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Val Worona on

We are using Bivio for the first time for the year '06
taxes. In K-1, line L - "Partner's share of profit, loss and
capital" our beginning % is wrong. Members have equal
ownership, beginning shows 1.69% but ending % for 05 was
3.6% as done by our accountant. The key is in K-1's for
three members that dropped out, their beginning is shown as
17.79, 21.28 and 26.63% which tend to be proportional to the
time they were members in 06. Don't know how this is
possible since we all started 06 equally and paid equal
monthly fees.
Line N "Partners capital account analysis" is blank. Should
it not have beginning and ending capital account values.
Question for Rip West.
Since it's been more than two days since you talked about
fees vs payment I'd like to ask if our monthly payments can
be all labeled as fees. We all have same number of shares
and pay same monthly. We do not have a separate assessment
for fees, every month we all kick in $100. I know you stated
that fees should be balanced to Club expenses but it would
make my job easier if I just label all payments as fees.
What problems am I creating?
Val

Rip West on

Val,

The key is in K-1's for three members that dropped out, their beginning is shown as 17.79, 21.28 and 26.63% which tend to be proportional to the time they were members in 06. Don't know how this is possible since we all started 06 equally and paid equal monthly fees.

The program is probably trying to ascertain the percent of 2006 earnings that went to each of those withdrawn members. I have never paid any attention to these beginning and ending percentages, and I have never known any IRS agent who did, either.

Line N "Partners capital account analysis" is blank. Should it not have beginning and ending capital account values.

No. If Question 5 on page 2 was answered yes, then Section N does not have to be filled out.

Question for Rip West.

Since it's been more than two days since you talked about fees vs payment I'd like to ask if our monthly payments can be all labeled as fees

LOL. Not only has it been more that two days, it has been almost 6 years since I wrote those 'timeless words'<g>. Can't believe anyone would go back to read that.

Well, as you no doubt are aware, trying to maintain equal partnerships is frowned upon by most of us giving advice on these forums. However, you seem determined, so I will try to give you an honest answer. As long as you keep everyone even, it probably is a workable scheme to classify everything as fees. I wouldn't do it, but, assuming the premise that everyone will stay equal, I can't see anything wrong with it. If you do that, always select that your expenses should be allocated in proportion to ownership, not equally. The reason for that is that doing it proportionately will result in equal allocation, but you will not have units taken away. If you kept on allocating equally, you might end up with negative units.

Again, I don't endorse it, don't recommend it, and it is nothing that I would do. The minute that you are not all equal, all sorts of bad things could happen.

Rip West
Saint Paul, MN

Rob Nagler on

Rip West writes:
> Again, I don't endorse it, don't recommend it, and it is nothing
> that I would do. The minute that you are not all equal, all sorts of
> bad things could happen.

I couldn't agree more.

Please forgive my dabbling in amateur psychology... Trust is one of
the hardest won emotions. It's easily lost. One of the hardest
things an investment club has to come to grips with is trust. You are
entrusting your partners as much as yourself to be fair with each
other. If you understand that, the accounting doesn't matter.

When members trust each other, it's a wonderful club and a great
experience. When trust is lacking, quibbles break out over the
pennies, while the dollars go down the drain. We at bivio have seen
this so many times that it's tragic -- in the sense of a Greek
tragedy. Without trust, a club will fail, guaranteed.

Ignore the pennies. Just make sure you all want to work together to
learn how to be better investors.

Cheers,
Rob
bivio Inc.

Val Worona on

Val wrote:

In K-1's for three members that dropped out, their beginning is shown as 17.79, 21.28 and 26.63% which tend to be proportional to the time they were members in 06. Don't know how this is possible since we all started 06 equally and paid equal monthly fees.

Rip replied:

Val's new Question:

I'm questioning your implication that beginning and ending percentages are to be ignored. In 06 we sold most loosing stocks and ended with LT loss of $21,750 for 06. Loss assigned to 3 withdrawn members is 48% of total while remaining members get small ($418 or 3.69%) of long term loss. This does not sound logical since we sold stock to cover withdrawals of the three.

Second question which may be a tax question. One member joined in December yet he shows same LT loss on his K-1 eventhough the stock sells were made prior to his membership.

Plan to see my accountant this week to get stat tax done and perhaps he can explain away some of these things.

Thanks Rip for helping with other K-1 questions.

Val

Rip West on

Val,

Val's new Question:
I'm questioning your implication that beginning and ending percentages are to be ignored. In 06 we sold most loosing stocks and ended with LT loss of $21,750 for 06. Loss assigned to 3 withdrawn members is 48% of total while remaining members get small ($418 or 3.69%) of long term loss. This does not sound logical since we sold stock to cover withdrawals of the three.

I don't follow your 'logic' question. The program has no way of tieing the losses on those stocks to the people who are 'causing' the sales. As far as the beginning and ending percentages, the amounts appearing on the tax return have nothing to do with how income/loss/expense is allocated to members.

What are your settings for allocating income/expenses? Go to Tools|Allocation Method. Do you have 'time-based' or 'snapshot' checked? If you have snapshot, the program will allocate all income/expense items on the basis of ownership at the end of the year. If you have 'time-based' selected, income/expense will be allocated in proportion to ownership at the time the item was was recognized. Again, the percentages on the tax return do not come into play.

Second question which may be a tax question. One member joined in December yet he shows same LT loss on his K-1 eventhough the stock sells were made prior to his membership.

That sounds as though you have 'snapshot' checked as your allocation method. I really can't tell much more without seeing your data. If you want to invite me to your club as a guest, I probably could make some sense out of it.

Rip West
Saint Paul, MN

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