Missing K-1s. Non-cooperative Sponsor. Foreclosure. What do I do?

Question

The Story:

Back in 2019 I invested in a new construction of an apartment complex.

In the spring of 2020 the sponsor informed investors that there would be no K-1 for 2019 because the company had no income. This was his CPA's advice.

Then in 2020 through 2023 the property was still under construction and still produced no income. Hence, the sponsor kept telling the investors that he would not issue a K-1 for each of those years because (you guessed it) there was no income.

In the spring of 2024 the project was foreclosed because the sponsor fell short of funds (cost overruns) and could not get a stop-gap financing. Investors lost all that they put into this project.

In September of 2025 the sponsor sent out final K-1 for 2024 showing a 1231 loss which was 60% of the original investment. The capital account for the beginning of the year was something like 35% of the original investment and zero at the end of the year.

When I asked him to explain the difference, he quoted his CPA saying that final K-1 does not show the whole picture (duh!) and each investor must track their capital basis and similar truisms. In other words: a typical non-answer.

He then kept ignoring my requests for the missing K-1s for the previous years.

After reading IRS publications I found out that K-1s must be issued starting from the first year even if the company had no income. K-1 is not required only if a company also had no expenses. It is still recommended to issue a K-1 for the partners to keep track of their capital account ls and basis.

Based on that information, I need to either have previous years K-1s or establish my basis in some other way in order to properly write off my loss.

Questions:

How can I obtain the missing K-1s provided that the sponsor is not cooperating?

Would reporting him to IRS and SEC make matters better or worse?

What happens if I don't include that 2024 K-1 in my 2024 filings (besides not being able to claim a loss)?

Can I write it off as a worthless investment?

--

Nick

Basit Siddiqi · Answer

Your best bet if you have a non-communicative Sponsor / CPA and you can't get past K-1's is to document your conversations where you tried your best to obtain the documents / K-1's.

You should then recreate your basis by your contributions / distributions / amounts reported on past tax returns.

If you want to completely write off the investment, you likely need some sort of support / evidence that you will not get any more money from the sponsor. A bankruptcy letter would suffice.

Josh Lewer · Answer

@Nick B. Thanks for sharing your story, albeit a painful one. It is indeed crazy to not file a return or issue a K-1, though maybe there are circumstances that aren’t readily apparent (unlikely). Definitely required, and not to get into war stories, but I definitely remember too many late nights working through effectively blank partnership returns, i.e., no activity, just to get a K-1 populated.

Consult with counsel for sure as there's a lot here.

I'd agree with @Basit Siddiqi under 1.165-1 (d) A loss shall be allowed as a deduction under section 165(a) only for the taxable year in which the loss is sustained. For this purpose, a loss shall be treated as sustained during the taxable year in which the loss occurs as evidenced by closed and completed transactions and as fixed by identifiable events occurring in such taxable year.

Lastly...

From Form 1065 (partnership) Instructions - for posterity

Failure To Furnish Information Timely

For each failure to furnish Schedule K-1 (and K-3, if applicable) to a partner when due and each failure to include on Schedule K-1 (and K-3, if applicable) all the information required to be shown (or the inclusion of incorrect information), a $330 penalty may be imposed for each Schedule K-1 (and K-3, if applicable) for which a failure occurs. For all such failures during a calendar year, the maximum penalty for entities with gross receipts over $5,000,000 is $3,987,000; and $1,329,000 for entities with gross receipts at or below $5,000,000. If the requirement to report correct information is intentionally disregarded, each $330 penalty is increased to $660 or, if greater, 10% of the aggregate amount of items required to be reported. There's no limit to the amount of the penalty in the case of intentional disregard.

Don Konipol · Answer

@Basit Siddiqi just provided the answers you need, for FREE.

I would engage his services to handle my tax returns if I were in your situation.

Sorry the deal went south, it’s a risk we always take - especially when we’re passive investors.

Nick B. · Answer

@Josh Lewer:

Thank you for your reply. Earlier today, I sent the link to the section of IRS publication that describes the penalties to the sponsor along with another inquiry to furnish the K-1. Still no reply. Looks like he doesn't mind if I report him...

Ashish Acharya · Answer

Wow, I can only imagine how frustrating it must be to not only lose money on the deal but also feel stonewalled when it comes to getting back paperwork. K-1s should generally be issued each year, even if there’s no income, because they track your capital account and basis. Without those, it makes it much harder to document your loss properly.

Here are my thoughts on your questions:

• Getting the missing K-1s – Unfortunately, if the sponsor isn’t cooperating, you can’t force them to issue past K-1s directly. Sometimes the best path is to reconstruct your basis using your original investment documents, capital call notices (if any), and any correspondence that shows contributions or distributions. A CPA can help recreate what those K-1s should have looked like so you’re not stuck.
• Reporting him to the IRS/SEC – This can put pressure on the sponsor, but it usually won’t get you the forms you need in the short term. It’s more about compliance and accountability than solving your immediate filing problem.
• Not including the 2024 K-1 – Leaving it out means you won’t be able to take the loss, and it could raise red flags if the IRS later receives the sponsor’s filings. It’s usually better to include it, even if you have to footnote or attach an explanation about missing prior-year K-1s.
• Worthless investment – Yes, if the foreclosure wiped out your stake, you may be able to treat it as a worthless partnership interest or a Section 1231 loss. The exact treatment depends on the specifics of your partnership agreement and how the sponsor reported things, which is why reconstructing your basis is so important.

Bottom line: you’re not stuck forever just because the sponsor isn’t cooperating. With the proper documentation and a little legwork, you can establish your basis and claim the loss.

Aaron Zimmerman · Answer

This is crazy to not produce a k-1. Hopefully the partnership filed timely even if they didn't give a k-1 as it's a certain amount due for penalties per member per month.

I would agree and contact an attorney to see if there's a case here, but this is not legal advice.

Jason Malabute · Answer

Yes, you’re 100% correct — even if there’s no income, they should’ve still issued a K-1 for the previous years, and you’re also right that the basis is reported on the K-1 as well. I’m not a lawyer so I don’t give legal advice, but I’d definitely talk to a lawyer and see if it’s worth reporting him to the SEC. By the way, I’m curious — did you double check all your PPMs and the documents you signed when you first got into the investment to make sure this is a legitimate deal?

Nick B. · Answer

@Ashish Acharya,

Do I need to reconstruct previous K-1s for the first year only or for all missing years?

Is the following data sufficient for the reconstruction?- 2019: initial capital contribution- 2020-2023: no distributions, no contributions, no data- 2024: beginning of the year capital balance of 35% of the initial, end of year balance of zero, non-recourse financing of 3 times of the initial capital, 1231 loss of 60% of the initial capital.

Thank you

Ashish Acharya · Answer

Wow, I can only imagine how frustrating it must be to not only lose money on the deal but also feel stonewalled when it comes to getting back paperwork. K-1s should generally be issued each year, even if there’s no income, because they track your capital account and basis. Without those, it makes it much harder to document your loss properly.

Here are my thoughts on your questions:

• Getting the missing K-1s – Unfortunately, if the sponsor isn’t cooperating, you can’t force them to issue past K-1s directly. Sometimes the best path is to reconstruct your basis using your original investment documents, capital call notices (if any), and any correspondence that shows contributions or distributions. A CPA can help recreate what those K-1s should have looked like so you’re not stuck.
• Reporting him to the IRS/SEC – This can put pressure on the sponsor, but it usually won’t get you the forms you need in the short term. It’s more about compliance and accountability than solving your immediate filing problem.
• Not including the 2024 K-1 – Leaving it out means you won’t be able to take the loss, and it could raise red flags if the IRS later receives the sponsor’s filings. It’s usually better to include it, even if you have to footnote or attach an explanation about missing prior-year K-1s.
• Worthless investment – Yes, if the foreclosure wiped out your stake, you may be able to treat it as a worthless partnership interest or a Section 1231 loss. The exact treatment depends on the specifics of your partnership agreement and how the sponsor reported things, which is why reconstructing your basis is so important.

Bottom line: you’re not stuck forever just because the sponsor isn’t cooperating. With the proper documentation and a little legwork, you can establish your basis and claim the loss.

Missing K-1s. Non-cooperative Sponsor. Foreclosure. What do I do?

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