LP syndication investment 100% bust.

[Bruce Lynn]

So the project is 100% bust.  Sponsor is offering 2 options.  One is to get a K1 for the full amount of the investment loss.  Option 2 is to get a promissory note for the full investment amount, payable over five years, if they have profits from other projects.   They're making it sound like if you take the payout, you will not be able to take future losses, even if they don't pay out the full amount.   Does that sound right?

[Greg Scott]

Bruce:

Sorry.  That sucks.

In general, I would think converting shares to a promissory note would not be a taxable event, but if the note never gets paid back, the note default would certainly be a taxable loss.

On the other hand, you have probably taken depreciation.  If you convert your shares to a promissory note that may trigger depreciation recapture at ordinary income.  It would really suck to lose money and also have to pay taxes.  Check with your tax professional.

I would lean towards taking my lumps today and getting away from the sponsor.