and if you still own some after the restructuring, you did not dispose of your partnership interest at all, let alone in a taxable transaction.)</p>
<p>From what you’ve described, I have no reason to believe the K-1 was prepared incorrectly, or that there were any other shenanigans. If the K-1 doesn’t reflect the 704(b) book basis capital accounts (which I think there’s a good chance it does), you might ask if there’s a schedule tracking 704(b). That method determines your rights in liquidation to whatever’s left, and is sometimes interesting to look at.</p>