If an investment club meets the following criteria, it will be exempt from the $150 per owner annual partnership filing fee and from the requirement that a partnership make payments on behalf of its nonresident owners. The investment club must be an entity that is classified as a partnership for federal income tax purposes, all of the owners are individuals, and all of the assets are securities, cash, or cash equivalents. The market value of the total assets do not exceed, as measured on the last day of its privilege period, an amount equal to the lesser of $358,000 or $50,200 per owner of the entity. The investment club is not required to register itself or its membership interests with the federal Securities and Exchange Commission.

All:

I have a question about the investment club exception for partnership filing fees in New Jersey.

New Jersey Rev Stat § 54A:8-6 requires a partnership with New Jersey resident partners to file a NJ-1065 partnership return, even if the partnership operates in another state and derives no income in New Jersey. N.J. Admin Code § 18:35-11.2 imposes a $150 filing fee for each NJ resident partner, unless the partnership is an investment club.

The 2020 NJ-1065 partnership return instructions provide this exception for investment clubs:

If an investment club meets the following criteria, it will be exempt from the $150 per owner annual partnership filing fee and from the requirement that a partnership make payments on behalf of its nonresident owners. The investment club must be an entity that is classified as a partnership for federal income tax purposes, all of the owners are individuals, and all of the assets are securities, cash, or cash equivalents. The market value of the total assets do not exceed, as measured on the last day of its privilege period, an amount equal to the lesser of $358,000 or $50,200 per owner of the entity. The investment club is not required to register itself or its membership interests with the federal Securities and Exchange Commission.

Does anyone have any thoughts on how the $50,200 in assets per owner in the instructions is calculated? I can't find any explanation in the NJ Code. For example, hypothetically, if a club has assets of $400,000 it exceeds the $358,000 investment club threshold. But with 20 members, is the value of the assets $20,000 per owner (regardless of actual percentage of shares held by each member)? Would this be a reasonable interpretation of the instruction to avoid having to pay the filing fees?

Thanks in advance for your thoughts.

Ty Hughes | 571-382-0700

Who Must File

Every partnership that has income or loss derived from sources in the State of New Jersey, or has any type of New Jersey resident partner, must file Form NJ-1065. A partnership must file even if its principal place of business is outside the State of New Jersey.

Ira:

Thanks for your reply.

The club is based in Virginia and derives no income from NJ. However, two of our 20 members are NJ residents.

The NJ-1065 instructions for 2020 say:

Who Must File

Every partnership that has income or loss derived from sources in the State of New Jersey, or has any type of New Jersey resident partner, must file Form NJ-1065. A partnership must file even if its principal place of business is outside the State of New Jersey.

Similar language appears in NJ Rev Stat § 54A:8-6. So I think we have to file because two of our partners are NJ residents.

NJ Tax Bulletin from 2016 that says "Partnership is an Investment Club. If the partnership meets the definition of "investment club" (see below), the partnership is exempt from payment of filing fees.

Why wouldn't the average per member value apply here? That would put us within the investment club exemption. I can't find any NJ guidance on this point.

Best regards,

Ty H.

On Jan 25, 2021, at 8:15 PM, ira smilovitz via bivio.com <user*2883400001@bivio.com> wrote:

Ty,

Where is the club based? The NJ Partnership Filing Fee only applies to NJ partnerships and/or non-NJ partnerships that have NJ-source income.

If you have 20 members, and are NJ-based, the threshold for the NJ Partnership Filing Fee is the lesser of $358,000 or 20 * 50,200 = $1,004,000. Since $400,000 is more than $358,000 you are subject to the NJ filing fee. (The average per member test is meant to capture small partnerships [seven or fewer members] that have large "per partner" valuations.) That said, the filing fee is only applicable to partners that have nexus with NJ. That would be any member who is a resident of NJ and any other members who have business or other tax ties (eg. ownership of NJ real estate) to NJ. You wouldn't have to pay the filing fee for all 20 members if they didn't all have nexus to NJ.

If you want a detailed analysis of your club's obligations under NJ tax law, please contact support directly.

Ira Smilovitz, EA

On Mon, Jan 25, 2021 at 4:33 PM Ty Hughes via bivio.com <user*3139700001@bivio.com> wrote:

All:

I have a question about the investment club exception for partnership filing fees in New Jersey.

New Jersey Rev Stat § 54A:8-6 requires a partnership with New Jersey resident partners to file a NJ-1065 partnership return, even if the partnership operates in another state and derives no income in New Jersey. N.J. Admin Code § 18:35-11.2 imposes a $150 filing fee for each NJ resident partner, unless the partnership is an investment club.

The 2020 NJ-1065 partnership return instructions provide this exception for investment clubs:

If an investment club meets the following criteria, it will be exempt from the $150 per owner annual partnership filing fee and from the requirement that a partnership make payments on behalf of its nonresident owners. The investment club must be an entity that is classified as a partnership for federal income tax purposes, all of the owners are individuals, and all of the assets are securities, cash, or cash equivalents. The market value of the total assets do not exceed, as measured on the last day of its privilege period, an amount equal to the lesser of $358,000 or $50,200 per owner of the entity. The investment club is not required to register itself or its membership interests with the federal Securities and Exchange Commission.

Does anyone have any thoughts on how the $50,200 in assets per owner in the instructions is calculated? I can't find any explanation in the NJ Code. For example, hypothetically, if a club has assets of $400,000 it exceeds the $358,000 investment club threshold. But with 20 members, is the value of the assets $20,000 per owner (regardless of actual percentage of shares held by each member)? Would this be a reasonable interpretation of the instruction to avoid having to pay the filing fees?

Thanks in advance for your thoughts.

Ty Hughes | 571-382-0700

All:

I have a question about the investment club exception for partnership filing fees in New Jersey.

New Jersey Rev Stat § 54A:8-6 requires a partnership with New Jersey resident partners to file a NJ-1065 partnership return, even if the partnership operates in another state and derives no income in New Jersey. N.J. Admin Code § 18:35-11.2 imposes a $150 filing fee for each NJ resident partner, unless the partnership is an investment club.

The 2020 NJ-1065 partnership return instructions provide this exception for investment clubs:

If an investment club meets the following criteria, it will be exempt from the $150 per owner annual partnership filing fee and from the requirement that a partnership make payments on behalf of its nonresident owners. The investment club must be an entity that is classified as a partnership for federal income tax purposes, all of the owners are individuals, and all of the assets are securities, cash, or cash equivalents. The market value of the total assets do not exceed, as measured on the last day of its privilege period, an amount equal to the lesser of $358,000 or $50,200 per owner of the entity. The investment club is not required to register itself or its membership interests with the federal Securities and Exchange Commission.

Does anyone have any thoughts on how the $50,200 in assets per owner in the instructions is calculated? I can't find any explanation in the NJ Code. For example, hypothetically, if a club has assets of $400,000 it exceeds the $358,000 investment club threshold. But with 20 members, is the value of the assets $20,000 per owner (regardless of actual percentage of shares held by each member)? Would this be a reasonable interpretation of the instruction to avoid having to pay the filing fees?

Thanks in advance for your thoughts.

Ty Hughes | 571-382-0700

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