2018 Tax Changes Affecting Your Investment Club

Tax changes affecting your club.

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Time to make changes

IRS audit procedures are changing and your club needs to make some changes now.

Now that 2017 tax season has been put to bed, it is time for your club to focus on one of the changes which you will be dealing with when it comes time to prepare your 2018 taxes next year.

Starting with your 2018 tax reporting, IRS partnership audit rules have changed.

If the IRS selects to audit your club tax returns, they are only going to have discussions and negotiations with a single person in your club. They will be called a partnership representative and you will need to identify them when you prepare your club taxes next year.

If they find any deficiencies, the club and all current members will be assessed for any and all back taxes and penalties that are owed, even if the audit was of a past year return.

This is a big change from the way things have worked in the past.

The IRS had been required to determine each partner's share of the adjustments made to partnership audit problem items and then compute a separate adjustment for each partner to assess the correct tax due as a result of a partnership audit.

They then had to collect individually from each partner. Now they will be collecting from the club itself.

You will have the option to "opt out" of this process, in which case the IRS would have to audit each member of the club individually and assess taxes and penalties owed at the partner level. However, there are restrictions on opting out.

The one that will probably affect the most clubs is that you can't have a Trust as a member of your club and opt out.

This all sounds scary and confusing as many tax things do, but if you follow the guidelines we provide to keep your club records simple and do your taxes accurately there is a very good chance that if you were audited by the IRS, there wouldn't be anything to find. If you are comfortable you are doing that and that your club has done it in the past, it doesn't matter what procedure the IRS uses to audit your club.

Here is an article from Forbes that does a pretty good job providing some further details about the new requirements:

The Game Has Changed

You'll want to be discussing this change in your club meetings.

You'll need to determine if you want to opt out and whether you can opt out.

If you will not be opting out, you'll need to determine who you will be designating as your partnership representative. You may also want to discuss whether you want to modify your partnership agreement to clarify the process you'd expect them to follow if they did have to undertake negotiations with the IRS on behalf of your club.

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