club_cafe: consolidated audit

iras1 on

Even with 3 members, you are eligible for consolidated audit treatment, *IF* you make the election to be subject to it. According to the instructions for Form 1065, checking the box for Question 4, Schedule B is not sufficient. You must make the election separately. (I assume you use language similar to that found on page 20 of the instructions for Form 1065.)

I'm not sure about the specific differences between the two methods, but note that NAIC generally recommends electing consolidated audit coverage. Also the record-keeping requirements of the two methods are different. Under consolidated audit, you must maintain your records until 3 years after the filing date of a partnership return. If you do not elect consolidated audit procedures, you must maintain your records for 3 years after the filing date of each partner's return. This means you have to know when each partner *actually* filed his/her return (in case s/he filed late or on extension), not just the due date.

Whether you need to sign a new partnership agreement each time your membership changes is probably determined by state law in your partnership's home state. Many partnerships just cross out the name of a withdrawn member (and save the resignation letter) or add a rider signed by a new member stating that s/he has received a copy of the partnership agreement and agrees to be bound by it.

Ira Smilovitz

In a message dated 03/04/03 12:47:09 AM Eastern Standard Time, vbug_2000@bivio.com writes:

i have read through the irs pubs but am still having a hard
time understanding a consolidated audit. we now only have 3
members in our investment club but we do have a general
partnership agreement. are we eligible for this? what's the
difference?

also, when a partner withdraws all interest in the club, do
the remaining members need to complete another partnership
agreement. thanks kim

Garrett Call on

The election would look something like this, it must be
signed by all partners.

                  Election under Code Sec. 6231(a)(1)(B)(ii)
                  to Have the Consolidated Audit Rules Apply
                                    ABC & Co
                                EIN 12-3456789
                                123 Main Street
                           Anywhere, Oregon 12345
                    Form 1065, Tax Year Ending 12/31/20XX

The partnership elects, pursuant to Code Sec.
6231(a)(1)(B)(ii), to have the unified partnership tax
treatment provisions apply for the tax year ended
12/31/20XX, its current tax year.
The four undersigned partners were the only partners during
the partnership's current tax year.
                                        /s/
                                        _______________________________
                                             Partner
                                        /s/
                                        _______________________________
                                             Partner
                                        /s/
                                        _______________________________
                                             Partner
                                        /s/
                                        _______________________________
                                             Partner

IraS1@aol.com wrote:
> Even with 3 members, you are eligible for consolidated audit treatment, *IF* you make the election to be subject to it. According to the instructions for Form 1065, checking the box for Question 4, Schedule B is not sufficient. You must make the election separately. (I assume you use language similar to that found on page 20 of the instructions for Form 1065.)
>
>
>
> I'm not sure about the specific differences between the two methods, but note that NAIC generally recommends electing consolidated audit coverage. Also the record-keeping requirements of the two methods are different. Under consolidated audit, you must maintain your records until 3 years after the filing date of a partnership return. If you do not elect consolidated audit procedures, you must maintain your records for 3 years after the filing date of each partner's return. This means you have to know when each partner *actually* filed his/her return (in case s/he filed late or on extension), not just the due date.
>
>
>
> Whether you need to sign a new partnership agreement each time your membership changes is probably determined by state law in your partnership's home state. Many partnerships just cross out the name of a withdrawn member (and save the resignation letter) or add a rider signed by a new member stating that s/he has received a copy of the partnership agreement and agrees to be bound by it.
>
>
>
> Ira Smilovitz
>
>
>
> In a message dated 03/04/03 12:47:09 AM Eastern Standard Time, vbug_2000@bivio.com writes:
>
>
>
> i have read through the irs pubs but am still having a hard
>
> time understanding a consolidated audit. we now only have 3
>
> members in our investment club but we do have a general
>
> partnership agreement. are we eligible for this? what's the
>
> difference?
>
>
>
> also, when a partner withdraws all interest in the club, do
>
> the remaining members need to complete another partnership
>
> agreement. thanks kim

kim junker on

thank you for this info. when i read the previous e-mail, my
first thought was "what election? :)" i appreciate your
help. kim
Garrett Call wrote:
> The election would look something like this, it must be
> signed by all partners.
>
> Election under Code Sec. 6231(a)(1)(B)(ii)
> to Have the Consolidated Audit Rules Apply
> ABC & Co
> EIN 12-3456789
> 123 Main Street
> Anywhere, Oregon 12345
> Form 1065, Tax Year Ending 12/31/20XX
>
> The partnership elects, pursuant to Code Sec.
> 6231(a)(1)(B)(ii), to have the unified partnership tax
> treatment provisions apply for the tax year ended
> 12/31/20XX, its current tax year.
> The four undersigned partners were the only partners during
> the partnership's current tax year.
> /s/
> _______________________________
> Partner
> /s/
> _______________________________
> Partner
> /s/
> _______________________________
> Partner
> /s/
> _______________________________
> Partner
>
>
> IraS1@aol.com wrote:
> > Even with 3 members, you are eligible for consolidated audit treatment, *IF* you make the election to be subject to it. According to the instructions for Form 1065, checking the box for Question 4, Schedule B is not sufficient. You must make the election separately. (I assume you use language similar to that found on page 20 of the instructions for Form 1065.)
> >
> >
> >
> > I'm not sure about the specific differences between the two methods, but note that NAIC generally recommends electing consolidated audit coverage. Also the record-keeping requirements of the two methods are different. Under consolidated audit, you must maintain your records until 3 years after the filing date of a partnership return. If you do not elect consolidated audit procedures, you must maintain your records for 3 years after the filing date of each partner's return. This means you have to know when each partner *actually* filed his/her return (in case s/he filed late or on extension), not just the due date.
> >
> >
> >
> > Whether you need to sign a new partnership agreement each time your membership changes is probably determined by state law in your partnership's home state. Many partnerships just cross out the name of a withdrawn member (and save the resignation letter) or add a rider signed by a new member stating that s/he has received a copy of the partnership agreement and agrees to be bound by it.
> >
> >
> >
> > Ira Smilovitz
> >
> >
> >
> > In a message dated 03/04/03 12:47:09 AM Eastern Standard Time, vbug_2000@bivio.com writes:
> >
> >
> >
> > i have read through the irs pubs but am still having a hard
> >
> > time understanding a consolidated audit. we now only have 3
> >
> > members in our investment club but we do have a general
> >
> > partnership agreement. are we eligible for this? what's the
> >
> > difference?
> >
> >
> >
> > also, when a partner withdraws all interest in the club, do
> >
> > the remaining members need to complete another partnership
> >
> > agreement. thanks kim

kim junker on

thank you so much. the 2 replies to my e-mail answered my
questions. it's nice to have so much knowledge at my
fingertips. thanks for sharing it. kim

IraS1@aol.com wrote:
> Even with 3 members, you are eligible for consolidated audit treatment, *IF* you make the election to be subject to it. According to the instructions for Form 1065, checking the box for Question 4, Schedule B is not sufficient. You must make the election separately. (I assume you use language similar to that found on page 20 of the instructions for Form 1065.)
>
>
>
> I'm not sure about the specific differences between the two methods, but note that NAIC generally recommends electing consolidated audit coverage. Also the record-keeping requirements of the two methods are different. Under consolidated audit, you must maintain your records until 3 years after the filing date of a partnership return. If you do not elect consolidated audit procedures, you must maintain your records for 3 years after the filing date of each partner's return. This means you have to know when each partner *actually* filed his/her return (in case s/he filed late or on extension), not just the due date.
>
>
>
> Whether you need to sign a new partnership agreement each time your membership changes is probably determined by state law in your partnership's home state. Many partnerships just cross out the name of a withdrawn member (and save the resignation letter) or add a rider signed by a new member stating that s/he has received a copy of the partnership agreement and agrees to be bound by it.
>
>
>
> Ira Smilovitz
>
>
>
> In a message dated 03/04/03 12:47:09 AM Eastern Standard Time, vbug_2000@bivio.com writes:
>
>
>
> i have read through the irs pubs but am still having a hard
>
> time understanding a consolidated audit. we now only have 3
>
> members in our investment club but we do have a general
>
> partnership agreement. are we eligible for this? what's the
>
> difference?
>
>
>
> also, when a partner withdraws all interest in the club, do
>
> the remaining members need to complete another partnership
>
> agreement. thanks kim

Jim Thomas on

Does anyone know how "Small Partnership" is defined in
section 6231(a)(1)(B)(i)? Is the text of that section
available on the internet? In particuar, is it possible to
be a "Small Partnership" if you have more than 10 members?

-Jim Thomas