My personal experience with receiving stock when I resigned from my club.

The easiest and cleanest method for partners and treasurer is to sell all shares at one time, give partners cash all at one time. That's a whole lot smoother transaction and hours less bookkeeping / treasurer work. A long drawn out distribution of shares over time could be a nightmare and cause much disagreement over who gets what. Who gets the good ones? Who gets the dogs? Does everyone get some of each? What a bookkeeping nightmare. See? Already an argument just waiting to happen.

I resigned from my original club in 1999. I was given some cash and some dog stocks in that portfolio. I actually was given stock certificates, and had to deal with those. What a pain.

When I sold the last of those stocks 10 years later in 2009, I had the worst time finding my 1999 records of receiving those stocks to determine the stocks' cost basis for my tax return. It took me months and much wasted time evenings and weekends reviewing many files many times. I finally found my letter and close out statement from my old club in my 1999 tax return file - as that was when I reported the cash distribution I received. Just another reason not to be quick about shredding tax returns. Meanwhile, I had changed financial planners twice, had moved twice, had household goods and files in storage, and had two deaths and a divorce in my immediate family.

Cash would have been so much easier and cleaner.

Cash will be a one and done tax issue for your partners.

Think long and hard about why partners want a stock distribution. Merely to save the sales commission? If partners like certain stocks, they can invest the cash in those equities themselves and more easily establish a cost basis that they can track in the future (rather than, years later, trying to find some missing / lost letter from a disbanded club). The cost basis for tax purposes is the cost basis, whether the stock is transferred or purchased.

From my personal experience and about 13 years in three clubs, I recommend that partners choose a date to disband, sell the entire portfolio, close the brokerage account, and distribute cash to partners. Do this in spring or summer, so that books can be balanced, all accounts closed, funds distributed, 1065 k-1 forms prepared, and whatever else is required - well before the year end. You DO NOT want this disbanding to drag across tax years, as that will require a 1065 k-1 once again in the next year! More treasurer work.

We will be curious to hear what the partners of this club decide and why.

Liz:

It is NOT advisable to distribute shares to members as a partial distribution. Share distributions should only be done when a member is making a full withdrawal from the club.

When shares are distributed during a full withdrawal, the departing member's tax basis in the shares is a function of the member's basis in the units of the partnership that the member owns. The software will calculate that basis during the withdrawal process without difficulty to the treasurer.

When shares are transferred during a partial withdrawal, the rules for calculating tax basis are completely different and require a lot of manual calculations which will be problematic for the club and member.

Keep it simple: cash only for partial withdraws; only transfer shares for full withdrawals.

Jack Ranby, Treasurer

Grants Partners Investment Club