Date of Withdrawal
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Date of Withdrawal Gerri P.
asks.......
If we had a member withdraw in November 2000,
but she didn't receive her check until January 2001. Should we as an
investment club report the withdrawal in 2000 or 2001. We reported in 2000
and closed our books, but the withdrawing member says that it should be
reported in 2001 because she had not received the money until 2001. Please
give me your suggestion.
Your withdrawing partner is correct. For income tax
purposes, the date of her withdrawal is the date that the check was written. She
will report the gain or loss on disposal of her partnership interest in the year
2001. Of course, she will still report her share of partnership taxable income,
as shown by the k-1s in 2000.
It sometimes becomes a little tricky to enter a withdrawal
based on a valuation in one year, and write the check in the following year.
With bivio, you are able to do this fairly easily, since you can have a
transaction date [when the check was written] different from the valuation date
[when the value of the payoff was determined]. In the NCA software, the
valuation date determines the transaction date. Therefore, you must wait until
the new year to enter the transaction. If this later valuation results in a
payoff figure different from the actual amount paid, you will have to adjust
your withdrawal fee for the difference, so that your withdrawal form agrees with
the amount actually paid.
This question comes up often. It is often triggered by
partnership agreements which allow a long waiting period [sometimes 90 days]
between the valuation date and the actual payoff date. To my mind, this is a bad
practice. I believe the period between the valuation date and the payoff date
should be as short as possible. Further, I believe it is unfair to have someone
remain a partner for 90 days and not share in the income/gains of the club for
that period.
This is just my personal opinion. Having said that,
however, for income tax purposes, the date of the payoff will determine the date
of withdrawal.
If you have any questions on this, please let us know.
Thanks for a very good question and for using bivio.
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