Our goal at bivio is to make sure your club operations can be as simple as possible so you can have an investment club and learn about investing in a real life "lab" and not get bogged down by cumbersome accounting or legal issues.
Toward that goal, we provide guidance on investments (e.g. MLP's, REIT's) and investing techniques( e,g. DRIP investing) which will give your club extra work and headaches and recommend you avoid these as part of your club investing. We also provide you with guidelines and help keeping your investment club accounting simple.
Along these lines we are making the following recommendations for addressing the new Centralized Partnership Audit Requirements which were described here earlier.
To institute these changes in your operations will probably require that you modify your partnership agreement appropriately. We have made modifications to paragraphs 16, 18 23 and 24 in our recommended partnership agreement (below) to address this. We suggest your club adopt similar changes to your agreements.
Though this change in IRS requirements is creating a need for you to address an administrative issue with your club, we don't expect any investment clubs that follow our guidelines for regular monthly, annual and tax time verification of the accuracy of their club records to have any IRS audit issues they will have to address.
If your club does not want to follow our recommendations and thus will not be able to opt out of the new audit filing requirements, you will need to name a "Partnership Representative" each tax year. The representative will have sole authority to negotiate with the IRS and bind the club to any agreement reached without any consultation or input from the club.
Any agreement you want to make between your club and the representative in terms of how they will address an audit situation must be called out in your partnership agreement. While failure to follow those requirements will not have an affect on any agreements made between the representative and the IRS, their breach may allow you to seek damages from the member who made them.
We will outline some of the issues you'll need to address in a separate email.
Clubs which "opt out" do not have to designate a partnership representative.
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