Our club, Mt. Ararat, typically pays a withdrawing member
with stock as discussed on this list a number of times. We
did that again last June. The former member has asked a
question about her cost basis that I cannot answer with any
specificity. Can any of you shed more light on the
difference between the "Club's Cost Basis" and the "Member's
Adjusted Cost Basis" on the withdrawal report? (Her adjusted
cost basis is less than the club's.) How might a withdrawn
member utilize the adjusted cost basis? Our club's broker
reported the club's cost basis to the withdrawn member's
broker, and the member-broker refuses to accept anything but
the club-broker's transferred cost information. When our
former member sells the stock, does she use the club's cost
basis or the adjusted cost basis? Is it up to her accountant
to make an adjustment?
Thanks in advance for any knowledge you can share.
Pat Essex
Paul Madison on
Hi Patricia,
Yes this is an area that can easily be confusing. Let me see if I can help and I am sure others will join in if I mis-speak.
As a partner in the investment club you have a tax basis in the club. This tax basis amounts to not only the money that you put into the club but also your portion of realized gains (or losses) and income that the club has had on stocks. This income gets reported on your annual club federal tax submission and each member receives a K-1 which shows their portion of the overall clubs gains, losses, dividend & interest. This much should be known and understood by everyone in the club.
When a member leaves and receives stock for their portion of ownership of the partnership, their tax basis in the partnership becomes their basis in the stock received. The clubs original tax basis in the stock is no longer relevant.
The confusing part of this is that the broker's now have to report cost basis to the IRS and thus make sure that they keep track of it correctly. Since the brokers are not keeping the partnership accounting (that is what we use bivio for) the only basis they can track and report is the club's tax basis. The brokers will not or cannot change that basis just because someone calls and tells them that the cost basis is something different.
However when doing their taxes, the departing member should use the adjusted cost basis to correctly report the gain (or loss) to the IRS. This will be a discrepancy from what the broker shows but it is the correct thing to do. The member should retain the withdrawal report as documentation of where the adjusted cost basis came from and of course share it with their accountant if they are doing the member's taxes. Sometimes the correct information is different than what the broker's report and it is important for the investor to report what they know to be correct. In this case we know bivio is doing our partnership accounting correctly and so it should be the source for what is reported.
On Mon, Mar 2, 2015 at 11:41 AM, PATRICIA ESSEX <pessex@bgsu.edu> wrote:
Our club, Mt. Ararat, typically pays a withdrawing member
with stock as discussed on this list a number of times. We
did that again last June. The former member has asked a
question about her cost basis that I cannot answer with any
specificity. Can any of you shed more light on the
difference between the "Club's Cost Basis" and the "Member's
Adjusted Cost Basis" on the withdrawal report? (Her adjusted
cost basis is less than the club's.) How might a withdrawn
member utilize the adjusted cost basis? Our club's broker
reported the club's cost basis to the withdrawn member's
broker, and the member-broker refuses to accept anything but
the club-broker's transferred cost information. When our
former member sells the stock, does she use the club's cost
basis or the adjusted cost basis? Is it up to her accountant
to make an adjustment?
Thanks in advance for any knowledge you can share.
Pat Essex
ira smilovitz on
Paul is correct, but I must emphasize that his explanation only applies when a member completely withdraws from a club.
If the member only takes a partial withdrawal (that is, continues his/her membership in the club), s/he receives the club's cost basis in any transferred shares. This can distort the timing of when that member may have to pay taxes on any gains.
Ira Smilovitz
On Mon, Mar 2, 2015 at 12:20 PM, Paul Madison <madispa@gmail.com> wrote:
Hi Patricia,
Yes this is an area that can easily be confusing. Let me see if I can help and I am sure others will join in if I mis-speak.
As a partner in the investment club you have a tax basis in the club. This tax basis amounts to not only the money that you put into the club but also your portion of realized gains (or losses) and income that the club has had on stocks. This income gets reported on your annual club federal tax submission and each member receives a K-1 which shows their portion of the overall clubs gains, losses, dividend & interest. This much should be known and understood by everyone in the club.
When a member leaves and receives stock for their portion of ownership of the partnership, their tax basis in the partnership becomes their basis in the stock received. The clubs original tax basis in the stock is no longer relevant.
The confusing part of this is that the broker's now have to report cost basis to the IRS and thus make sure that they keep track of it correctly. Since the brokers are not keeping the partnership accounting (that is what we use bivio for) the only basis they can track and report is the club's tax basis. The brokers will not or cannot change that basis just because someone calls and tells them that the cost basis is something different.
However when doing their taxes, the departing member should use the adjusted cost basis to correctly report the gain (or loss) to the IRS. This will be a discrepancy from what the broker shows but it is the correct thing to do. The member should retain the withdrawal report as documentation of where the adjusted cost basis came from and of course share it with their accountant if they are doing the member's taxes. Sometimes the correct information is different than what the broker's report and it is important for the investor to report what they know to be correct. In this case we know bivio is doing our partnership accounting correctly and so it should be the source for what is reported.
On Mon, Mar 2, 2015 at 11:41 AM, PATRICIA ESSEX <pessex@bgsu.edu> wrote:
Our club, Mt. Ararat, typically pays a withdrawing member
with stock as discussed on this list a number of times. We
did that again last June. The former member has asked a
question about her cost basis that I cannot answer with any
specificity. Can any of you shed more light on the
difference between the "Club's Cost Basis" and the "Member's
Adjusted Cost Basis" on the withdrawal report? (Her adjusted
cost basis is less than the club's.) How might a withdrawn
member utilize the adjusted cost basis? Our club's broker
reported the club's cost basis to the withdrawn member's
broker, and the member-broker refuses to accept anything but
the club-broker's transferred cost information. When our
former member sells the stock, does she use the club's cost
basis or the adjusted cost basis? Is it up to her accountant
to make an adjustment?
Thanks in advance for any knowledge you can share.
Pat Essex
Patricia Ann Essex on
This was a full withdrawal; we use cash for partial withdrawals.
Great to know that help is so close at hand! Thank you both.
Paul is correct, but I must emphasize that his explanation only applies when a member completely withdraws from a club.
If the member only takes a partial withdrawal (that is, continues his/her membership in the club), s/he receives the club's cost basis in any transferred shares. This can distort the timing of when that member may have to pay taxes on any gains.
Ira Smilovitz
On Mon, Mar 2, 2015 at 12:20 PM, Paul Madison
<madispa@gmail.com> wrote:
Hi Patricia,
Yes this is an area that can easily be confusing. Let me see if I can help and I am sure others will join in if I mis-speak.
As a partner in the investment club you have a tax basis in the club. This tax basis amounts to not only the money that you put into the club but also your portion of realized gains (or losses) and income that the club has had on stocks. This income
gets reported on your annual club federal tax submission and each member receives a K-1 which shows their portion of the overall clubs gains, losses, dividend & interest. This much should be known and understood by everyone in the club.
When a member leaves and receives stock for their portion of ownership of the partnership, their tax basis in the partnership becomes their basis in the stock received. The clubs original tax basis in the stock is no longer relevant.
The confusing part of this is that the broker's now have to report cost basis to the IRS and thus make sure that they keep track of it correctly. Since the brokers are not keeping the partnership accounting (that is what we use bivio for) the only basis
they can track and report is the club's tax basis. The brokers will not or cannot change that basis just because someone calls and tells them that the cost basis is something different.
However when doing their taxes, the departing member should use the adjusted cost basis to correctly report the gain (or loss) to the IRS. This will be a discrepancy from what the broker shows but it is the correct thing to do. The member should retain
the withdrawal report as documentation of where the adjusted cost basis came from and of course share it with their accountant if they are doing the member's taxes. Sometimes the correct information is different than what the broker's report and it is important
for the investor to report what they know to be correct. In this case we know bivio is doing our partnership accounting correctly and so it should be the source for what is reported.
On Mon, Mar 2, 2015 at 11:41 AM, PATRICIA ESSEX
<pessex@bgsu.edu> wrote:
Our club, Mt. Ararat, typically pays a withdrawing member
with stock as discussed on this list a number of times. We
did that again last June. The former member has asked a
question about her cost basis that I cannot answer with any
specificity. Can any of you shed more light on the
difference between the "Club's Cost Basis" and the "Member's
Adjusted Cost Basis" on the withdrawal report? (Her adjusted
cost basis is less than the club's.) How might a withdrawn
member utilize the adjusted cost basis? Our club's broker
reported the club's cost basis to the withdrawn member's
broker, and the member-broker refuses to accept anything but
the club-broker's transferred cost information. When our
former member sells the stock, does she use the club's cost
basis or the adjusted cost basis? Is it up to her accountant
to make an adjustment?
Thanks in advance for any knowledge you can share.
Pat Essex