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What if I invested in a company that ceased operations but hasn't provided a "Dissolution Statement"?

Forum|Forum|3 years ago
March 8, 2023
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I invested in a startup company through an "internet startup fundraising platform" in 2016. I've received a K1 statement every year from the "Fund Manager" (a different entity that handles back-office tasks for private equity funds). While looking for the 2022 tax year K1 on the Fund Manager's website I see that they have gone out of business with no way to get any information. I inquired through the "internet startup fundraising platform" website about how I can get a K1 for 2022 and they informed me that they've reached out to the startup company I invested in repeatedly with no response. The "internet startup fundraising platform" (which is now undergoing an acquisition by another company) sent me a letter that says to the best of their knowledge the startup company I invested in has "ceased operations", they never received a "dissolution statement", that "your investment is effectively zero" and that they couldn't advise me on how to account for the investment loss on my taxes. Lesson learned...at this point I'm happy to take the tax loss, but have no idea how to go about it. How do I take the tax loss for my investment in TurboTax?

TurboTax Home & Biz Windows

Best answer by HelenC12

Since you received a K-1 in previous years. You may enter a K-1 for 2022 with all zero's and indicate that this is the "final" K-1. If you don't do this, TurboTax will keep carrying forward the K-1.

You can deduct worthless stock or a worthless investment only in the tax year it becomes completely worthless. This normally happens when the corporation files for bankruptcy, stops doing business, and has no assets.

Enter a worthless investment with a sales price of zero and the word "worthless" in its description.
Enter the correct cost or basis, date acquired, and December 31 as the date sold.

This is entered in the investment section of TurboTax.

Open (continue) your return in TurboTax.
In the search box, search for investment sales then click the "Jump to" link in the search results.
Answer Yes to the question Did you sell any investments?
- If you land on the Here's the investment sales we have so far or Your investments and savings screen, click Add More Sales or Add investments.
On the Let's import your tax info screen, select Enter a different way.
On the OK, let's start with one investment type screen, select Other (land, second homes, personal items) and Continue.
On the Tell us more about this sale screen, enter the name of the startup.
On the Now, enter one sale for XXX screen, enter the information.
Continue following the onscreen instructions to enter the sale.

H

HelenC12Answer

Since you received a K-1 in previous years. You may enter a K-1 for 2022 with all zero's and indicate that this is the "final" K-1. If you don't do this, TurboTax will keep carrying forward the K-1.

You can deduct worthless stock or a worthless investment only in the tax year it becomes completely worthless. This normally happens when the corporation files for bankruptcy, stops doing business, and has no assets.

Enter a worthless investment with a sales price of zero and the word "worthless" in its description.
Enter the correct cost or basis, date acquired, and December 31 as the date sold.

This is entered in the investment section of TurboTax.

Open (continue) your return in TurboTax.
In the search box, search for investment sales then click the "Jump to" link in the search results.
Answer Yes to the question Did you sell any investments?
- If you land on the Here's the investment sales we have so far or Your investments and savings screen, click Add More Sales or Add investments.
On the Let's import your tax info screen, select Enter a different way.
On the OK, let's start with one investment type screen, select Other (land, second homes, personal items) and Continue.
On the Tell us more about this sale screen, enter the name of the startup.
On the Now, enter one sale for XXX screen, enter the information.
Continue following the onscreen instructions to enter the sale.

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D

dissolutionquestionerAuthor

Thank you for the detailed response!

P

PattiF

Yes, you would enter the ending Capital Account Balance as the cost basis for the company.

@dissolutionquestioner

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D

dissolutionquestionerAuthor

Thanks Pattie and Helen. I've entered the K1 and the "investment sale" separately into turbo tax and it looks like in doing so I'm double dipping on the tax loss. If I do the K1 and check final and put my 2020 K1 Final capital account balance as the 2022 beginning capital account balance and make the 2022 final capital account balance Zero turbo tax seems to give me the tax deduction. Should I do that and not the "investment sales" entry...it seems like either one but not both?

Thank you