club_cafe: Final K-1 for a Departing Club Member

iras1 on

John,

There are a number of inaccuracies in your reply.

As I posted earlier, there is nothing on line J, because most investment clubs do not have to complete it. See the instructions for Schedule K-1.

To determine the gain or loss, you do NOT treat it as any other security. The unit value has no relevance to the determination of gain or loss. There is also no separation into short-term or long-term.

The correct way to determine your gain or loss depends on whether you were paid in cash only, or a combination of cash and stock.

If you were paid in cash, the difference between the cash you received and your paid-in basis (as shown on your withdrawal report) is a capital gain or loss. Whether it is short-term or long-term is determined by the length of time from your initial deposit to your withdrawal. The fact that you made periodic contributions is irrelevant.

If you receive cash and stock, the determination of gain or loss is more complicated. First compare the cash you received to your paid-in basis. If you received less cash than your basis, subtract the cash from the basis. The result becomes your basis in the stock you received from the club. On Schedule D, you enter the cash received as both the sales proceeds and the cost with a net gain of $0. You will "recognize" the gain (or loss) when you sell the stock.

If you receive more cash than your basis, report the withdrawal as if an all-cash withdrawal. Your basis in the stock you received will be $0. You will recognize additional gain when you sell the stock.

For more information see IRS Pub. 541, Partnerships. It can be found at www.irs.gov/pub/irs-pdf/p541.pdf

Ira Smilovitz

In a message dated 02/25/03 5:46:38 PM Eastern Standard Time, jmunn1@nycap.rr.com writes:

Yes, Rich. The final K-1 for a partner shows $0.00 at end of year.

At end of year, the software distributes gains and losses to partners
and reports the figure on line 4 of the K-1.
At the moment, I don't have an answer why there's nothing in section J
on our K-1 forms; perhaps it's not required, but I'll look into it..
The software has a balance sheet account for accumulating the unrealized
gains and losses, but it's not used for any other purpose than to
balance the balance sheet, as far as I have been able to tell.

To determine your own gain or loss, I would treat the investment as if I
were buying shares of any other equity... report the unit price paid and
the unit value received when the units are liquidated, the number of
units sold for each of the respective holding periods on Schedule D, and
determine your gain or loss from your own data.

It's not the partnership's responsibility to determine your capital gain
or loss, though the withdrawal distribution report can help provide the
data.

John

Richard wrote:

>Should the final K-1 of a departing club member display a
>zero in box (Je) of the K-1 "Capital account at end of
>year". If so, how do you reflect the amount of any
>unrealized loss on the books of the club relative to that
>partners account. Thanks for your input.
>
>
>

John R. Munn on

Ira...

Thank you (very much) for your reply... I had a feeling as I wrote my
response that it didn't "feel" right and in the back of my mind I
considered that I should just determine the gain from the cost less the
proceeds received (assuming I received cash). The fact that the
software purchases units and the accounting behaves similarly to how
mutual funds determine the share price threw me off. Of course, I
should have reviewed the IRS regulations!

For all who didn't see Ira's well considered reply, I am leaving the
thread attached for reference. Please excuse my waste of bandwidth, but
I don't want bad information to be spread.

John

IraS1@aol.com wrote:

> John,
>
> There are a number of inaccuracies in your reply.
>
> As I posted earlier, there is nothing on line J, because most
> investment clubs do not have to complete it. See the instructions for
> Schedule K-1.
>
> To determine the gain or loss, you do NOT treat it as any other
> security. The unit value has no relevance to the determination of gain
> or loss. There is also no separation into short-term or long-term.
>
> The correct way to determine your gain or loss depends on whether you
> were paid in cash only, or a combination of cash and stock.
>
> If you were paid in cash, the difference between the cash you received
> and your paid-in basis (as shown on your withdrawal report) is a
> capital gain or loss. Whether it is short-term or long-term is
> determined by the length of time from your initial deposit to your
> withdrawal. The fact that you made periodic contributions is irrelevant.
>
> If you receive cash and stock, the determination of gain or loss is
> more complicated. First compare the cash you received to your paid-in
> basis. If you received less cash than your basis, subtract the cash
> from the basis. The result becomes your basis in the stock you
> received from the club. On Schedule D, you enter the cash received as
> both the sales proceeds and the cost with a net gain of $0. You will
> "recognize" the gain (or loss) when you sell the stock.
>
> If you receive more cash than your basis, report the withdrawal as if
> an all-cash withdrawal. Your basis in the stock you received will be
> $0. You will recognize additional gain when you sell the stock.
>
> For more information see IRS Pub. 541, Partnerships. It can be found
> at www.irs.gov/pub/irs-pdf/p541.pdf
>
> Ira Smilovitz
>
>
> In a message dated 02/25/03 5:46:38 PM Eastern Standard Time,
> jmunn1@nycap.rr.com writes:
>
>> Yes, Rich. The final K-1 for a partner shows $0.00 at end of year.
>>
>> At end of year, the software distributes gains and losses to partners
>> and reports the figure on line 4 of the K-1.
>> At the moment, I don't have an answer why there's nothing in section J
>> on our K-1 forms; perhaps it's not required, but I'll look into it..
>> The software has a balance sheet account for accumulating the unrealized
>> gains and losses, but it's not used for any other purpose than to
>> balance the balance sheet, as far as I have been able to tell.
>>
>> To determine your own gain or loss, I would treat the investment as if I
>> were buying shares of any other equity... report the unit price paid and
>> the unit value received when the units are liquidated, the number of
>> units sold for each of the respective holding periods on Schedule D, and
>> determine your gain or loss from your own data.
>>
>> It's not the partnership's responsibility to determine your capital gain
>> or loss, though the withdrawal distribution report can help provide the
>> data.
>>
>> John
>>
>> Richard wrote:
>>
>> >Should the final K-1 of a departing club member display a
>> >zero in box (Je) of the K-1 "Capital account at end of
>> >year". If so, how do you reflect the amount of any
>> >unrealized loss on the books of the club relative to that
>> >partners account. Thanks for your input.
>> >
>> >
>> >
>
>
>

kim junker on

so does that mean that when we paid a departing partner
$193.80 and at this point she had invested $200.00, her loss
would be $6.20 (reported on her schedule D)? i'm new at this
so thanks for any help. kim

John R. Munn wrote:
> Ira...
>
> Thank you (very much) for your reply... I had a feeling as I wrote my
> response that it didn't "feel" right and in the back of my mind I
> considered that I should just determine the gain from the cost less the
> proceeds received (assuming I received cash). The fact that the
> software purchases units and the accounting behaves similarly to how
> mutual funds determine the share price threw me off. Of course, I
> should have reviewed the IRS regulations!
>
> For all who didn't see Ira's well considered reply, I am leaving the
> thread attached for reference. Please excuse my waste of bandwidth, but
> I don't want bad information to be spread.
>
> John
>
>
> IraS1@aol.com wrote:
>
> > John,
> >
> > There are a number of inaccuracies in your reply.
> >
> > As I posted earlier, there is nothing on line J, because most
> > investment clubs do not have to complete it. See the instructions for
> > Schedule K-1.
> >
> > To determine the gain or loss, you do NOT treat it as any other
> > security. The unit value has no relevance to the determination of gain
> > or loss. There is also no separation into short-term or long-term.
> >
> > The correct way to determine your gain or loss depends on whether you
> > were paid in cash only, or a combination of cash and stock.
> >
> > If you were paid in cash, the difference between the cash you received
> > and your paid-in basis (as shown on your withdrawal report) is a
> > capital gain or loss. Whether it is short-term or long-term is
> > determined by the length of time from your initial deposit to your
> > withdrawal. The fact that you made periodic contributions is irrelevant.
> >
> > If you receive cash and stock, the determination of gain or loss is
> > more complicated. First compare the cash you received to your paid-in
> > basis. If you received less cash than your basis, subtract the cash
> > from the basis. The result becomes your basis in the stock you
> > received from the club. On Schedule D, you enter the cash received as
> > both the sales proceeds and the cost with a net gain of $0. You will
> > "recognize" the gain (or loss) when you sell the stock.
> >
> > If you receive more cash than your basis, report the withdrawal as if
> > an all-cash withdrawal. Your basis in the stock you received will be
> > $0. You will recognize additional gain when you sell the stock.
> >
> > For more information see IRS Pub. 541, Partnerships. It can be found
> > at www.irs.gov/pub/irs-pdf/p541.pdf
> >
> > Ira Smilovitz
> >
> >
> > In a message dated 02/25/03 5:46:38 PM Eastern Standard Time,
> > jmunn1@nycap.rr.com writes:
> >
> >> Yes, Rich. The final K-1 for a partner shows $0.00 at end of year.
> >>
> >> At end of year, the software distributes gains and losses to partners
> >> and reports the figure on line 4 of the K-1.
> >> At the moment, I don't have an answer why there's nothing in section J
> >> on our K-1 forms; perhaps it's not required, but I'll look into it..
> >> The software has a balance sheet account for accumulating the unrealized
> >> gains and losses, but it's not used for any other purpose than to
> >> balance the balance sheet, as far as I have been able to tell.
> >>
> >> To determine your own gain or loss, I would treat the investment as if I
> >> were buying shares of any other equity... report the unit price paid and
> >> the unit value received when the units are liquidated, the number of
> >> units sold for each of the respective holding periods on Schedule D, and
> >> determine your gain or loss from your own data.
> >>
> >> It's not the partnership's responsibility to determine your capital gain
> >> or loss, though the withdrawal distribution report can help provide the
> >> data.
> >>
> >> John
> >>
> >> Richard wrote:
> >>
> >> >Should the final K-1 of a departing club member display a
> >> >zero in box (Je) of the K-1 "Capital account at end of
> >> >year". If so, how do you reflect the amount of any
> >> >unrealized loss on the books of the club relative to that
> >> >partners account. Thanks for your input.
> >> >
> >> >
> >> >
> >
> >
> >

kim junker on

kim junker wrote:{i got my answer by reading the previous
messages}

> so does that mean that when we paid a departing partner
> $193.80 and at this point she had invested $200.00, her loss
> would be $6.20 (reported on her schedule D)? i'm new at this
> so thanks for any help. kim
>
>
> John R. Munn wrote:
> > Ira...
> >
> > Thank you (very much) for your reply... I had a feeling as I wrote my
> > response that it didn't "feel" right and in the back of my mind I
> > considered that I should just determine the gain from the cost less the
> > proceeds received (assuming I received cash). The fact that the
> > software purchases units and the accounting behaves similarly to how
> > mutual funds determine the share price threw me off. Of course, I
> > should have reviewed the IRS regulations!
> >
> > For all who didn't see Ira's well considered reply, I am leaving the
> > thread attached for reference. Please excuse my waste of bandwidth, but
> > I don't want bad information to be spread.
> >
> > John
> >
> >
> > IraS1@aol.com wrote:
> >
> > > John,
> > >
> > > There are a number of inaccuracies in your reply.
> > >
> > > As I posted earlier, there is nothing on line J, because most
> > > investment clubs do not have to complete it. See the instructions for
> > > Schedule K-1.
> > >
> > > To determine the gain or loss, you do NOT treat it as any other
> > > security. The unit value has no relevance to the determination of gain
> > > or loss. There is also no separation into short-term or long-term.
> > >
> > > The correct way to determine your gain or loss depends on whether you
> > > were paid in cash only, or a combination of cash and stock.
> > >
> > > If you were paid in cash, the difference between the cash you received
> > > and your paid-in basis (as shown on your withdrawal report) is a
> > > capital gain or loss. Whether it is short-term or long-term is
> > > determined by the length of time from your initial deposit to your
> > > withdrawal. The fact that you made periodic contributions is irrelevant.
> > >
> > > If you receive cash and stock, the determination of gain or loss is
> > > more complicated. First compare the cash you received to your paid-in
> > > basis. If you received less cash than your basis, subtract the cash
> > > from the basis. The result becomes your basis in the stock you
> > > received from the club. On Schedule D, you enter the cash received as
> > > both the sales proceeds and the cost with a net gain of $0. You will
> > > "recognize" the gain (or loss) when you sell the stock.
> > >
> > > If you receive more cash than your basis, report the withdrawal as if
> > > an all-cash withdrawal. Your basis in the stock you received will be
> > > $0. You will recognize additional gain when you sell the stock.
> > >
> > > For more information see IRS Pub. 541, Partnerships. It can be found
> > > at www.irs.gov/pub/irs-pdf/p541.pdf
> > >
> > > Ira Smilovitz
> > >
> > >
> > > In a message dated 02/25/03 5:46:38 PM Eastern Standard Time,
> > > jmunn1@nycap.rr.com writes:
> > >
> > >> Yes, Rich. The final K-1 for a partner shows $0.00 at end of year.
> > >>
> > >> At end of year, the software distributes gains and losses to partners
> > >> and reports the figure on line 4 of the K-1.
> > >> At the moment, I don't have an answer why there's nothing in section J
> > >> on our K-1 forms; perhaps it's not required, but I'll look into it..
> > >> The software has a balance sheet account for accumulating the unrealized
> > >> gains and losses, but it's not used for any other purpose than to
> > >> balance the balance sheet, as far as I have been able to tell.
> > >>
> > >> To determine your own gain or loss, I would treat the investment as if I
> > >> were buying shares of any other equity... report the unit price paid and
> > >> the unit value received when the units are liquidated, the number of
> > >> units sold for each of the respective holding periods on Schedule D, and
> > >> determine your gain or loss from your own data.
> > >>
> > >> It's not the partnership's responsibility to determine your capital gain
> > >> or loss, though the withdrawal distribution report can help provide the
> > >> data.
> > >>
> > >> John
> > >>
> > >> Richard wrote:
> > >>
> > >> >Should the final K-1 of a departing club member display a
> > >> >zero in box (Je) of the K-1 "Capital account at end of
> > >> >year". If so, how do you reflect the amount of any
> > >> >unrealized loss on the books of the club relative to that
> > >> >partners account. Thanks for your input.
> > >> >
> > >> >
> > >> >
> > >
> > >
> > >

Mail