Year end 'Distributions of Earnings' verses 'Allocations of Tax Liabilities'
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Year end 'Distributions of Earnings' verses 'Allocations of Tax Liabilities' Jimie makes some astute observations and asks
some very good questions....
During this past year, we were using
the NAIC accounting software and would just upload that information onto the
bivio site monthly to make it available for our members to see online. Time is
approaching for me (the treasurer) to distribute earnings on the NAIC program.
When I distribute the earnings on the NAIC program, the unit value is
reduced in proportion to the amount of units created through the
distribution. When I then upload the new information showing the
distributions onto bivio, how will bivio handle that?
bivio maintains the integrity of your imported
records. In other words, if your distribution was done within NAIC
Club Accounting (NCA), bivio will maintain those historic transactions in
the same manner as they were within NCA.
Wont it throw off our unit club value
since bivio "distributes" earnings as they occur?
Actually, bivio "distributes" earnings in the same
manner as does NCA. Both programs offer you an option to distribute
(allocate) earnings in a time-based (preferred) manner verses a snapshot or
non time-based manner. For more information on these two methodologies
please see...
https://www.bivio.com/hp/tax-allocation-methods.html
Therefore, in order to answer your question, bivio will not "throw off" the
number of units nor the unit value of your imported NCA data.
The difference between bivio and NCA is that,
unless a club has imported their NCA data with non time-based distribution
designated in the NCA parameters, in bivio a club can see the running total or
year to date allocation of taxable items realized by the club as of any
date. These values may be viewed on the Member
TaxAllocations Report . The beauty of this feature in bivio
is that each and every member of the club can view their year to date individual
tax consequences of club membership on an ongoing basis. Thus, there
should be no surprises when a club member receives their K-1 from the
club.
Basically, if the NAIC software results
in a lower unit value after distributions, will bivio have the same lower unit
value? Or is the current unit value shown on bivio
correct?
bivio will reflect the same unit value as was
reflected in your imported NCA data, it does not make changes to that
data.
Before I answer the second question, some
explanation is necessary.
NAIC Club Accounting "distributes" earnings and
makes corresponding adjustments to units held and unit values as though some
cash was actually disbursed to each member and then that cash
was immediately reinvested by each member. Obviously, this is
not the case.
In fact, what actually takes place is simply an
allocation of tax liabilities. In other words, each member is
allocated their appropriate share of any taxable liability realized by the
club during the tax year. Each member then reports this information on
their individual tax return. As a result of this year end
"distribution of earnings", each members cost basis in the club is
adjusted to reflect these taxable allocations since each member will have
already paid tax on that amount when they withdraw from the
club. For a bit more information, please see.... https://www.bivio.com/trez_talk/mail-msg?t=4143100003
Therefore, as far as partnerships are concerned,
there is absolutely no need to make any adjustment to unit values or units in
conjunction with this year end activity. The only required adjustment
that is required is the one made to each members cost basis.
Mutual funds, however, must treat their year end distributions as though
cash equal to the taxable allocations was distributed, even though most
investors have that cash automatically and immediately reinvested.
It appears that the methodology employed in NAIC Club Accounting is a
unnecessary attempt to mirror that mutual fund methodology.
Now, back to your last question.
Or is the current unit value shown on bivio correct?
bivio will not alter the methodology of historical year end
allocations (distributions) included with imported NCA data. Any
subsequent year end allocations (distributions) performed in bivio will be
done using the bivio methodology. In any case, the value of
the club as a whole and the value of each members account in the club will be
the same, regardless of which year end allocation (distribution) methodology is
employed.
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