Disbanding Club Questions

Paul H. Stephan on

I think our club will be disbanding at our next meeting and wanted to get some answers to some questions in preparation. I have read a few postings related to this and now understand that we need to file a tax return within 90 days and it sounds like Bivio supports that - Great!

First of all, I assume we just individually withdraw each member one-at-a-time until everyone has been withdrawn, correct?

Second, how do we handle any income that we receive after we withdraw everyone? I'm thinking of either interest or dividends that may be paid later. I suppose we could cash everything out and put the $ in a shoe box for a month or so while we wait for any later distributions, but that doesn't seem like a very good idea. Is there anyway to withdraw members, but leave them active so we can withdraw them again? Does that even make sense?

Thanks for you help and for a great service.

iras1 on

In a message dated 08/28/09 09:38:01 Eastern Daylight Time, pstephan@bivio.com writes:

I think our club will be disbanding at our next meeting and wanted to get some answers to some questions in preparation. I have read a few postings related to this and now understand that we need to file a tax return within 90 days and it sounds like Bivio supports that - Great!

Not 90 days. By the 15th day of the fourth month after your disband. If you disband in September, your return would be due by January 15. At this late date in the year, I would just recommend filing for a full year and making your "official" disbanding date (for IRS purposes) 12/31.

First of all, I assume we just individually withdraw each member one-at-a-time until everyone has been withdrawn, correct?

Correct.

Second, how do we handle any income that we receive after we withdraw everyone? I'm thinking of either interest or dividends that may be paid later. I suppose we could cash everything out and put the $ in a shoe box for a month or so while we wait for any later distributions, but that doesn't seem like a very good idea. Is there anyway to withdraw members, but leave them active so we can withdraw them again? Does that even make sense?

What you should do is either (1) anticipate the future income (you can determine if you have any pending dividends by checking the ex-dividend date for future dividends; interest income can be trickier), (2) sell all stocks and wait for any expected dividends to arrive before withdrawing everyone, (3) withdrawing everyone but the treasurer and letting the treasurer keep any future dividends/interest before completing his/her withdrawal.

Thanks for you help and for a great service.

You're welcome.

Ira Smilovitz

Join me at Invest Ed 2010
Baltimore, MD August 6 - 8, 2010
http://www.investor-education2010.org/

Eric Dobbs on

Paul H. Stephan wrote:
> I think our club will be disbanding at our next meeting

Here are the steps we recommend for disbanding clubs. There
are several things that need to be done.

1) Tell your broker to sell all of your investments now, if
you have not already done so.

2) If you have stocks that pay dividends, wait for about
three months to allow all the dividends to be credited.

3) Reconcile your club records against brokerage statements
after all the dividend are in.

4) Enter full withdrawals for all club members.

5) Complete the partnership tax interview.

6) Download the final tax forms for your club.

As Ira noted, in your case, you'll be able to wait and file
your final return early next year and still meet the IRS
requirements for disbanding clubs. Of particular note, your
club isn't disbanded until you've entered the full
withdrawals for all members. So the IRS's clock doesn't
start ticking until those withdrawals are in which should be
at least three months from now (so you can let all the
dividends clear).

Take care.
-Eric

iras1 on

In a message dated 08/28/09 11:47:29 Eastern Daylight Time, dobbs@bivio.com writes:

As Ira noted, in your case, you'll be able to wait and file
your final return early next year and still meet the IRS
requirements for disbanding clubs. Of particular note, your
club isn't disbanded until you've entered the full
withdrawals for all members. So the IRS's clock doesn't
start ticking until those withdrawals are in which should be
at least three months from now (so you can let all the
dividends clear).

Technically, these last two statements are not true. The partnership officially ends when the partners make the decision to cease operations, not when the funds are distributed. However, the IRS will not penalize you for choosing the withdrawal date as the termination date providing there is no significant impact on tax liability. (For instance, if the club voted to disband today, but didn't process the withdrawals until this time next year, the IRS might question the choice of termination date.)

Ira Smilovitz

Join me at Invest Ed 2010
Baltimore, MD August 6 - 8, 2010
http://www.investor-education2010.org/

Rip West on

Very seldom do I disagree with Ira, but this is one of those occasions. He said......

The partnership officially ends when the partners make the decision to cease operations, not when the funds are distributed.

As I read the regulations, this is not true. The partnership is considered terminated when no part of its business continues to be carried on by any of its partners in a partnership. Determining exactly when this happens is not always easy. I have always taken the position that after the last security is sold, winding up the affairs of an investment club does not lengthen the duration of the partnership. IOW, I consider the date the last security is sold to be the date of termination. You will be safe if you file your return by the 15th day of the 4th month following the date of sale of the last security. [For this purpose, I don't consider an interest bearing account to be a security]

Here is the applicable code section....

Section 708(b)1A

For purposes of subsection (a) , a partnership shall be considered as terminated only if--

no part of any business, financial operation, or venture of the partnership continues to be carried on by any of its partners in a partnership
Rip West
Saint Paul, MN

----- Original Message -----
From: iras1
To: The Club Cafe
Sent: Friday, August 28, 2009 12:35 PM
Subject: Re: club_cafe: Re: Disbanding Club Questions

In a message dated 08/28/09 11:47:29 Eastern Daylight Time, dobbs@bivio.com writes:
As Ira noted, in your case, you'll be able to wait and file
your final return early next year and still meet the IRS
requirements for disbanding clubs. Of particular note, your
club isn't disbanded until you've entered the full
withdrawals for all members. So the IRS's clock doesn't
start ticking until those withdrawals are in which should be
at least three months from now (so you can let all the
dividends clear).

Technically, these last two statements are not true. The partnership officially ends when the partners make the decision to cease operations, not when the funds are distributed. However, the IRS will not penalize you for choosing the withdrawal date as the termination date providing there is no significant impact on tax liability. (For instance, if the club voted to disband today, but didn't process the withdrawals until this time next year, the IRS might question the choice of termination date.)

Ira Smilovitz
Join me at Invest Ed 2010
Baltimore, MD August 6 - 8, 2010
http://www.investor-education2010.org/

iras1 on

Actually, I meant what Rip posted, but I sure didn't write it that way. Thanks for catching the error.

Ira Smilovitz

In a message dated 08/28/09 16:49:33 Eastern Daylight Time, ripwest@comcast.net writes:

Very seldom do I disagree with Ira, but this is one of those occasions. He said......

<<

The partnership officially ends when the partners make the decision to cease operations, not when the funds are distributed.

>>

As I read the regulations, this is not true. The partnership is considered terminated when no part of its business continues to be carried on by any of its partners in a partnership. Determining exactly when this happens is not always easy. I have always taken the position that after the last security is sold, winding up the affairs of an investment club does not lengthen the duration of the partnership. IOW, I consider the date the last security is sold to be the date of termination. You will be safe if you file your return by the 15th day of the 4th month following the date of sale of the last security. [For this purpose, I don't consider an interest bearing account to be a security]

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