If anyone knows where I can access information on IRS tax
treatment of clubs formed before 1997, please advise me at
knutskogen@mac.com. Thank you.

Ken,

If you have a specific question about the taxability of your club, tell us
what it is. If you are thinking that you are not required to file federal
partnership returns, you are probably wrong. Tell us exactly what your
concern is, and maybe we can help.

Rip West
Saint Paul, MN

Rip,

Many thanks for responding. You are correct -- one of the
questions is if we need to file partnership returns. The
instructions in IRS 550 are very clear, but we are seeking
information on their comments involving clubs formed before
1997(page 27), i.e., "The rules for determining how an
investment club is treated were different from those
explained in the following discussions. An investment club
that existed before 1997 is treated for later years the same
way it was treated before 1997...." So, what exactly are
these rules?

Thank you,
Ken
Rip West wrote:
> Ken,
>
> If you have a specific question about the taxability of your club, tell us
> what it is. If you are thinking that you are not required to file federal
> partnership returns, you are probably wrong. Tell us exactly what your
> concern is, and maybe we can help.
>
> Rip West
> Saint Paul, MN

Ken,

What the blurb in IRS 550 is talking about is the prior to 1997, entities
filed as partnerships, corporations, trusts, etc. depending on which entity
they had the most attributes. In 1997, the law was changed, and entities
could pick how they wanted to be treated. It has nothing to do with whether
or not you have to file. You certainly don't want to be considered a
corporation.

There is another factor which is often confused with the election in the
1997 code. That is that certain investment partnerships can elect not to be
considered a partnership, and therefore are relieved of the responsibility
of filing partnership income taxes. The NAIC originally recommended that
clubs avail themselves of this election. However, later, it became apparent
that this election was never meant for investment clubs, for a number of
reasons. First of all, all properties would have to be held in the name of
the partners jointly, not as a partnership. Secondly, each partner would
have to report his share of each dividend received. That is to say that you
don't report the amount the k-1 as your share of total dividends, you have
to report your share of each dividend from each company. There are other
factors. I was part of a tax workshop in the '90s and we were told by the
IRS that this election was never meant for investment clubs.

If you have never filed a partnership tax return, you should start now.

Rip West
Saint Paul, MN

Thank you very much, Rip. My club and I appreciate your response.

Ken
On Jul 9, 2007, at 11:19 AM, Rip West wrote:

> Ken,
>
> What the blurb in IRS 550 is talking about is the prior to 1997,
> entities filed as partnerships, corporations, trusts, etc.
> depending on which entity they had the most attributes. In 1997,
> the law was changed, and entities could pick how they wanted to be
> treated. It has nothing to do with whether or not you have to
> file. You certainly don't want to be considered a corporation.
>
> There is another factor which is often confused with the election
> in the 1997 code. That is that certain investment partnerships can
> elect not to be considered a partnership, and therefore are
> relieved of the responsibility of filing partnership income taxes.
> The NAIC originally recommended that clubs avail themselves of this
> election. However, later, it became apparent that this election was
> never meant for investment clubs, for a number of reasons. First of
> all, all properties would have to be held in the name of the
> partners jointly, not as a partnership. Secondly, each partner
> would have to report his share of each dividend received. That is
> to say that you don't report the amount the k-1 as your share of
> total dividends, you have to report your share of each dividend
> from each company. There are other factors. I was part of a tax
> workshop in the '90s and we were told by the IRS that this election
> was never meant for investment clubs.
>
> If you have never filed a partnership tax return, you should start
> now.
>
> Rip West
> Saint Paul, MN
>