We have had a family investment club for 18 years as a
general partnership. We have been told that if we
incorporate, the Corp can pay the taxes. Has anyone tried
this, and if so which type of corporation should we use?
Some of our members are minors, whose parents did not file
taxes, 2 members we are unable to locate because one of the
parents took off with them after a divorce. Nasty family
business, but Grandpa can't keep paying the kids' taxes.
We're looking for suggestions on which type of corporation
would best in a situation such as this.

You might also check out some advice given by both Jerry & Rip many moons ago:

http://www.bivio.com/trez_talk/mail-msg?t=1385100003

Cheers,
Rob

Thank you, your response was very helpful.

Rip West wrote:
> Be very, very careful here!!!! While it is true that if you incorporate,
> the corporation will pay taxes on realized gains, dividends, etc., it is also
> true that you shareholders will pay an additional tax when you try to take the
> money out of the corporation. That is the advantage of a partnership over a
> corporation - you have one single tax instead of two.
>  
> If you incorporate, you also run the risk of coming under the Personal
> Holding Company rules, which entail yet another tax.
>  
> Right now, if you take out partial withdrawals, they are tax free. Under a
> corporation, they would be taxable to the shareholder.
>  
> I can't come up with a set of circumstances where it would make sense to
> incorporate your family investment club. If you decide to go this route, be sure
> to consult a tax attorney or CPA. Taking the advice from other members of
> this forum [including me] could prove to be disastrous.
>  
>  
> Rip West
> Saint Paul, MN
>  

Thank you, your reponse was very helpful. Since the club's
headquartered with my father's name and address, he is the
one that the IRS contacts. He has paid the taxes for some
of the minors, and one year when he overpaid for my niece
they told him that he could not get a refund, she, or her
mother, would have to apply for the refund since he is not
her legal guardian. I think that was the major factor in
looking into incorporation.

Lynn Ostrem wrote:
> Christine,
>  
> I have two pieces of advice for you. 
>  
> #1 - Listen to Rip.  He's a retired CPA who's been helping investing clubs for decades.  He would know better than anyone if you are heading into trouble.
>  
> #2 - The main reason clubs fail, aside from boredom from bad returns, is bookkeeping.  Not only will you incur more taxes through incorporation, but you will have to pay someone to do your books, too. As an S-Corporation, my business profits and expenses flow through to my personal taxes, just like a general partnership. Anything else would be very expensive.
>
>  
> If you are going to spend money on a professional, I'd spend it on an estate attorney to advise you on how to extract these minors from the club with minimal risk to them.  I can't imagine minors being held responsible by the IRS for taxes.  I would think their parents would be held liable. It might be best to get help putting that money into 529 plans for them, instead.
>
>  
> Good luck to you,
>  
> Lynn Ostrem
> Crow River Investment Club