Club disbanding: understanding about transferring appreciated shares
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There are exceptions to the new basis reporting requirements for stocks which are transferred into a brokerage account. Most brokers will probably ask you for the cost basis and will accept without question whatever you tell them. (The burden of proof is ALWAYS on you, not the broker, should the IRS question anything.)
The name of the document is the withdrawal report. It shows any taxable gain/loss associated with the withdrawal and the cost basis for any securities transferred in the withdrawal.
Yes, the holding period includes the period that the stock was owned by the club.
Ira Smilovitz Join me at InvestEd 2011 In a message dated 03/28/11 12:06:43 Eastern Daylight Time, lindalee0@yahoo.com writes:
It's hard to believe I was going to be a math teacher until I failed college calculus. Switched to art. I now do analytical charts and illustrations for the GAO. This economics and taxes should be easy. I don't understand what has been written. I think it confuses me because there is not a withdrawing member. The club is disbanding. I may want to have my $7,653 transferred to me in Stryker and FDS Factset Research shares, since I own both of those stocks in my individual account anyway, and probably will not sell them. So now we come to disbanding. Here are the benefits of my Better Investing philosophy, a ton of hard work, and more than a ton of hours spent, after 15 years: 5,346.48 contributions since 05/01/1996 7,652.89 ending market value 04/06/2011 :( Average Annual Return = 4.8% 345.210016 units; 27.4% club ownership I kind of understand what Jim wrote: Jim wrote: [i]The remaining members do bear their share of the capital gain on the appreciated stock transferred to you (as Ira explained)….. snip… (WHEN) they withdraw from the club, at which time they will have a lower cost basis in the club (i.e., higher gain upon withdrawal) than they would have had if the stock transferred to you had been sold by the club. snip…. The withdrawing member gets to defer their gain upon leaving the club (which includes their share of the gain on the transferred stock) until they sell the transferred stock. The remaining members ….snip …. (WHEN) they each withdraw, at which time it will be included in their gain upon leaving the club.[/i] Lynn suggested a good idea that I might try and that my club might like: [i]I suggest you do a withdrawal taking it all in stocks, run a withdrawal report, then delete the withdrawal, just so you can study the report and feel comfortable that you are not getting more than your fair share of the gains. [/i] Ira, I could not understand what you wrote. Would you mind repeating it, specifically to a disbanding club where one or 2 members might want appreciated stock. With writing about a club with one member withdrawing, I couldn't make the translation to a disbanding club.... I have to be able to explain this to the club members, so I have to understand it. I think what you are saying is that when the club disbands, there will be cost basis for everyone and capital gains for everyone, calculated on the disbanding club. If I take my capital gains as transferred stock, the cap gains gets deferred until I sell the stock, and I have a new cost basis, which is not the same as the cost basis from when I was a member in the club. It does not matter when and if I sell the stock. At the time of the disbanding, bivio will calculate everybody's capital gains and cost basis, even based on that stock that is transferred to me. Because the other members are "withdrawing" this year too, their capital gains on the Stryker and FDS will be realized/taxed this year. Is this correct? It's hard to believe I was going to be a math teacher until I failed college calculus. Switched to art. I now do analytical charts and illustrations for the GAO. This economics and taxes should be easy. I don't understand what has been written. I think it confuses me because there is not a withdrawing member. The club is disbanding. I may want to have my $7,653 transferred to me in Stryker and FDS Factset Research shares, since I own both of those stocks in my individual account anyway, and probably will not sell them. So now we come to disbanding. Here are the benefits of my Better Investing philosophy, a ton of hard work, and more than a ton of hours spent, after 15 years: 5,346.48 contributions since 05/01/1996 7,652.89 ending market value 04/06/2011 :( Average Annual Return = 4.8% 345.210016 units; 27.4% club ownership I kind of understand what Jim wrote: Jim wrote: [i]The remaining members do bear their share of the capital gain on the appreciated stock transferred to you (as Ira explained)….. snip… (WHEN) they withdraw from the club, at which time they will have a lower cost basis in the club (i.e., higher gain upon withdrawal) than they would have had if the stock transferred to you had been sold by the club. snip…. The withdrawing member gets to defer their gain upon leaving the club (which includes their share of the gain on the transferred stock) until they sell the transferred stock. The remaining members ….snip …. (WHEN) they each withdraw, at which time it will be included in their gain upon leaving the club.[/i] Lynn suggested a good idea that I might try and that my club might like: [i]I suggest you do a withdrawal taking it all in stocks, run a withdrawal report, then delete the withdrawal, just so you can study the report and feel comfortable that you are not getting more than your fair share of the gains. [/i] Ira, I could not understand what you wrote. Would you mind repeating it, specifically to a disbanding club where one or 2 members might want appreciated stock. With writing about a club with one member withdrawing, I couldn't make the translation to a disbanding club.... I have to be able to explain this to the club members, so I have to understand it. I think what you are saying is that when the club disbands, there will be cost basis for everyone and capital gains for everyone, calculated on the disbanding club. If I take my capital gains as transferred stock, the cap gains gets deferred until I sell the stock, and I have a new cost basis, which is not the same as the cost basis from when I was a member in the club. It does not matter when and if I sell the stock. At the time of the disbanding, bivio will calculate everybody's capital gains and cost basis, even based on that stock that is transferred to me. Because the other members are "withdrawing" this year too, their capital gains on the Stryker and FDS will be realized/taxed this year. Is this correct? (OFF TOPIC: I was never the Treasurer. I was always the VP in charge of Education, a position I loved. I assisted the Treasurer for a year when: our Treasurer at that time left with 2 month's notice, along with 3 other withdrawing members, and the club had not taught anyone else to be assistant Treasurer. At the same time, she was using Club Accounting Online, and I was on a Mac, and the Treasurer (my sig. other Carol) was on a Mac. So Carol, as new Treasurer, within 2-3 months, had to withdraw 4 members, export the data from Club Accounting Online to Club Accounting PC (on our Virtual PC on my Mac), then import into bivio, and learn bivio. I'm the one with the computer skills. So I helped Carol co-Treasurer for a year.) Etana Dear Etana, When a club disbands, everyone is a withdrawing member. It just means that everyone is withdrawing assets. Each person receives their portion of the total value of the club. This includes unrealized gains on any of the stocks you still own. Each person gets club assets that total up to the value of their share of the club. As a member of a club, you have a capital interest in a partnership. It's value is the amount you receive when you disband. You will have a capital gain or loss which is the difference between your tax basis in the club and the amount you withdraw. One of the things bivio has been doing for you over the years is tracking your partnership tax basis Basically, it is the amount of all your contributions plus or minus the amounts that have been reported to you on K-1's over the years. When you withdraw, you will receive a report showing the capital gain or loss associated with your withdrawal. If you take cash when you withdraw, you will report the capital gain or loss in the year you receive the funds. If you take stock, your club tax basis is transferred to the shares of stock you receive. You can defer being taxed on any gain from your partnership distribution until you sell the shares. -- Laurie Frederiksen Invest with your friends! www.bivio.com Become our Facebook friend! www.facebook.com/bivio Follow us on twitter! www.twitter.com/bivio > I don't understand what has been written. I think it confuses me because > there is not a withdrawing member. The club is disbanding. < Disbanding a club is no different than fully withdrawing all members. Full withdrawals to disband are calculated no differently than a full withdrawal at any previous time. The reasons for getting paid in stock vs. cash (and taxation issues) are no different for full withdrawals due to disbanding vs. full withdrawals at any other time. (There are, of course, logistical issues unique to disbanding, such as making sure that the final withdrawal transactions are dated *after* all other transactions. For example, making sure all anticipated dividend payments and expenses have been entered and are dated prior to any of the disbanding withdrawals. And selling ASAP all stock that will not be transferred.) > I think what you are saying is that when the club disbands, there will be > cost basis for everyone and capital gains for everyone, calculated on the > disbanding club. If I take my capital gains as transferred stock, the cap > gains gets deferred until I sell the stock, ... < OK so far. > ... and I have a new cost basis, which is not the same as the cost basis > from when I was a member in the club. < Your *total* cost basis in any assets received due to your full withdrawal is the same as your cost basis at the last moment of your membership in the club. The method by which you are paid (cash or stock or both) does NOT affect your total cost basis upon withdrawal. Your cost basis in any transferred stock is your cost basis in the club when you withdraw, less any cash paid. > It does not matter when and if I sell the stock. < When you sell the transferred stock determines (1) the amount of your realized capital gain (or loss) and (2) when you report that gain/loss on your personal tax return. It's handled no differently than selling any other stock. > At the time of the disbanding, bivio will calculate everybody's capital > gains and cost basis, even based on that stock that is transferred to me. > < Remember, disbanding is just fully withdrawing everyone. How any individual club member gets paid (cash, or a mixture of cash and stock) makes no difference to the cost basis or capital gain upon withdrawal for that member or any other member. > Because the other members are "withdrawing" this year too, their capital > gains on the Stryker and FDS will be realized/taxed this year. < The other club members do not explicitly realize any capital gain on Stryker or FDS shares transferred to you. However, the other member's share of gain (or loss) on those stocks is "baked-into" their cost basis in the club so they will bear their appropriate share of the tax burden. At what time the other members realize their gains from withdrawing depends (just as it does for you) on whether they are paid in cash or stock. -Jim Thomas Sort of. Let's consider a member who does not get the Stryker or FDS shares. Immediately before any of the withdrawals are processed, she has a cost basis in the club and a current value in the club. The difference between those two values includes her share of the unrealized capital gains that the club has in the Stryker and FDS shares. If you take the shares as part of your withdrawal, nothing has changed with respect to her account. She still has the same tax basis and current value. If she withdraws immediately after you, her share of those gains will be part of the realized gain that will appear on her withdrawal report. it just won't be identified as coming from Stryker or FDS.
If, however, the club were to sell the shares and not transfer them to you, her current value would still not change (ignoring transaction costs associated with the sale). However, she would see her share of the capital gain reported on her K-1 AND her tax basis in the club would increase by the amount of gain reported on the K-1. As a result, the gain shown on her withdrawal report would be smaller by exactly the same amount as was reported on the K-1.
A disbanding club isn't any different from an ongoing club with a single withdrawal. It's just a club with lots of withdrawals in a very short time frame.
Ira Smilovitz Join me at InvestEd 2011 In a message dated 04/06/11 00:50:14 Eastern Daylight Time, etanafinkler@verizon.net writes:
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