withdrawing members cost basis
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withdrawing members cost basis A reader
inquires...........
Our club dissolved and we distributed
appreciated stock to all the remaining members. I need to understand more
clearly (in baby talk) about the cost basis of the transferred appreciated
stock.
Are you saying that the deathless prose of trez_talk is
not always clear<g>. Ok, I'll try to explain while avoiding as much
accounting/tax jargon as I can.
Does the statement "The withdrawing members'
cost basis in the transferred stock equals their cost basis in the club" mean
that if the club basis in a transferred stock (that is to say the club cost per
share) is $15.83 and the price of the stock at the time it was transferred to
the withdrawing members was $57, the withdrawing members' cost basis for the
transferred stock is $15.83?
When a member contributes money to the club, his/her 'cost basis in the club' is increased by the amount contributed. In addition, at the end of the year, all items reported on that member's k-1 are added/subtracted from his/her 'cost basis in the club'. If the member takes a partial withdrawal in cash, his/her 'cost basis in the club' is decreased. Now, when a member leaves taking stock plus some cash, the
situation is this. The member's 'cost basis in the club' is first reduced by the
amount of cash received. The remaining 'cost basis in the club' is allocated
among the securities received. If shares of only one security were received, the
allocation is very simple - the remaining 'cost basis in the club' is allocated
entirely to those shares. If, however, the member receives more than one
security, the allocation becomes much more complex. If you are using bivio or
NCA software, this complex allocation will be done for you.
You can read more about this allocation on Page 10 of the
IRS Publication 541 on partnerships.
I hope it is clear from the above that, in a complete
withdrawal, the market value of the stock distributed and the tax basis of such
stock to the club, are immaterial. The important factor is the member's basis
for his/her position in the club.
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