Need help dissolving a group
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Need help dissolving a group Hello, Cindy Relick here from ChickPicks. I'm the newly elected treasurer and we are looking to dissolve our group. I know we can 1. transfer stock to each member or 2. cash out everything and cut checks to the group My concern is that we have 8 members and one of them joined 6 months ago and has very little. The group is leaning towards selling all the stock and cutting each member a check. My goal is that this latest member is not subject to a capitol gain obligation that exceeds her contributions. A quick call would be appreciated. I've read lots of online "instructions" and still have questions. Thank you so much, Cindy
Cindy,
if the club's NAV went up since she joined she'll have a potential capital gain, and if down a capital loss. If she gets mostly shares, she can sell them at her leisure and decide when she wants to lock in the gain/loss. If she gets cash, she'll get the gain/loss in 2021. It's that simple.
Bob Mann
It doesn't matter which method you choose. Each member will pay their proportionate share of capital gains either way. If you sell first and distribute cash, there will be more CG reported on Schedule K-1 and less gain reported on the withdrawal report. If you distribute shares, there will be no gain from the shares that were distributed on the K-1. The gain reported on the withdrawal report will be minimal (possibly $0), and all of the CG will be deferred until each member sells the shares that were distributed to them. Each member's total CG after all the shares are sold by that member will be the same (assuming no change in share price). The difference is that when you distribute shares, the receiving members can choose when to recognize the gain for tax purposes. To address your explicit concern. If you sell the shares and the new member's CG are greater than the amount she contributed, she will recognize an offsetting loss on her withdrawal report. Net result is unchanged. Ira Smilovitz EA
Thank you for your concise answer Ira!
On Tuesday, January 26, 2021, 11:32:53 AM EST, ira smilovitz via bivio.com <user*2883400001@bivio.com> wrote:
It doesn't matter which method you choose. Each member will pay their proportionate share of capital gains either way. If you sell first and distribute cash, there will be more CG reported on Schedule K-1 and less gain reported on the withdrawal report. If you distribute shares, there will be no gain from the shares that were distributed on the K-1. The gain reported on the withdrawal report will be minimal (possibly $0), and all of the CG will be deferred until each member sells the shares that were distributed to them. Each member's total CG after all the shares are sold by that member will be the same (assuming no change in share price). The difference is that when you distribute shares, the receiving members can choose when to recognize the gain for tax purposes. To address your explicit concern. If you sell the shares and the new member's CG are greater than the amount she contributed, she will recognize an offsetting loss on her withdrawal report. Net result is unchanged. Ira Smilovitz EA
Thank you Bob!
On Tuesday, January 26, 2021, 10:57:19 AM EST, Bob Mann via bivio.com <user*12614800001@bivio.com> wrote:
Cindy,
if the club's NAV went up since she joined she'll have a potential capital gain, and if down a capital loss. If she gets mostly shares, she can sell them at her leisure and decide when she wants to lock in the gain/loss. If she gets cash, she'll get the gain/loss in 2021. It's that simple.
Bob Mann
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