Fees vs. Payments

Nicholas Picini on

The club I belong to has been having members pay in
additional funds to cover club expenses such as the Bivio
subscription. We would split the cost among all members and
the amounts taken in totaled the exact amount of the
subscription.

These expense contributions have been recorded as fees paid
by the members in past years, but I've noticed that the
recommendation is to record all of these as payments
instead.

Question - Is there any issue with having recorded these as
member fees in the past considering that the fees paid in
were in sum total equal to the expense to be covered?

Does this affect tax reporting in any way?

On a second point, new members joining the club are asked to
pay a fee when joining.

Question - Is it appropriate to record this as a fee or
should it be recorded as a payment?

Thanks for any feedback and apologies for raising this
question again, but I just want to be sure of the answer.

Thanks,

Nick Picini

Rip West on

Hi Nick,

You don't say how you assess these additional funds for expenses. Do you charge each member an equal amount? If you do, and if these member fees are paid exactly when the expenses are recorded, then you have succeeded in having each member bear an equal amount of the expense. HOWEVER, the allocation of the tax deduction for these expenses will not be equal. The partners with more units will be allocated a greater portion of the tax deduction than those with lesser units. So you could have the result that $100 expense is being borne equally [$25] by 4 members, when the tax benefit is going 90% to a 90% owner and the remainder is being spread to the rest. Also, it is extremely unlikely that you have been able to match the timing exactly, so you probably aren't getting economic burden of the expenses allocated equally either.

If it is your goal to have each member bear an equal portion of the expenses, you could just pay for these expenses out of available cash, and choose the option of allocating them equally. If you want to have each member pay in these amounts in addition to his/her regular contribution, you should treat the payment as a contribution for which units are awarded, not as a fee.

You probably should discuss whether or not it is appropriate to try to spread the burden of expenses equally. Take the annual payment to bivio for accounting/taxes. Does this benefit each member equally? Seems to me that you can make a better case that it benefits each member in proportion to his ownership percentage. If so, you should not allocate equally, but simply enter it as an expense with the result that the members with more units will bear a greater share than the members with lesser units.

To summarize. Either pay expenses out of available cash or assess your members as payments for which units are awarded. If your goal is to allocate the burden of these expenses equally, do so by indicating that when you record the expense.

Your second question asks if it is appropriate to charge new members a fee on joining. This, of course, is up to you. The fee is definitely an 'initiation fee', which benefits the members with more units. I have no problem with this is the amount is not too large. It can be argued that the older members have incurred expenses to get the club going and are entitled to some relief when new members join. Again, it is up to the club.

Rip West
Saint Paul, MN

Nicholas Picini on

Hi Rip,

Thanks for your explanation. The timing is an issue, so I
think in
the new year, I will recommend to my fellow club members
that we simply record the amounts contributed toward these
expenses as payments.

Thanks again,

Nick

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