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Disbanding Your Investment Club

If your club is disbanding you need to follow this process:

  1. Develop your plan

    Start to decide whether you are going to sell all of your stocks or transfer them to your members. There can be tax advantages to transferring appreciated stock to withdrawing members but it is a very complex process to do correctly. Make sure you know that you will do it correctly before you give anyone anything.

    If you are going to transfer stocks, your members should open accounts with your club brokerage firm.

    Do not distribute any of your assets until you have completed the steps below. There may be wrap-up transactions that will affect the value of what each person is owed. If you make distributions too early, it will be difficult to impossible to try and correct any mistakes.

    It is best to develop a full plan of what steps will be taken and what will be distributed when before completing your distributions.

  2. Wait for Final Dividends, Income and Expenses

    If you have stocks that you are selling that pay dividends, wait until all the dividends are received and recorded in your club records. This can take a couple of months. If you will be transferring stocks, make sure you have accounted correctly for all dividends that the club will still be receiving, even after the transfers have been made.

    To determine when you may have dividends coming in, look up your stocks on www.dividendinvestor.com If you owned a stock on the ex-dividend date, you will be receiving another dividend from it. You cannot close down your club completely until all your dividends are received.

    This becomes especially important if you are disbanding near the end of the year. If you will receive dividends in the following calendar year you will need to file both current year taxes and a final, short year tax return for the following calendar year.

    Sell any shares of stock you have a loss in and/or you have decided not to transfer to members.

    Enter all final expenses.

  3. AUDIT YOUR RECORDS

    Do a final audit of your club records. If you have sold stocks, make sure your bivio capital gains and losses report agrees with a realized gain/loss report you get from your broker. Without correct records, any payouts you determine from bivio will not be right. You do not want to find that out after you've made them.

    This form (with appropriate adjustments depending on the tax year in question) will guide you through the checks you need to do to ensure your records are correct: Audit Form

  4. Enter Withdrawals for All Members

    Once all entries are made and all records are reconciled, you must enter Full Member Withdrawal transactions using the Withdraw button you'll find if you go to Accounting>Members. Choose a valuation date that is later than the date on the final transaction in your account. All members must have full withdrawal entries made for them in order for you to prepare a final tax return.

    If you are transferring stocks to members, make sure to identify the specific lots that will go to each member. Use the withdrawal report generated to tell your broker exactly which lots to go which members.

    Note that there is a screen in the withdrawal process that asks if you wish to continue to let a withdrawn member have access to the club account. If you would like to have your members have access to their tax forms online, be sure to check the correct response.

  5. Payout Your Members

    Do not do this until you have done the preceding steps. You need to know your accounting is accurate and you need to have determined correct payouts by entering withdrawals for each member.

  6. Prepare Your Final Tax Return

    Complete the partnership tax interview. If the year is not over you will be filing a partial year return. You will be using the previous years tax forms but will find the link to prepare the partial year form under the current year.

    Your final tax return is due on the 15th day of the 3rd month following your month of termination. The IRS has not defined the exact date of termination, but we feel you are safe in choosing the date of the sale or transfer of your last security. If you need to file a return before the year has ended, the short period return will be generated on last year's tax forms with this year's data.

    The ability to prepare partial year returns is made available sometime in May or June, after clubs have finished filing their previous year tax returns. It remains available only until the end of the current year. So, for example, the ability to prepare partial year 2013 returns on 2012 forms was available from when the program was released in May of 2013 to Dec. 31 of 2013.

    Once it's ready, it's easy to use. After all your member withdrawals have been entered, go to Accounting>Taxes and select the year you're preparing the partial year return for from the year drop down box.

    Note We cannot generate partial year returns for the state tax forms. If your state requires them, you will have to fill in and file them manually. We also offer a service you can make use of if you'd like to have them prepared for you. You can find out more about it here: State Tax Filing Option

  7. Distribute Tax Forms

    Download the tax forms for your club's final tax return. Send all tax forms in to the IRS and distribute each members K-1 to him or her. If all of your members are withdrawn, bivio will mark your return as "final."

    Club members need to save their K-1 forms to use to prepare their individual returns when they file at the normal time after the first of the year. They should also receive withdrawal reports which will contain additional capital gain or loss information they need to include on their taxes.

We will keep a backup of your club files and accounting data for 7 years from the date your final subscription expires. You can also save your information outside of bivio by exporting your club data in an open XML format file and by saving copies of any tax filings you prepared in bivio (along with pertinent information) as PDF files or paper copies.

We have really appreciated your business and we hope to be able to help you again sometime in the future.

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