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Yes, he can take the losses. Receiving percentage of LLC is treated the same as receiving any other property.
Let just say that instead of receiving % of LLC, he would received a stock that the original owner bought for $100 per share and it had FMV of $80 on the day he received it. He sold it for $8 per share. Can he claim the loss? Yes, he can. His basis will be the basis of the original owner.
You can apply the same logic to the gifted % of LLC. The original owner's basis became your client's basis. If the original owner basis were 20K on the day he gifted the LLC to you client, your client's basis (or investment) is 20K.
And no, you do not need to attach K1 to his return unless requested by IRS later. But you may need to attach it to his state return. Check your state instructions.
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