Another Club closing question
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Another Club closing question Our club is now discussing the order and process for closing. One Bivio member suggested withdrawing several members at a time. If we do this, is there a reason why the treasurer would have to be the last withdrawal? Barbara: At the end of a partnership's life, there needs to be at least two partners (it is no longer a partnership if there is only one person), and one or more partners capable of: 1. authorizing the broker to transfer stock and to sign checks disbursing cash, 2. Have access to bivio to access accounting records and the tax preparation software, 3. able to prepare the minutes of the final meeting documenting the vote to dissolve the partnership, and 4. capable and willing to prepare the final federal and state tax returns, and any notice to the state that the partnership is dissolved (if required by the state where the partnership is resident). Whether these tasks are assigned to one partner or several and what their titles are is not significant. Although to avoid questions, I would have one of the partners be called President and one called Secretary-Treasurer. If the partner currently called "Treasurer" performs some of these tasks and wants out earlier than the final dissolution, then another partner will need to take responsibility for these tasks. If the partner currently performing these tasks is willing to continue doing them after becoming a non-partner, then whether that is permitted falls under the adage "You can delegate tasks but not responsibility." So, I see no reason a former partner could not "assist" a partner with the planning and preparation of dissolution documents and tax returns so long as the partner is the one who officially executes the actions. Based on the usual size of an investment club, I don't believe performing the full withdrawal of all partners at once is that burdensome. However, when the withdrawals are in the latter part of the year, I would plan a final shut down about 15-20 December so I will receive the 1099s from the broker before the Partnership tax return is due. But if some partners want out sooner, I would complete their final withdrawal in accordance with the timing in your partnership agreement. However, I would make a deal with at least one partner to remain until December so the two of us still constitute a partnership. I am sure lots of clubs have shut down during the year and filled a short-year final tax return without issues, so waiting for December is just me when there have been many transactions and there is the possibility for disbursements to shareholders to be reclassified from non-qualified to qualified dividends or to return of capital if the company has insufficient income to treat the disbursement as a dividend. Having the 1099s in hand when completing the tax returns just reduces the chances of having to file amended returns. Cheers, Jack Before you file your final tax return, you need to make sure all interest and dividends are included. You need that for accurate payout numbers. It is possible that by waiting until December, you may receive dividends in 2026. They will not be reported on your 2025 tax return. How will you handle this. Will you need to pay for another year of Bivio for the tax program?
I have been convinced to not do partial withdrawals for some members. If we have members go out 2-3 at a time, taking mostly stock shares, will these members still share the tax burden when the K-1's are completed in 2026? i.e. Does the order matter if some take stock and some take all cash? Maybe the software figures this all out? We don't want the treasurer overwhelmed. The simple answer is that the software figures everything out. In the final year of any members' tenure in the club, their total capital gain will consist of the gains reported on their final K-1 and the gain reported on their withdrawal report. Regardless of the order of processing the withdrawals, the total capital gain for any single member will always be constant. Changing the order of processing may move some of the capital gain between the K-1 and the withdrawal report, depending on the timing of any stock sales relative to the withdrawal processing date. If you submit your question to support@bivio.com, they will provide you with a fuller explanation. Ira Smilovitz I have been convinced to not do partial withdrawals for some Sharon: Your concern is easily avoided. Sell or transfer any security scheduled to pay its dividend in January before the ex-dividend date. When you complete the final transfers to complete the dissolution, transfer remaining cash via ACH or checks issued by the broker so all accounts are closed in December and cannot accrue interest payable in January. Dissolving earlier in the year and filing a partial year tax return without the benefit of the 1099s runs the risk of having to file an amended return. Your choice of which risk you feel more comfortable assuming. Cheers, Jack Ira: Please confirm the accuracy of the following: If the partnership is being dissolved by the withdrawal of all partners, there is no reason to transfer stock. Provided all appreciated stock lots owned by the club are long term, having the club sell them and divvying up the tax burden through the K-1 is the same result to the partners as thorough the withdrawal report. Transferring stock classified as short-term gain causes the gain to be long-term based on the holding period of the receiving partner in the partnership. I am not sure whether the stepped-up basis carries over the partnership's holding period or starts a new one. Transferring appreciated stock is appropriate only when less than all partners are departing in the same year so that partners remaining for future years are not subject to capital gains on the stock that otherwise would be sold to raise cash in the year the other partners leave. Cheers, Jack Jack, Transferring appreciated stock is always an appropriate approach, regardless of the number of members withdrawing. The logic of your first paragraph is accurate, assuming that the withdrawing members will immediately sell any shares they receive. In that scenario, you are correct that the only effect is to shift the capital gains between the K-1 and the withdrawal report, specifically to the sale of the received shares immediately after receipt. The cost basis adjustments on the withdrawal report ensure that the member only pays capital gains tax on their actual share of the gains in the stock received and their share of the gains from all other stocks distributed to other members. However, the withdrawing member can decide to retain the shares received, thereby deferring tax until a future year when they sell the shares. This can be done at once or spread over time, whatever best suits their tax planning strategy. Selling the shares before processing the withdrawals forces the members to recognize the gain this year. As an aside, I believe that the holding period of any stocks received includes any holding period of the club in those shares, regardless of the member's time of tenure in the club. Ira Smilovitz On Sun, Jul 20, 2025 at 5:48 PM John W Ranby Trustee PGM Cariboo Trust via bivio.com <user*15792700001@bivio.com> wrote: Ira: |
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