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Selling stock but have one club member not participate?
Our club is considering selling some of our stock holdings
to capture the huge gains we have experienced. One member
has a large AGI already for this year and having more
capital gains would increase his AGI. While the capital
gains would be taxed at the 15% rate, the increase in AGI
would add a few thousand dollars in IRMAA penalty on his
Medicare premiums. So, the question is "Can one member opt
out and be excluded from the club sale of some stock held by
the club?" If yes, does that mean his ownership of units
in the club stays the same and no capital gains from the
club selling stock show up on his K-1?
One partner cannot 'opt out' of the gains. That partner can vote against the sale to try and stop the sale.

On Wed, May 27, 2020 at 4:25 PM Donald J Hahn via bivio.com <user*30377800001@bivio.com> wrote:
Our club is considering selling some of our stock holdings
to capture the huge gains we have experienced. One member
has a large AGI already for this year and having more
capital gains would increase his AGI. While the capital
gains would be taxed at the 15% rate, the increase in AGI
would add a few thousand dollars in IRMAA penalty on his
Medicare premiums. So, the question is "Can one member opt
out and be excluded from the club sale of some stock held by
the club?" If yes, does that mean his ownership of units
in the club stays the same and no capital gains from the
club selling stock show up on his K-1?
Since your club is a partnership for tax purposes, the partnership (i.e. the club) sells the stock and the partner cannot "opt-out" of reporting the sale. The partner must report whatever is reflected on the Schedule K-1 from the partnership.

Your partner should consider some other tax planning measures. For example, under the recently passed CARES Act for COVID-19 relief, in 2020 the club member can forego taking required minimum distributions (RMD's) from traditional IRA's, 401(k), 403(b) or other tax-deferred plans. Also, if the club member makes charitable contributions, he/she can arrange to make a qualified charitable distribution (QCD) from a traditional IRA in lieu of taking an RMD. 

Your club member can always offset the capital gain from the club with capital losses from his/her own portfolio.

Just some thoughts,
 


-----Original Message-----
From: Donald J Hahn via bivio.com <user*30377800001@bivio.com>
To: club_cafe@bivio.com
Sent: Wed, May 27, 2020 1:24 pm
Subject: [club_cafe] Selling stock but have one club member not participate?

Our club is considering selling some of our stock holdings
to capture the huge gains we have experienced.  One member
has a large AGI already for this year and having more
capital gains would increase his AGI.  While the capital
gains would be taxed at the 15% rate, the increase in AGI
would add a few thousand dollars in IRMAA penalty on his
Medicare premiums.  So, the question is "Can one member opt
out and be excluded from the club sale of some stock held by
the club?"  If yes, does that mean his ownership of units
in the club stays the same and no capital gains from the
club selling stock show up on his K-1?
The shares could be distributed to all partners, to be sold when they want, rather than being sold by the club.
On May 27, 2020 at 5:20 PM "SB via bivio.com" <user*1595500001@bivio.com> wrote:

One partner cannot 'opt out' of the gains. That partner can vote against the sale to try and stop the sale.

On Wed, May 27, 2020 at 4:25 PM Donald J Hahn via bivio.com <user* 30377800001@bivio.com> wrote:
Our club is considering selling some of our stock holdings
to capture the huge gains we have experienced.  One member
has a large AGI already for this year and having more
capital gains would increase his AGI.   While the capital
gains would be taxed at the 15% rate, the increase in AGI
would add a few thousand dollars in IRMAA penalty on his
Medicare premiums.   So, the question is "Can one member opt
out and be excluded from the club sale of some stock held by
the club?"   If yes, does that mean his ownership of units
in the club stays the same and no capital gains from the
club selling stock show up on his K-1?

 
That would create many more problems than it would solve. Since the distribution would be a partial withdrawal, each member receiving shares would receive the club's cost basis in the specific shares s/he received. Those getting the shares with the most appreciation would have the highest current tax liability (assuming the shares were sold) and those receiving the shares with the smallest appreciation would pay less tax currently. Note that these differences are not simply the proportional allocation of the overall gain for the stock.

Ira Smilovitz

On Wed, May 27, 2020 at 10:21 PM Bob Mann via bivio.com <user*12614800001@bivio.com> wrote:
The shares could be distributed to all partners, to be sold when they want, rather than being sold by the club.
On May 27, 2020 at 5:20 PM "SB via bivio.com" <user*1595500001@bivio.com> wrote:

One partner cannot 'opt out' of the gains. That partner can vote against the sale to try and stop the sale.

On Wed, May 27, 2020 at 4:25 PM Donald J Hahn via bivio.com <user* 30377800001@bivio.com> wrote:
Our club is considering selling some of our stock holdings
to capture the huge gains we have experienced. One member
has a large AGI already for this year and having more
capital gains would increase his AGI. While the capital
gains would be taxed at the 15% rate, the increase in AGI
would add a few thousand dollars in IRMAA penalty on his
Medicare premiums. So, the question is "Can one member opt
out and be excluded from the club sale of some stock held by
the club?" If yes, does that mean his ownership of units
in the club stays the same and no capital gains from the
club selling stock show up on his K-1?



On Wed, May 27, 2020 at 9:21 PM Bob Mann via bivio.com <user*12614800001@bivio.com> wrote:
The shares could be distributed to all partners, to be sold when they want, rather than being sold by the club.

True, but not a good choice. That would create a burden on all the other club members to maintain the correct basis in those shares distributed. Since it is treated as a partial withdrawal, it is not the basis the club paid, but the basis of each individual member in the club at the time of the partial withdrawal. Everyone will have a different basis, so the education and communication of the distribution will be very complicated.

Mark Eckman

Actually that is backwards. With a partial withdrawal of stock, the basis of the shares the members receive is the same as the clubs basis in the shares.

There can be many unintended consequences to partial withdrawal payouts with stock. You'd want to tread very lightly and make sure you really understood the ramifications to the club and to each member receiving shares if you went this way.

Here is a good overview of the tax consequences of different partial withdrawal payout options:

https://www.bivio.com/trez_talk/mail-thread?p=69429100003

Laurie Frederiksen
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www.bivio.com

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On Thu, May 28, 2020 at 9:36 AM Mark Eckman via bivio.com <user*24054700001@bivio.com> wrote:


On Wed, May 27, 2020 at 9:21 PM Bob Mann via bivio.com <user*12614800001@bivio.com> wrote:
The shares could be distributed to all partners, to be sold when they want, rather than being sold by the club.

True, but not a good choice. That would create a burden on all the other club members to maintain the correct basis in those shares distributed. Since it is treated as a partial withdrawal, it is not the basis the club paid, but the basis of each individual member in the club at the time of the partial withdrawal. Everyone will have a different basis, so the education and communication of the distribution will be very complicated.

Mark Eckman

https://www.bivio.com/trez_talk/mail-thread?p=69429100003

From the above posting, please clarify section 4 at paragraph 4 and the underlined statement:

The club issues appreciated stock to the member making the partial withdrawal. ... The cost basis of the transferred stock, plus any cash that is distributed, reduces the withdrawing member's remaining cost basis in the club, but it is not reduced below zero.

Is the underlined statement, in fact, only correct for IRS tax purposes? The withdrawing member's cost basis cannot be negative for IRS tax purposes, as any negative cost basis would effectively result in an accounting capital loss upon the the withdrawing member's future sale of the stock.

The withdrawing member's remaining cost basis can be negative in the club's capital account. The withdrawing member's negative cost basis in their capital account will remain negative, until further adjustments upon upon future partial or total withdrawals or club dissolution. To do otherwise would negatively impact the accounting for the other members' and their future distributions.


On 5/28/2020 9:47 AM, Laurie Frederiksen wrote:

Actually that is backwards. With a partial withdrawal of stock, the basis of the shares the members receive is the same as the clubs basis in the shares.

There can be many unintended consequences to partial withdrawal payouts with stock. You'd want to tread very lightly and make sure you really understood the ramifications to the club and to each member receiving shares if you went this way.

Here is a good overview of the tax consequences of different partial withdrawal payout options:

https://www.bivio.com/trez_talk/mail-thread?p=69429100003

Laurie Frederiksen
Invest with your friends!
www.bivio.com

Become our Facebook friend! www.facebook.com/bivio
Follow us on twitter! www.twitter.com/bivio
Follow Us on Google+

Click here to Subscribe to the Club Cafe email list. Click here to Unsubscribe


On Thu, May 28, 2020 at 9:36 AM Mark Eckman via bivio.com <user*24054700001@bivio.com> wrote:


On Wed, May 27, 2020 at 9:21 PM Bob Mann via bivio.com <user*12614800001@bivio.com> wrote:
The shares could be distributed to all partners, to be sold when they want, rather than being sold by the club.

True, but not a good choice. That would create a burden on all the other club members to maintain the correct basis in those shares distributed. Since it is treated as a partial withdrawal, it is not the basis the club paid, but the basis of each individual member in the club at the time of the partial withdrawal. Everyone will have a different basis, so the education and communication of the distribution will be very complicated.

Mark Eckman
We have a problem with selling stocks with huge gains. By the time everyone agrees to sell the gain turns into a loss. Everyone is hoping it would go up more.

On Thu, May 28, 2020 at 8:16 AM The Freemans via bivio.com <user*31166800001@bivio.com> wrote:

https://www.bivio.com/trez_talk/mail-thread?p=69429100003

From the above posting, please clarify section 4 at paragraph 4 and the underlined statement:

The club issues appreciated stock to the member making the partial withdrawal. ... The cost basis of the transferred stock, plus any cash that is distributed, reduces the withdrawing member's remaining cost basis in the club, but it is not reduced below zero.

Is the underlined statement, in fact, only correct for IRS tax purposes? The withdrawing member's cost basis cannot be negative for IRS tax purposes, as any negative cost basis would effectively result in an accounting capital loss upon the the withdrawing member's future sale of the stock.

The withdrawing member's remaining cost basis can be negative in the club's capital account. The withdrawing member's negative cost basis in their capital account will remain negative, until further adjustments upon upon future partial or total withdrawals or club dissolution. To do otherwise would negatively impact the accounting for the other members' and their future distributions.


On 5/28/2020 9:47 AM, Laurie Frederiksen wrote:

Actually that is backwards. With a partial withdrawal of stock, the basis of the shares the members receive is the same as the clubs basis in the shares.

There can be many unintended consequences to partial withdrawal payouts with stock. You'd want to tread very lightly and make sure you really understood the ramifications to the club and to each member receiving shares if you went this way.

Here is a good overview of the tax consequences of different partial withdrawal payout options:

https://www.bivio.com/trez_talk/mail-thread?p=69429100003

Laurie Frederiksen
Invest with your friends!
www.bivio.com

Become our Facebook friend! www.facebook.com/bivio
Follow us on twitter! www.twitter.com/bivio
Follow Us on Google+

Click here to Subscribe to the Club Cafe email list. Click here to Unsubscribe


On Thu, May 28, 2020 at 9:36 AM Mark Eckman via bivio.com <user*24054700001@bivio.com> wrote:


On Wed, May 27, 2020 at 9:21 PM Bob Mann via bivio.com <user*12614800001@bivio.com> wrote:
The shares could be distributed to all partners, to be sold when they want, rather than being sold by the club.

True, but not a good choice. That would create a burden on all the other club members to maintain the correct basis in those shares distributed. Since it is treated as a partial withdrawal, it is not the basis the club paid, but the basis of each individual member in the club at the time of the partial withdrawal. Everyone will have a different basis, so the education and communication of the distribution will be very complicated.

Mark Eckman

If the value of the cost basis of any transferred stock plus any cash that is distributed in a partial withdrawal is greater than a partners tax basis in the partnership, the member will have a taxable gain on the withdrawal that he will have to report on his personal taxes. Note that this calculation is done based on his tax basis in the partnership as of the end of the year.

The withdrawing member receives the shares with the clubs cost basis. There is no adjustment that would make that cost basis negative.

Because a member will recognize a gain if he receives value greater than his tax basis in the club, his tax basis capital account will never be valued less than 0. This does not affect other members tax basis accounts adversely. bivio reporting is showing tax basis capital account values.

Laurie Frederiksen
Invest with your friends!
www.bivio.com

Become our Facebook friend! www.facebook.com/bivio
Follow us on twitter! www.twitter.com/bivio
Follow Us on Google+

Click here to Subscribe to the Club Cafe email list. Click here to Unsubscribe


On Thu, May 28, 2020 at 11:16 AM The Freemans via bivio.com <user*31166800001@bivio.com> wrote:

https://www.bivio.com/trez_talk/mail-thread?p=69429100003

From the above posting, please clarify section 4 at paragraph 4 and the underlined statement:

The club issues appreciated stock to the member making the partial withdrawal. ... The cost basis of the transferred stock, plus any cash that is distributed, reduces the withdrawing member's remaining cost basis in the club, but it is not reduced below zero.

Is the underlined statement, in fact, only correct for IRS tax purposes? The withdrawing member's cost basis cannot be negative for IRS tax purposes, as any negative cost basis would effectively result in an accounting capital loss upon the the withdrawing member's future sale of the stock.

The withdrawing member's remaining cost basis can be negative in the club's capital account. The withdrawing member's negative cost basis in their capital account will remain negative, until further adjustments upon upon future partial or total withdrawals or club dissolution. To do otherwise would negatively impact the accounting for the other members' and their future distributions.