Fees - Once More Into the Fray
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Fees - Once More Into the Fray Entering members' fees continues
to create confusion for club treasurers. Although we have written other columns
on this subject, I am going to try, once more, to shed some light on this
difficult topic. We are talking, here, about fee
assessments against members, which will be entered in the member section of
bivio accounting. Fee assessments do not buy units,
but are added to the contributing member's tax basis. As a result, any member's
fee assessment, results in an increase in value for
all members of the club. A fee assessment may be
against on single member for a penalty, such as a late fee, or it may be a
general assessment against all members in an attempt to distribute the burden
for certain administrative expenses equally.
Let's take the latter case first. Suppose that a club
wishes to purchase some software to analyze stocks. The members decide that this
expense should be borne equally by all members of the club. To do this, the club
assesses a fee of $20 against each member, and then
issues a check for the $200 expense. After this has been posted, it can be seen
that each member paid in $20, and each member is worth the exact same amount as
before the fee and expense were posted, thus showing that the economic burden of
this expense has been borne equally by each member. Note that there is nothing
wrong with the club deciding that this expense should be borne by the members in
the ratio of each member's ownership. In that case, members'
payments, not fees would be
used.
Now, take the case of a late fee
being charged to a member. To record this penalty, use member
fees to enter the contribution. The offending member's
basis will be increased, all members' values will be increased, and
no taxable income will be recorded.
Suppose, also, that a member makes a regular payment of
$50, but the bank returns the check because there were insufficient funds in the
account. In addition, the bank charges the club $27 for the inconvenience of
bouncing the check. After the member has deposited more money in his/her
personal account, the check should be redeposited. No entry need be made for
this part of the transaction, since the member has already been credited
for the payment. Alternatively, the treasurer could enter a negative
payment on the original payment date in the amount of the bounced check, and
then enter a new payment on the date the check is resubmitted to the bank. That
covers the bounced check, but we still must deal with the $27 charge
by the bank. In this case, we should collect the $27 from the offending
partner, and enter it as a fee. The receipt of this
fee will cause every member's value to increase. No
income will be reported as a result of the receipt of this amount. The bank
charge of $27 should be entered as a cash transaction, and will result in an
expense to the club, to be shared by all members. So, the members' values are
increased by virtue of the receipt of the fee from the
member, and are decreased as a result of recording the bank charge.
Another use of fees is to record the charge the NAIC
makes to a club for each of its members. For instance, a club of 10 people might
pay NAIC $180 for the annual charge, consisting of $40 for the club and $14 for
each member. Many clubs would assess each member a fee
of $14, which would spread the economic burden for that charge
equally among the members.
I hope that this column will shed some light on the
fees question. Other columns on the subject
are:
Fees and Administrative
Expenses
Payments vs
fees
There is also the matter of withdrawal fees, when a member
leaves. Withdrawal fees are a different subject altogether. They are not entered
under Members|Fees, but are shown on the withdrawal
form when a member leaves. These fees are merely deducted from the amount that
otherwise would be paid to the departing partner.
I can always hope that this is the definitive statement on
fees, and I will never be called upon again to talk on
the subject, but somehow .....................
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