How to withdraw a member and transfer assets to another member

Mehran Mikailizadeh on

We have a member who wants to withdraw from the club but
transfer all his holdings to another member. How can I do
this in Bivio? Any help is appreciated.

Mehran

Laurie Frederiksen on

>We have a member who wants to withdraw from the club but
>transfer all his holdings to another member. How can I do
>this in Bivio? Any help is appreciated.

Dear Mehran,

The first step to account for this is for you to process a full withdrawal for the member leaving.
Once that is done, record a payment received from the member the assets are being transferred to.
If it is for the same amount and valuation date, the number of units withdrawn will equal the
number of units received.

Laurie Frederiksen
bivio Inc.

Rip West on

Laurie's advice is all right if you want to have a taxable transaction. But if the leaving member wants to make a gift, you should do something else. Many years ago, when I raised the question with bivio, they told me that they could make a transfer, interally.

The first step to account for this is for you to process a full withdrawal for the member leaving.
Once that is done, record a payment received from the member the assets are being transferred to.
If it is for the same amount and valuation date, the number of units withdrawn will equal the
number of units received.
>>

Rip West
Saint Paul, MN

Mehran Mikailizadeh on

Thanks for the advice. The amount being transferred is less
than $11,000 so I think that falls withn the IRS tax free
Gift limit if I simply withdraw the member and make a
payment for the new member in the same amount. Right?

Rip West wrote:
> Laurie's advice is all right if you want to have a taxable transaction. But
> if the leaving member wants to make a gift, you should do something else. Many
> years ago, when I raised the question with bivio, they told me that they could
> make a transfer, interally.
>  
> <<

Rip West on

No! You are mixing up two different taxes. There would be no gift tax on a gift of $11,000, but there will be income tax consequences from withdrawing a member and having the new member enter a contribution in the same amount. If you really want it to be a gift, you will have to get in touch with bivio.

Rip West
Saint Paul, MN

Laurie Frederiksen on

Deear Mehran,

Rip is correct that the buyout procedure I described may have tax implications for the withdrawing
member. A true "gift" between club members is a rare occurrence, with it's own set of accounting
requirements which are not currently handled by any mainstream club accounting software that I am
aware of. It also has tax implications both the giver and the receiver of the gift need to be aware
of and comply with. Maybe the accountants that monitor this list would like to confirm but I
believe that any time some members contribute money to "buy out" another members share, it would be
a stretch to get the IRS to consider this a "gift". Since this is the more usual situation in a
club "buyout", this is what bivio has been developed to handle.

Rip is also correct to point out that we have amazing programmers working at bivio. I'm sure they
could develop the programs to handle gift transactions as well as many other less commonly used
features that would be nice additions. As our customer base grows, we will have the strength in
numbers to keep offering you a very reasonably priced club accounting product with lots of depth to
it's abilities.

Having said all this, I think there is confusion out there about the fact that there are additional
tax implications when someone withdraws from a club. I know you've all been paying taxes each year
on the club's activities but you have also been purchasing ownership in your club. When it comes
time to divest your ownership, the IRS wants to know what your gain or loss has been and will be
asking for additional taxes if you have made a profit on your investment. Fortunately, you do get
credit for all those taxes you have paid over the years and are not taxed on those amounts again.

Tax implications may not be as bad as you think. In today's market, you might find that a member
has an overall loss on his investment in the club. If he has a gain and he has been contributing to
the club for more than a year, his gains will be taxed at the favorable long term capital gains
rate. If you have any stock that has appreciated and you transfer this to him to pay him off,
capital gains are deferred for him until he sells the stock.

You could try processing a withdrawal for someone using several different payoff methods and see
what your options are.

Obviously, personal taxes will ultimately be a function of each persons financial situation and
they will need to consult their own tax advisor to confirm what their liabilities are.

Laurie Frederiksen
bivio Inc.

Rip West on

I want to say, very respectfully of course, that both Rob and Laurie are missing the point here. Rob said he didn't notice anything about a gift. Well I didn't notice anything about consideration being offered for the 'transfer' of units. Anytime you have a transfer of units without consideration, you have a gift. And it turned out, from a later email, that was the case.

Laurie said....

Maybe the accountants that monitor this list would like to confirm but I believe that any time some members contribute money to "buy out" another members share, it would be a stretch to get the IRS to consider this a "gift". Since this is the more usual situation in a club "buyout", this is what bivio has been developed to handle.
>>

This is where I think Laurie is missing the point. No one is talking about a gift if a member is contributing money to 'buy out' another member's share. We are talking about transferring units without cash consideration, and that's a gift.

This situation comes up often. I answer at least 5 to 15 requests a year on how to effect such a transfer in IClub's Club Accounting. It is not easy, but it can be done. When I was with bivio, those many years ago, I had a few such requests, and upon inquiry, was told that support would have to do this for the customer. Fair enough. That was all I said.

Did you really want to bring up a more complicated way of doing things
so that we can answer more support questions? I suppose this is a
subversive plot by Iclub to increase our costs. ;-)
>>

I understand that you're kidding, Rob, but, yes, I would like both IClub and bivio to support gifts of units between members. It would make my life a lot easier. The matter comes up often, and it's not going away. And, it would be a very easy procedure to impliment.

Rip West
Saint Paul, MN

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