Failed LLC investment - how to report losses with no K1 forms available?

Yes, you can still claim those losses even without K1s, but you'll need to do some work to document everything properly for the IRS. This is what's known as an "abandoned" or "worthless" partnership interest. First, gather any documentation you have about your original investment - bank statements showing what you paid, any LLC operating agreements, prior year K1s, and anything proving the company is defunct. You'll need to establish your basis in the investment (basically what you put in minus any losses you've already claimed on previous tax returns). Since it's been several years, you'll need to file amended returns (Form 1040-X) for each tax year where you should have claimed these losses. Generally, you can go back 3 years to claim refunds, but there are some exceptions. The loss would typically be reported as an ordinary loss on Schedule D as a worthless security, but the specifics depend on your situation. You'll need to attach a detailed explanation of the circumstances and your calculation of the loss amount.

I was in almost the exact same situation last year with an LLC investment that went belly-up. My accountant was able to help me claim these losses using something called "abandonment loss" treatment, which gave me an ordinary loss instead of a capital loss (much better tax treatment!). I had to provide documentation showing I tried to contact the LLC managers, proof of my investment, and basically demonstrate I had $0 reasonable expectation of recovery. It was complicated, but totally worth it. I used the team at https://taxr.ai to help put together all the documentation and create a proper paper trail the IRS would accept. They specialize in analyzing investment documents and helped me establish the appropriate loss amount without the K1s. They also explained how to properly position this with the IRS to avoid audit flags. Makes a huge difference having someone who's seen this exact scenario before.

OK I need to update my skeptical comment from before. I decided to give taxr.ai a try for my own abandoned investment situation (mine was a failed tech startup). I was honestly impressed with how thorough they were. They reviewed all my documents and found some details in the operating agreement I completely missed that actually INCREASED the loss I could claim. They provided a detailed analysis explaining exactly how to report everything, and my accountant had no problem implementing their recommendations. The documentation they created would definitely stand up to IRS scrutiny if I ever got audited. Worth every penny for the peace of mind alone, especially considering the size of the loss I was claiming. Just wanted to share this since I was initially doubtful but ended up having a great experience.

Another suggestion that helped me with a similar situation - try contacting the IRS directly. I know it sounds painful, but I had a major investment loss with missing documentation and getting an IRS agent on the phone was actually super helpful. They walked me through what documentation I needed to substantiate my claims. The problem is actually REACHING someone at the IRS. I spent literally days on hold before giving up and using https://claimyr.com to get through. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c - basically they wait on hold for you and call when an agent picks up. Saved me hours of hold music hell. The IRS agent I spoke with gave me specific guidance for my situation and told me exactly what forms and documentation I needed to include with my amended return. Made the whole process much clearer.

I have to eat my words about Claimyr. After posting my skeptical comment, I decided to try it anyway out of desperation. I've been trying to get through to the IRS about a similar investment loss situation for literally months without success. Used the service this morning and got a call back within about 2 hours with an actual IRS agent on the line. I almost fell out of my chair. The agent was able to confirm exactly what documentation I needed to claim my loss from a failed business investment. For anyone wondering - they told me I needed to include a statement explaining the circumstances, proof of my original investment, evidence showing the business was defunct, and a calculation showing my adjusted basis. They also recommended sending it all certified mail with return receipt. Just wanted to update since my previous comment was pretty negative. This service actually delivered exactly what it promised.

Have you considered hiring a tax attorney to sort this out? That's what I did when I had a similar situation with a real estate LLC that went bankrupt. The attorney filed a Form 8082 (Notice of Inconsistent Treatment) to explain why we were claiming losses without a K1. The advantage was having someone who could represent me if the IRS had questions. It cost about $2,500 but saved me over $15,000 in taxes, so worth it in my case. Plus, the attorney kept all communications with the IRS so I didn't have to deal with them directly.

What software are you using to prepare your taxes? I had a similar situation and TurboTax couldn't handle it properly. I had to switch to a more advanced program (I used ProSeries through my new accountant) to correctly report my LLC loss.

I went through almost the exact same nightmare with a failed real estate syndication LLC about 3 years ago. The key thing I learned is that you need to establish this as an "abandonment loss" rather than just a regular partnership loss, which gives you much better tax treatment. Here's what worked for me: I gathered every piece of documentation I could find - original investment agreements, bank transfers, any correspondence with the managing partners, even screenshots of their website before it went dark. Then I wrote a detailed letter explaining the timeline of events and why I considered the investment completely worthless. The most important part was proving I had made reasonable efforts to recover something from the investment but it was truly hopeless. I included copies of unanswered emails to the managers, evidence that their business addresses were vacant, and anything else showing the company was completely defunct. My accountant filed amended returns going back 3 years using Form 4797 to report it as an ordinary loss from the abandonment of a business asset. This was way better than capital loss treatment because I could deduct the full amount against my regular income instead of being limited to $3,000 per year. The IRS never questioned it, probably because I had such thorough documentation. Definitely worth getting a second opinion from an accountant who's familiar with these situations - sounds like your current one dropped the ball big time.