IRS Audit

Thomas W. Wagoner on

One of our members (actually two, a husband and wife) have
received a letter from the IRS indicating that they have
been selected at random for a compliance research
examination. Among the documents requested are printed
copies of their K-1's (no problem) along with "calculations
of your partnership basis for the years 2013 and 2014". Is
there a bivio report that would satisfy that request?
As club treasurer I feel responsible for supplying anything
that would help them at the audit, but at the same time,
since the club is a separate entity, why should we have to
provide anything but the K-1. The club is not being
audited.
Any suggestions or help would be appreciated.

Laurie Frederiksen on

The members tax basis for 2013 would be calculated as follows:

1. Their tax basis as of the end of 2012 (shown on a Member status report for 12/31/2012)

2. Plus any member payments and minus any withdrawals made during 2013 (shown in the "Paid since" column on a member status report dated from 1/1/2013 to 12/31/2013)

3. Plus their total earnings allocated during 2013. (Shown on a Tax allocations report for 2013)

The calculations above should equal the Tax basis shown on a 12/31/2013 member status report.

Similar calculations would be done to generate the tax basis for 2014.

If you invest in any capital asset (which your investment club investment is) it is important to keep track of your basis in the investment. bivio does this for you. If you belonged to some other type of partnership, you might have an accountant that does it for you.

It is not something that is required to be on the K-1, but it is something that you need to prove is correct if you are questioned on any gain/loss you do or do not report when you withdraw funds from your club.

In a compliance audit, everything related to someones taxes must be proven. If you've been doing your accounting correctly in bivio, you'll have the proof they need.

Laurie Frederiksen
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Thomas W. Wagoner on

Thanks - I have assembled the documents and sent them along
to the member. I will update this thread with the tale of
the audit experience and the result.

Laurie Frederiksen on

Thanks. It will be interesting to hear about their experience.

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