The company LINEQ Linn Energy has published several warnings about significant cancellation of debt income that could appear on your K-1. As an individual limited partner member you would report this K-1 income on Schedule E. You may owe income tax on this extra income and the only benefit you may receive is a basis increase in your investment which in the future may allow you to take a tax loss on the disposition of your investment. A capital loss on your investment would be in the future and may be limited to the individual annual limit of $3,000 per year as explained in the instructions to Schedule D. It appears you could owe extra tax now without a way to get that tax money back anytime soon. You have not described your situation in enough detail to answer your question completely as many other variables may alter your tax situation.