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I tend to keep the downloaded installation files... has saved my bacon more than once.

I assumed you'd probably exhausted that one, but thought I'd mention it just in the interest of being thorough. Guess he could fire the guy, then hire him back after 3-1/2 years. Probably wouldn't make the employee too happy. On the flip side, I had a client one time who had to put money into a SEP for an employee whom he fired at mid-year after the guy stole from him. It was either give the thief a 15% bonus or deprive himself and his other employees of the benefits of the SEP that year. Talk about a client who was upset with his financial advisor and with me...

John, The $3K-per-year had a requirement that it be entered on the tax return, but in some cases it is not lost but carried forward because the taxpayer does not have sufficient income to use up all or any of the capital loss. Check out the Schedule D carry forward tab if you have a client that you think had a wasted $3K deduction and you may find the capital loss is carried forward.

He could exclude the employee for up to 3 years from first year of service and still use the SEP (unless he has already exhausted that option.)

Since partnership #1 (with the 12K passive losses) is now closed out, he can deduct the accumulated passive losses against ordinary income. Please excuse the expression "What Difference Does it Make" whether he deducted the 12K against passive income in 2008 or now deducts it against ordinary income. I don't think the tax code requires him to deduct it when there is passive income only allows the deduction.

Here's one that is a bit rude, but neither crude nor lewd: http://fellowshipoftheminds.com/2014/06/09/the-very-first-ever-blonde-guy-joke-and-well-worth-the-wait/ An Irishman, a Mexican and a Blonde Guy were doing construction work on scaffolding on the 20th floor of a building. They were eating lunch and the Irishman said, ‘Corned beef and cabbage! If I get corned beef and cabbage one more time for lunch, I’m going to jump off this building.’ The Mexican opened his lunch box and exclaimed, ‘Burritos again! If I get burritos one more time I’m going to jump off, too.’ The blonde opened his lunch and said, ‘ Bologna again! If I get a bologna sandwich one more time, I’m jumping too.’ The next day, the Irishman opened his lunch box, saw corned beef and cabbage, and jumped to his death. The Mexican opened his lunch, saw a burrito, and jumped, too. The blonde guy opened his lunch, saw the bologna and jumped to his death as well. At the funeral, the Irishman’s wife was weeping. She said, ‘If I’d known how really tired he was of corned beef and cabbage, I never would have given it to him again!’ The Mexican’s wife also wept and said, ‘I could have given him tacos or enchiladas! I didn’t realize he hated burritos so much.’ (Oh this is GOOD!!) Everyone turned and stared at the blonde’s wife. The blonde’s wife said, ‘Don’t look at me. The idiot makes his own lunch.’