club_cafe: withdrawing member
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club_cafe: withdrawing member >>We have a member who is withdrawing and we want to pay her off in two or three payments. She will be getting cash and we don't want to sell any of our stocks. How do I handle this in the withdrawl page, where it asks if this is a total payment or a partial payment. Will she not be totally withdrawn until we give her all the money or can we divide this up somehow? First, I would recommend paying her off as quickly as possible. It isn't fair to your departing partner, nor is it fair to your club. If you don't have sufficient cash, you should consider transferring shares of stock which have appreciated. This is generally better for both the club and the withdrawing member as each can defer any capital gains until they are ready to realize them. Of course, your partnership agreement must allow you to transfer shares. If you follow your plan, what you actually will be entering is a series of partial withdrawals. If the final payoff is made in 2003, you can do the following... enter the full withdrawal, but "pay" it from the suspense account. This will establish the amount you owe the withdrawing partner as well as keeping the amount your club shows in its bank/broker account matching that reported by the bank/broker. As you make each payment, enter a cash transfer from your bank/broker account to the suspense account. When you make the last payment, the suspense account will equal $0. If you do this, the final payment MUST be made in 2003 otherwise the tax reporting will be wrong. Your member isn't officially withdrawn from the club until the last payment is made. Ira Smilovitz Hi Ira and Ion, Your replies elicit quite a few questions in my mind that I would like to kick around. Ira said..... << Of course, your partnership agreement must allow you to transfer shares. >> Are you saying that if your agreement is mute on the issue, you are precluded from using shares for the payoffs? I am not convinced that this is the case. The IRS says that the member is a partner until the account is fully paid off. It would seem to me that if you plan to withdraw the partner fully from the suspense account, you would have to make provision in your agreement to say that, although the member still has a balance outstanding, he/she will not share in any income, expenses, gains, or losses after the transaction date of the withdrawal. I am not sure about Ion's solution of considering that the partner has been fully withdrawn and then made an interest free loan back to the club. There are numerous cases on the books where expense deductions have been disallowed to a cash basis taxpayer who accrues a liability on the books, or even sets up a note. On the other hand, if there is a paper trail of paying off the liability and then receiving a reimbursement back in the form of loan, it probably would be allowed. I am certainly in agreement with Ira that it would be best to avoid a delay in paying off the member. As Ira said, you could use stock for the payout. Keeping the member on without paying interest or sharing in the income of the club, seems unfair. Again, the partnership agreement should spell out exactly what the options are. I realize that this post is not helpful to the person raising the question, but I think there are some factors involved that need investigation. Rip |
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