Hi-

We have a member that needs to withdraw about 80% of his
holdings in our club.  We will need to sell one of our
holdings in order to generate enough cash to pay him off.
How do I enter this transaction into our books?  Also, do we
apply the capital gains tax to him personally or spread it
equally among all members?

Thanks in advance.

Your best choice is to sell a stock which has a loss AND which your club doesn't project will do as well as the others going forward. You record the sale as a sale. Any capital gain or loss will be spread over all of your members in proportion to their ownership share of the club. You will then process a partial withdrawal for the member. If the 80% withdrawal exceeds that member's tax basis in the club, he will generate a reportable capital gain (in addition to any gains reported on his K-1 at the end of 2007). If the 80% withdrawal is less than his tax basis in the club, the withdrawal is a tax-free return of capital. The bivio software will handle everything for you.

 

Ira Smilovitz