Our club formed in September 2005 and has less than 10
members.  I have downloaded the club tax forms for filing --
it was soooo easy (thanks Bivio) -- and have obtained all
members signatures on the IRS Form 8893, which the software
stated should be included in the tax filing.

My understanding is that the form is optional.  My question
is -- what is the advantage to the club of filing the form?

The 8893 instructions simply say when and how to file it -
but not why.  Is there a reason the club collectively, or
its members individually, would want to elect "unified audit
and litigation procedues"?  I tried to research this on the
IRS website but could not find anything other than the form.

My understanding is that it makes administrative matters easier for the IRS. In the situation where there could be a significant difference of opinion about the tax treatment of income/expense, the IRS would normally have to pursue the issue with each partner individually. Under the consolidated procedure, the IRS can negotiate with the club as a single entity and the final decision is binding on all members. This really shouldn't be an issue for investment clubs as there isn't much interpretation about the tax treatment of the types of transactions investment clubs enter. I believe that NAIC is now recommending that club's not make the consolidated audit election. My recommendation would be that you contact a local tax professional with partnership experience and get an opinion based on your club's situation.

 

Ira Smilovitz