Partnership Investment Loss

[beyond38]

What is the name of your state (only U.S. law)? CA

Hello, my boss posed a question he wants me to research. I have been looking and looking and have not come up with a sufficient answer. Any help would be greatly appreciated.

Here is the issue:

Taxpayer invested $100,000 in a limited partnership. Bottom line is the investment is worthless. Taxpayer did not receive any distributions nor did they receive any deductions since inception. This loss is deductible. I need to figure out the character of the loss and on which schedule the loss will be deducted.

The best answer I have been able to come up with is that it is a long term capital loss, and that it would be reported on Schedule D.

HOWEVER, what if there was theft and fraud involved with this situation? Would that change the answer?

I would like this to be an ordinary loss, rather than a long term capital loss, so that the taxpayer wouldn't be limited to carrying the loss forward only $3,000 per year.

If the answer to the question with theft and fraud involved is still "no," what would need to be different so that it would be an ordinary loss?

Any help or input would greatly be appreciated. Also, links to written information from the IRS, CCH, etc... would be nice.

Thank you!