Dissolving Investment Club and 1065

Kevin on

We are dissolving our investment club, FOG. We have a
question on Form 1065 line 19a. The instructions state that
we have to enter the members valuation and cost basis in
this section. The instructions seem to state that the
distributed securities will constitute taxable income for
that amount distributed over the member's cost basis i nthe
year that the club was disbanded. This does not seem
correct to me. In my opinion we get the securities
distributed to us, inherit our cost basis and get taxed when
we sell the security. Your help would be appreciated.

iras1 on

The simplest thing to do is just complete the dissolution of the club and then prepare your final 1065 using bivio's tax module. It will prepare the return correctly. In your case the problem is that you aren't completing Schedule K correctly. Investment clubs list the securities portion of any distribution on line 19b, not line 19a. Entries on line 19a are correctly taxable in the year received to the extent the distributions exceed basis.

Ira Smilovitz

In a message dated 01/07/09 15:29:03 Eastern Standard Time, murphykevinm@bivio.com writes:

We are dissolving our investment club, FOG. We have a
question on Form 1065 line 19a. The instructions state that
we have to enter the members valuation and cost basis in
this section. The instructions seem to state that the
distributed securities will constitute taxable income for
that amount distributed over the member's cost basis i nthe
year that the club was disbanded. This does not seem
correct to me. In my opinion we get the securities
distributed to us, inherit our cost basis and get taxed when
we sell the security. Your help would be appreciated

Jim Thomas on

Looking at page 36 of the 2008 1065 instructions
(http://www.irs.gov/pub/irs-pdf/i1065.pdf), notice that it
says

    Distributions
    Line 19a. Distributions of cash and
    marketable securities. Enter on line 19a
    the total distributions to each partner of cash
    and marketable securities that are treated
    as money under section 731(c)(1).

Securities transferred as part of a full withdrawal go in
line 19b (not line 19a) because they aren't "marketable
securities that are treated as money under section
731(c)(1)".

-Jim Thomas

Kevin wrote:
> We are dissolving our investment club, FOG. We have a
> question on Form 1065 line 19a. The instructions state that
> we have to enter the members valuation and cost basis in
> this section. The instructions seem to state that the
> distributed securities will constitute taxable income for
> that amount distributed over the member's cost basis i nthe
> year that the club was disbanded. This does not seem
> correct to me. In my opinion we get the securities
> distributed to us, inherit our cost basis and get taxed when
> we sell the security. Your help would be appreciated.

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