How to report bankrupt oil & gas PTP on Schedule D ?

[FEDUKE404]

Client has several oil and gas partnerships with which to torture me annually. One of those (PTP) partnerships went bankrupt in the fall of 2016. Per the partnership K-1 cover letter, "Holders of XYZ Equity Interests are not entitled to any recovery pursuant to the plan and all XYZ equity interests outstanding as of 09/01/2016 have been cancelled without the receipt of any consideration resulting in the liquidation of XYZ."

The 2016 K-1 IS marked "final." There is +2,400 in box 1, -70 in box 8, -1571 in box 9a, and -11545 in box 10. Unused/unavailable losses from prior years have been used, with relevant entries appearing on Schedule E page 2, Schedule D, and Form 4797 Pt 1. I am reasonably content these numbers have been calculated properly. The usual oil/gas "extras" are also rattling around. (The K-1 shows a 2016 beginning value of 7,906 and an ending value of zero.)

Now for the pertinent Schedule D question: Merrill-Lynch has issued Form 8949 information (code "X") showing the seven separate purchases beginning in 2014 (~$20/per unit). The total cost of all units is ~$11k with a zero proceeds amount and a disposition date of 09/09/2016.

I am at a total loss as to what, if anything, goes directly to Schedule D for this "sale" disposition. Most folks I ask say "nothing!" whereas some say show a "sale with original purchase dates/disposition dates but zero net gain/loss. If that route, would it be a zero/zero event, or perhaps a "cost" entered with an "adjustment " on Form 8949, still ending in a goose egg on Schedule D?

My common sense, for whatever that is worth, tells the the PTP income/losses are completely covered by the K-is, and the market value of the underlying units went from ~$20-/unti to zero with the bankruptcy. It would seem there might also be a separate ~$11k long-term capital loss rattling around out there??

I cannot get any info from the non-existent partnership, and the 800 number shown on the K-1 is just a service agency for a multitude of similar business entities. Their information "assistance" peaks at reading me the IRS instructions for the IRS Form 1065,

Any and all input will be appreciated from the TTB folks. My apologies for any typos or wayward words, but I've been fighting some vision problems which restrict me greatly, especially from doing what I acknowledge should likely be MY personal research. Once this final 2016 tax return is done, I may need to consider exiting reading small printed numbers and dealing with computer screens.

Thanks in advance!

FE

[AZUKHiker]

Calculate Basis Same as any PTP

You will need to calculate the basis at the time of bankruptcy. i.e purchase cost +/- all K1 entries affecting basis. As there is $nil proceeds on disposal the capital loss will be the calculated basis.

[FEDUKE404]

Tweaking PTP cost basis for Schedule D

You will need to calculate the basis at the time of bankruptcy. i.e purchase cost +/- all K1 entries affecting basis. As there is $nil proceeds on disposal the capital loss will be the calculated basis.

Can you be a bit more specific about what items (perhaps even line numbes on K-1) I would need to locate in order to alter the original cost basis (unit market price) as shown on the Merrill Lynch document?

Also, remember I currently have no prior year K-1s and the partnership. . . .can no longer be contacted. I am, sadly, a bit behind the proverbial 8-ball here.

It should be noted that, for other similar PTPs where all/some units were sold during a given tax year, the PTS would always list on a separate statement the purchase dates and sale dates (but never any related dollar amounts) for the PTP. In addition, there would be a statement/summary of historical "adjustments to basis" for the unitholder. For this PTP, that document only shows 8 purchase dates / units obtained, and a final "dissolved -- liquidation" entry with a negative unit number, taking the total units owned at the end of 2016 to zero.

But you DO agree I will need a separate Schedule D entry, exclusive of the already-calculated K-1 numbers, to show a (likely) long-term capital loss?

Thanks for the assistance. All suggestions are gratefully acknowledged!

FE

[Kram BergGold]

Schedule D

You will need a Schedule D to deal with the capital gains and or losses, and most likely, a 4797 to deal with the ordinary income. Before you get to this though, you will need the sales schedule all PTP's include in the package, showing the basis and the basis adjustments that have to be made. I would not assume a loss. The basis adjustments could be so large that there is no gain or loss for some of the sales.

[FEDUKE404]

NO basis adjustment information has been provided

You will need a Schedule D to deal with the capital gains and or losses, and most likely, a 4797 to deal with the ordinary income. Before you get to this though, you will need the sales schedule all PTP's include in the package, showing the basis and the basis adjustments that have to be made. I would not assume a loss. The basis adjustments could be so large that there is no gain or loss for some of the sales.

Please reread my post.

The Schedule B, Schedule E page 2, Form 4797, and some minor entries on Schedule D were calculated directly as a result of the information shown on the 2016 K-1. All unused prior year losses for the PTP have now been included in those calculations.

The "ownership schedule" provided along with the K-1 shows the various purchase dates and units bought. The final entry shows "liquidation" where a negative number, corresponding to the positive numbers for the purchases, appears for 09/01/2016. (Date bankruptcy declared.) There are no dollar amounts shown for the purchase costs, "sales" amount, or +/- basis adjustments.. Unlike with previous oil/gas PTPs dispositions I've encountered, there is no stated amount (or even mention!) of basis adjustments on the ownership schedule.

The totally separate information from Merrill Lynch shows the dollar amounts of each purchase, and a "$0.00" disposition amount in September. I have never seen a brokerage statement show any basis adjustments for a PTP. . .those numbers have always been provided by the PTP in the information packet with the K-1 and the statement of ownership.

I agree the Schedule D, as supported by the Merrill Lynch buy/sell info, should be shown as an entry independent of the K-1 amounts. I have the purchase dates/costs, and the $0.00 "sales price." What I do not have is the basis adjustment dollar amount(s) for the seven individual purchases of the PTP. Unless/until a dollar amount for a basis adjustment becomes available, there is not much more I can do other than show a long-term capital loss equal to the original (total) purchase price of the PTP units.

FE

[Kram BergGold]

other thoughts

First, maybe there is a phone number in the K-12 material that you can call for help

Second, look at the Capital Account info. Let's say the starting capital account was a very low number. Then I would think there was no loss and what he got was all ordinary income.

[FEDUKE404]

More info

First, maybe there is a phone number in the K-12 material that you can call for help

Second, look at the Capital Account info. Let's say the starting capital account was a very low number. Then I would think there was no loss and what he got was all ordinary income.

As stated previously: "I cannot get any info from the non-existent partnership, and the 800 number shown on the K-1 is just a service agency for a multitude of similar business entities. Their information "assistance" peaks at reading me the IRS instructions for the IRS Form 1065."

From the 2016 K-1, capital account at beginning of year was +7,906, there was a current year decrease of -8,211 and a withdrawal/distribution of +305. Ending capital account is zero. Earliest 2014 units were bought for $19.85 (likely $20 offering price?) and the most recent units were bought in mid-2015 for ~$7.00 . None of the units purchased was ever sold. . .all went to zero via Chapter 11.

FE

[Kram BergGold]

My Solution

Lets say a unit cost $10,.000 and the capital account was $7,906 at the beginning of the year. Roughly speaking I would say there is ordinary income of $2,094 and a $10,000 capital loss. This is before adjusting for any income and deductions in the current year.
My thinking is generally the ordinary income is approximately equal to the claimed losses. This is an oversimplification but it is semi accurate I think. This is what I have noticed when I have examined these. Then the ordinary income gets added to the capital loss. So what you will have is a 1099-B transaction that is identical to the brokerage 1099-B and some ordinary income. My point is you have to have some kind of a basis adjustment to account for prior year losses. If you had all the K-1 forms you could probably work with them to achieve a closer approximation.

[FEDUKE404]

Back-calculating the adjusted cost basis

Lets say a unit cost $10,.000 and the capital account was $7,906 at the beginning of the year. Roughly speaking I would say there is ordinary income of $2,094 and a $10,000 capital loss. This is before adjusting for any income and deductions in the current year.
My thinking is generally the ordinary income is approximately equal to the claimed losses. This is an oversimplification but it is semi accurate I think. This is what I have noticed when I have examined these. Then the ordinary income gets added to the capital loss. So what you will have is a 1099-B transaction that is identical to the brokerage 1099-B and some ordinary income. My point is you have to have some kind of a basis adjustment to account for prior year losses. If you had all the K-1 forms you could probably work with them to achieve a closer approximation.

The PTP is bankrupt. .kaput. The K-1 service agency DID state there was no Form 1099-B coming from the PTP. They have zero information relevant to the generation of the numbers on the K-1 or other information distributed with the K-1.) I have the K-1 forms in hand for 2014, 2015, and 2016. Each unit cost ~$20 each at the start, and later bought ~$9 each. There were a total of 850 such units purchased and all were around when it went bankrupt.

While your points are valid, I have a bit of a problem having to "assume" much to get any numbers for the (cost) basis adjustment on the brokerage statement. All M-L shows is the purchase dates/costs of the 850 units, and a "zero" (bankrupt notification?) disposition amount. Such is reported by M-L via "other transactions" identified as "Form 8949 (X)" with the gain/loss column blank.

Do you have any idea why the PTP unit ownership statement has nothing printed on it, re a basis adjustment? I've seen plenty of such statements, with a dollar amount calculated by the PTP, and verbiage along the lines of "you disposed of X units during 2016 and when reporting the sale you will need to adjust +/- your cost basis to determine the correct gain/loss." Does the fact that the PTP went bankrupt during 2016 change anything? FWIW: I have had several responders state the K-1 / bankruptcy took care of everything, so there is *NO* gain/loss to be shown for the "disposition" on Schedule D.

Thanks again for your input. I remain confused. I've about had my fill of this client's annual torment. . .

FE

[Kram BergGold]

Call Me Jaded

I was thinking the client did not give you the sales worksheet but I believe you said you had it but there was no info on it.
You know there is a web site to download all PTP K-1 forms.

https://taxpackagesupport.com/

Maybe you can find a sales worksheet there.

[FEDUKE404]

More work on basis adjustment

I was thinking the client did not give you the sales worksheet but I believe you said you had it but there was no info on it.
You know there is a web site to download all PTP K-1 forms.

https://taxpackagesupport.com/

Maybe you can find a sales worksheet there.

I was provided a 2016 K-1 along with a "2016 Ownership Schedule." It shows seven different purchase dates, and number of shares for each purchase (total of 825). The eighth line on the document shows "DZ ARP LIQ," 09/01/2016, and -825 in the "units" column. Units are therefore 0.00000 at end of year.

There are no dollar amounts of any kind on the "ownership schedule" AND there is no mention of a "basis adjustment" to be used.

The M-L statement shows ~the same purchase dates, along with the total cost of each group purchased. The proceeds are marked $0.00 , and the gain/loss column shows only "N/C."

I have recently downloaded, from the web site, the 2014 and 2015 and 2016 K-1 etc packets for the PTP.

I will check out the web site you provided (thanks!) and perhaps again call the actual K-1 provider phrasing my question a bit differently, along the lines of "Why is there no basis adjustment amount provided by the partnerhip as a result of the disposition of the units?"

This is why I don't like September / October tax returns. . .

FE

[FEDUKE404]

Some numbers located

I located cost basis adjustments in (new?) online 2016 tax packet.

There are separate adjustment numbers for each "purchase." Total (each negative) adjustments are $11,551.

M-L reported sales proceeds as $0.00.

Total purchase price per M-L was $11,302 and total adjustments, via K-1 info, were -$11,551. (Adjustments exceed cost!).

What amount thus gets reported on Schedule D as the gain/koss?

(I'm still scratching my head as to how adjustments to cost can exceed the original cost. . . Possibly related to some of the minimal PTP "distributions" along the way??)

FE

[JohnH]

Just a thought - was there any COD income that passed through the partnership?

[Kram BergGold]

Hooray!

FEDUKE404, glad to see that you are all set on this one.

[FEDUKE404]

Nearing the end, but not there yet

FEDUKE404, glad to see that you are all set on this one.

Well, I'm getting much closer. . .

Can you clear the remaining fog and let me know what amount and where I report the "sale" information with the facts below? (I'm getting hung up on adjustments per PTP > client cost of units):
Total purchase price, shown on M-L 1099-B - (Form 8949, Code "X" -- cost basis not reported to IRS) for 850 units: $11,203
Sale price (bankrupt in September): $0
Total "adjustments to basis" per PTP info: -$11,551 <<<----note this is a negative amount
(ALL units were owned for a period exceeding one year)

As for JohnH's comment: The 2016 K-1 does show (on line 11E of the K-1) cancellation of debt in the amount of $3,362 . That amount now appears on line 21 of Form 1040, which I believe to be the correct treatment. The PTP also had some IDC and other trivial stuff rattling around. Don't have the time or, sadly, vision to go chasing those rabbits.

Thanks again for the help. It is greatly appreciated!

FE