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What happens if I own Preferred Shares in a listed company…

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What happens if I...

What happens if I own Preferred Shares in a listed company and it reports s a massive loss in box 10 of my K-1 and then it goes backrupt in the same year and I am left with nothing?

Submitted: 26 days ago.Category: Tax
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3/30/2018
Tax Professional: Dr. Fiona Chen, Certified Public Accountant (CPA) replied 26 days ago
Dr. Fiona Chen
Dr. Fiona Chen, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 942
Experience: Former IRS Revenue Agent
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I'm Fiona, former IRS revenue agent. I am looking at your question and will get back to you soon. Fiona Chen, MPA, Ph.D., CPA, ABV, CFF, CITP,IMTA

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Customer reply replied 26 days ago
Can this huge loss be carried over multiple years?
Tax Professional: Dr. Fiona Chen, Certified Public Accountant (CPA) replied 26 days ago

Dear Customer,

You report the loss from K-1 to your Form 1040. That is the business operation loss. The loss will show up, depending on the various items, possibly on line 17, as regular income loss. I saw your second posting. If this loss creates for you net operating loss, it can be carried back to prior years and forward to future years.

As to your investment loss, that is reported on Schedule D of your Form 1040 using Form 8949. You report your initial purchase date [investment date], cost and proceeds probably is $0 and date of sale [date the company filed bankruptcy.] Then, you have a schedule D, short term capital loss [in the same year?] Capital loss shows up on line 13 is subject to (-3000) net loss per year.

Please verify with a CPA locally to make sure this is correct in your case if the number of loss is large.

If the company filed bankruptcy, you should file with the bankruptcy court to make sure that you can get as much of recovery as possible.

Regards,

Fiona

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Customer reply replied 26 days ago
Well, this loss in box 10 is about 10x my reported income for 2017 - generating a tax refund. Is this correct?
Tax Professional: Dr. Fiona Chen, Certified Public Accountant (CPA) replied 26 days ago

Dear Customer,

Incorrect.

Refund is in between of what we have given the government during the year via withholding and estimated tax payment and what tax we actually owed on our tax return.

Therefore, even if we have lost our shirt due to a business operation, the government will not give us money because of that.

Regards,

Fiona

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Customer reply replied 26 days ago
Is this part of my adjusted gross income?
Tax Professional: Dr. Fiona Chen, Certified Public Accountant (CPA) replied 26 days ago

Dear Customer,

Yes.

It is suggested that you find professional help in this year's tax return preparation. Corporations have preferred stock. Corporations don't have K-1s. If K-1 line 10 has loss, this company or partnership is claiming huge loss in business property, section 1231? You want to consult with a professional to give you some discussion and background on what happened. Something does not seem right, at all.

Regards,

Fiona

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Customer reply replied 26 days ago
The company was a limited partnership that was also a plublicly listed company. I am just concerned because this huge loss changes my adjusted gross income to - negative.
Tax Professional: Dr. Fiona Chen, Certified Public Accountant (CPA) replied 26 days ago

Dear Customer,

Theoretically speaking this can happen. It is because Section 1231 loss can by pass schedule D for capital loss or passive activity loss and be taxed as regular income and loss.

However, the condition for this to happen on your tax return has to be that you own a lot of the shares and got a lot of loss and you earn or have very little income in comparison. For a public traded partnership and an individual person preparing a Form 1040, this combination is almost impossible.

How should we proceed with your question? Are you satisfied with my answer to give me a five star rating??

You need to have some one really look at this K-1 interview you and read all the attachments of this K-1 and to compare with your tax return.

How much 1231 section loss you got? Are you sure that all the loss belong to you personally as for the percentage of shares you own? This company probably helped you more in its bankruptcy than in its operation.

Regards,

Fiona

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