Correcting TIN/EIN +TD Ameritrade
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Due to an error by our deceased former treasurer on a tax return, the IRS assigned the club a new TIN August 2007, which was finally used on the 2007 return. We have found that none of our club accounts has the updated number. We started with TD A to correct the number, sent in a W-9 according to instructions, but the W-9 was not accepted because we checked the box for partnership in part one, and "your account is an investment club. . . ." We called and are sending a letter and a copy of the IRS assignment. It certainly seems that we are a partnership, since we file form 1065 and issue K-1s. Is there some fine distinction that we are missing, or is this just another example of the problems that TD A seems to have working with investment clubs? I don't know if you've resolved this yet, but one thing to check is that you've entered your club's TIN as an EIN and not an SSN. EINs are formatted xx-xxxxxxx. SSNs are formatted xxx-xx-xxxx.
Ira Smilovitz
In a message dated 9/5/2008 2:43:25 PM Eastern Daylight Time, delfinch@bivio.com writes:
Looking for spoilers and reviews on the new TV season? Get AOL's ultimate guide to fall TV. Good point on the EIN format. Our first number was in this format. For some reason, that number was declared invalid in 2003, and another EIN assigned (used on 2004 return). Then the late treasurer accidentally used our NAIC club number on two consecutive tax returns, resulting in a real mess, and the assignment of our latest number, which is also in the EIN format. Our broker and credit union accounts still have the first assigned number, and the State of MN has the second assigned number. We were trying to correct the discrepancies by updating all accounts to the latest EIN before our time comes to file. Our problem is two-fold. The question on the W-9 was whether TD Ameritrade is right in not accepting a checkmark in the box for "partnership." as our identity in part one of the form. They insist that we must not check "partnership," but must rather check the "correct" box for investment club (this seems to be the box for "other" followed by a written identification as "investment club")--because we are identified by TD A as an investment club account. Since the club has filed form 1065 for over 40 years, we don't want to make an error in identifying ourselves that could result in more IRS problems. We already have an appeal of penalties under review, and may be consulting a tax attorney for further advice before doing much more if we don't get enough clarification from the IRS. iras1 wrote: > I don't know if you've resolved this yet, but one thing to check is that you've entered your club's TIN as an EIN and not an SSN. EINs are formatted xx-xxxxxxx. SSNs are formatted xxx-xx-xxxx. > > Ira Smilovitz > > In a message dated 9/5/2008 2:43:25 PM Eastern Daylight Time, delfinch@bivio.com writes: > > > > .aolmailheader {font-size:8pt; color:black; font-family:Arial} > a.aolmailheader:link {color:blue; text-decoration:underline; font-weight:normal} > a.aolmailheader:visited {color:magenta; text-decoration:underline; font-weight:normal} > a.aolmailheader:active {color:blue; text-decoration:underline; font-weight:normal} > a.aolmailheader:hover {color:blue; text-decoration:underline; font-weight:normal} > > Due to an error by our deceased former treasurer on a tax > return, the IRS assigned the club a new TIN August 2007, > which was finally used on the 2007 return. We have found > that none of our club accounts has the updated number. We > started with TD A to correct the number, sent in a W-9 > according to instructions, but the W-9 was not accepted > because we checked the box for partnership in part one, and > "your account is an investment club. . . ." We called and > are sending a letter and a copy of the IRS assignment. It > certainly seems that we are a partnership, since we file > form 1065 and issue K-1s. Is there some fine distinction > that we are missing, or is this just another example of the > problems that TD A seems to have working with investment > clubs? > > > Looking for spoilers and reviews on the new TV season? Get AOL's ultimate guide to fall TV. I wish you luck in getting this all straightened out. Let me just respond to the section quoted below about the W-9.
While I might work my way up the food chain at TDA for an explanation, it isn't important. The W-9 is for TDA's use only. It doesn't get sent to the IRS.
Ira Smilovitz
In a message dated 09/15/08 11:43:14 Eastern Daylight Time, delfinch@bivio.com writes:
Looking for spoilers and reviews on the new TV season? Get AOL's ultimate guide to fall TV. Hello,
Our investment club
has voted to remove a member, the member agreed to forfeit his holdings in
writing. How do I spread his value in the software evenly to the rest
of the members (11).
Thanks
Michael
J. Michael Banks, CPA ************************* Under requirements imposed by the U.S. Internal Revenue Service, we inform you that any advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, by any taxpayer for the purpose of (1) avoiding tax-related penalties under the U.S. Internal Revenue Code or (2) promoting, marketing or recommending to another party any tax-related matters addressed herein. The scope of the Firm's work does not include advice or planning to avoid penalties that may be imposed by any taxing authorities. CONFIDENTIALITY STATEMENT This electronic message contains information from the law firm of Culp Elliott & Carpenter, P.L.L.C. and is confidential or privileged. The information is intended to be for the use of the individual or entity named above. If you are not the intended recipient, be aware that any disclosure, copying, distribution or use of the contents of this message is prohibited. If you have received this electronic message in error, please notify us immediately by telephone at (704) 372-6322 and destroy the original message. Your club doesn't think this is a LITTLE unfair? You leave a club and you lose your entire investment?
Assuming you really do want to do this, just process the withdrawal normally, but set a withdrawal fee equal to the amount he would have been entitled to.
Ira Smilovitz
In a message dated 09/17/08 16:26:06 Eastern Daylight Time, jmb@ceclaw.com writes:
Looking for spoilers and reviews on the new TV season? Get AOL's ultimate guide to fall TV. we are
a fairly new club so the amount is pretty immaterial. Plus the way our
bylaws are written there are penalties for non-payment. So he owes more in
penalties then he actually paid to the club.
Thanks
for the direction.
Michael
J. Michael Banks, CPA ************************* Under requirements imposed by the U.S. Internal Revenue Service, we inform you that any advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, by any taxpayer for the purpose of (1) avoiding tax-related penalties under the U.S. Internal Revenue Code or (2) promoting, marketing or recommending to another party any tax-related matters addressed herein. The scope of the Firm's work does not include advice or planning to avoid penalties that may be imposed by any taxing authorities. CONFIDENTIALITY STATEMENT This electronic message contains information from the law firm of Culp Elliott & Carpenter, P.L.L.C. and is confidential or privileged. The information is intended to be for the use of the individual or entity named above. If you are not the intended recipient, be aware that any disclosure, copying, distribution or use of the contents of this message is prohibited. If you have received this electronic message in error, please notify us immediately by telephone at (704) 372-6322 and destroy the original message.
Looking for spoilers and reviews on the new TV season? Get AOL's ultimate guide to fall TV. Penalties for nonpayment are another area where many clubs go astray. There should never be any such penalty. The penalty for late or nonpayment is that the member owns a smaller percentage of the club's assets. You can't and shouldn't force someone to contribute.
Ira Smilovitz
In a message dated 09/17/08 16:38:17 Eastern Daylight Time, jmb@ceclaw.com writes:
Looking for spoilers and reviews on the new TV season? Get AOL's ultimate guide to fall TV. our
group is a closed group with fixed ownership percentages, the percentages will
of course change now that there is one less member, but normally your
contribution or lack there of would not change your ownership percentage.
Is
there a way to lock the ownership % in bivio or is the software only
designed for fluctuation?
J. Michael
Banks, CPA
Tax Consultant Culp Elliott & Carpenter, PLLC 4401 Barclay Downs Drive, Suite 200 Charlotte, NC 28209 Telephone: (704)372-6322 Direct Dial: (704)973-5329 Fax: (704)551-5700 jmb@ceclaw.com ************************* Under requirements imposed by the U.S. Internal Revenue Service, we inform you that any advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, by any taxpayer for the purpose of (1) avoiding tax-related penalties under the U.S. Internal Revenue Code or (2) promoting, marketing or recommending to another party any tax-related matters addressed herein. The scope of the Firm's work does not include advice or planning to avoid penalties that may be imposed by any taxing authorities. CONFIDENTIALITY STATEMENT This electronic message contains information from the law firm of Culp Elliott & Carpenter, P.L.L.C. and is confidential or privileged. The information is intended to be for the use of the individual or entity named above. If you are not the intended recipient, be aware that any disclosure, copying, distribution or use of the contents of this message is prohibited. If you have received this electronic message in error, please notify us immediately by telephone at (704) 372-6322 and destroy the original message.
Looking for spoilers and reviews on the new TV season? Get AOL's ultimate guide to fall TV. In a message dated 09/17/08 16:55:34 Eastern Daylight Time, jmb@ceclaw.com writes:
Your contribution or lack thereof DOES (or should) change your ownership percentage. Unless all member contributions are exactly proportional to ownership percentage, you will have members who have over or undercapitalized their share of the assets.
The simple answer is no, but I can't see why you would want to. Everything you've posted so far argues against a fixed ownership %. For instance, you want to penalize nonpayment. How do you do that without reducing that member's ownership share? Equal ownership (perhaps not an issue here) won't work because somewhere down the line you'll have a member who encounters a hardship and can't make the regular payment or will want to withdraw part of his/her account to use for other purposes.
The more complicated answer is that you can probably develop a workaround that will keep the ownership % constant, but you'll probably have to do it on your own.
Ira Smilovitz
Looking for spoilers and reviews on the new TV season? Get AOL's ultimate guide to fall TV. non-payment penalties are income to the partnership which flow through to
the partners increasing the capital accounts, so essentially a penalty you pay
will partially increase your own capital account.
Everyone in the group makes equal payments every month. The % does
not change, if for some reason the partner is late, I will still increase the
capital account accordingly and book a receivable from that member.
However, non-payment has not been an issue other than for this one person.
All other members (except) one are established and have no problem
making the payments.
If I
report his departure as a penalty then shouldn't that be income to everyone else
that flows to there capital accounts? The essentially eliminates him and
corrects the ownership percentages.
I know
this is probably not how most clubs do it but we chose to do it this
way.
any
advice is much appreciated, we are new at this.
Thanks
Michael
J. Michael Banks, CPA ************************* Under requirements imposed by the U.S. Internal Revenue Service, we inform you that any advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, by any taxpayer for the purpose of (1) avoiding tax-related penalties under the U.S. Internal Revenue Code or (2) promoting, marketing or recommending to another party any tax-related matters addressed herein. The scope of the Firm's work does not include advice or planning to avoid penalties that may be imposed by any taxing authorities. CONFIDENTIALITY STATEMENT This electronic message contains information from the law firm of Culp Elliott & Carpenter, P.L.L.C. and is confidential or privileged. The information is intended to be for the use of the individual or entity named above. If you are not the intended recipient, be aware that any disclosure, copying, distribution or use of the contents of this message is prohibited. If you have received this electronic message in error, please notify us immediately by telephone at (704) 372-6322 and destroy the original message.
Your contribution or lack thereof DOES (or
should) change your ownership percentage. Unless all member contributions are
exactly proportional to ownership percentage, you will have members who have
over or undercapitalized their share of the assets.
The simple answer is no, but I can't see why you
would want to. Everything you've posted so far argues against a fixed
ownership %. For instance, you want to penalize nonpayment. How do you do that
without reducing that member's ownership share? Equal ownership (perhaps not
an issue here) won't work because somewhere down the line you'll have a member
who encounters a hardship and can't make the regular payment or will want to
withdraw part of his/her account to use for other purposes.
The more complicated answer is that you can
probably develop a workaround that will keep the ownership % constant, but
you'll probably have to do it on your own.
Ira Smilovitz
Looking for spoilers and reviews on the new TV season? Get AOL's ultimate guide to fall TV.
<<
non-payment
penalties are income to the partnership which flow through to the partners
increasing the capital accounts, so essentially a penalty you pay will partially
increase your own capital account.
>>
Non-payment penalties are NOT income to the
club. They are simply a contribution to capital by the offending member. They
have the effect of increasing all members' values in proportion to their
ownership.
<<
If I report his
departure as a penalty then shouldn't that be income to everyone else that flows
to there capital accounts? The essentially eliminates him and corrects the
ownership percentages.
>>
No, again that is NOT income to the club and
thus to the other members. Again, each member's value will increase in
proportion to ownership.
Rip West
Mr.
West
Why
would the penalty not be income to the partnership? Do you have a
reference for that? If you treat money I pay as a penalty
to increase your capital account and don't report it as income
then it would be a gift from me to you.
Thanks
for your help
J. Michael Banks, CPA ************************* Under requirements imposed by the U.S. Internal Revenue Service, we inform you that any advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, by any taxpayer for the purpose of (1) avoiding tax-related penalties under the U.S. Internal Revenue Code or (2) promoting, marketing or recommending to another party any tax-related matters addressed herein. The scope of the Firm's work does not include advice or planning to avoid penalties that may be imposed by any taxing authorities. CONFIDENTIALITY STATEMENT This electronic message contains information from the law firm of Culp Elliott & Carpenter, P.L.L.C. and is confidential or privileged. The information is intended to be for the use of the individual or entity named above. If you are not the intended recipient, be aware that any disclosure, copying, distribution or use of the contents of this message is prohibited. If you have received this electronic message in error, please notify us immediately by telephone at (704) 372-6322 and destroy the original message.
Hi
Michael,
<<
Why would the penalty not
be income to the partnership? Do you have a reference for that? If
you treat money I pay as a penalty to increase
your capital account and don't report it as income then it
would be a gift from me to you.
>>
Well, a couple of things,
here. The money you pay as a penalty does not increase MY capital account. It
increases my value. It does increase YOUR capital account. That is,
assuming that we are equating 'capital account' with tax
basis.
According to your scenario,
any amount paid in by a partner that doesn't buy units would be income to the
partnership. The partnership hasn't incurred any income. It has received a
contribution to capital. Code section 721 and regulation 1.721-1 state, in
effect, that no gain or loss is recognized by the partnership because of
partners' contribution to capital, whether such contributions are made on
formation of the partnership or later.
Partnership income is
allocable to all the partners. Your scenario leads to the very weird result that
the offending partner has the privilege of reporting taxable income on his
'penalty' paid into the club.
I would be happy to
continue this discussion if you wish. Partnership taxation is a complex and
interesting subject. Maybe you could come up with a reference on why an amount
paid in by a partner, which you deem as a penalty, should be considered income
to the partnership.
Rip
West
I'll
need to do some further research and bring forth some references. But here
are my thoughts, for what they are worth.
I am
familiar with 721, but in this case the penalty is not a capital contribution,
it is merely a fee. If our dues are $500 a month but due to rules in the
operating agreement I am forced to $600 this month, why should I now own a
larger percentage of the partnership because I was forced to pay a
fee?
This
extra $100 is money the partnership has generated through operations. In
my mind I would expect this to show up on my schedule K line 11F other passive
income.
The
penalties for our club were not designed to be friendly, I guess our point was
don't be late on your dues. I think reporting it to income is the
conservative route and would never be argued by the IRS. However,
reporting a penalty as a capital contribution that is being allocated equally to
all members could have gift tax ramifications if the dollar values were high
enough (not that ours are but I know there are some large clubs out
there).
Let me
know your thoughts on this, of course I would prefer to not report it as income
if we can get to that conclusion.
Thanks
Michael
J. Michael Banks, CPA ************************* Under requirements imposed by the U.S. Internal Revenue Service, we inform you that any advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, by any taxpayer for the purpose of (1) avoiding tax-related penalties under the U.S. Internal Revenue Code or (2) promoting, marketing or recommending to another party any tax-related matters addressed herein. The scope of the Firm's work does not include advice or planning to avoid penalties that may be imposed by any taxing authorities. CONFIDENTIALITY STATEMENT This electronic message contains information from the law firm of Culp Elliott & Carpenter, P.L.L.C. and is confidential or privileged. The information is intended to be for the use of the individual or entity named above. If you are not the intended recipient, be aware that any disclosure, copying, distribution or use of the contents of this message is prohibited. If you have received this electronic message in error, please notify us immediately by telephone at (704) 372-6322 and destroy the original message.
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