HELP - Allocate per Partnership Exception
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HELP - Allocate per Partnership Exception I need help regarding the Allocate per Partnership Exception check box... if I check the box, the expense gets allocated in relation to each member % of the total investments of the fund? if left un checked it allocates EQUALLY to every body... so if there are 10 members it allocates a 1/10 to each... is this correct??? regards Tomas A. Fernandez Hi Thomas,
No, it is just the opposite of your understanding. If you check the
box, the allocation is done equally among all members. If not checked, the
allocation is done in accordance with IRS approved practice in the ratio of
members' ownership.
Rip West
Saint Paul, MN
Does this mean that the IRS does not approve of equal allocation? Would we get fined if audited? Rip West wrote: > Hi Thomas, > > No, it is just the opposite of your understanding. If you check the > box, the allocation is done equally among all members. If not checked, the > allocation is done in accordance with IRS approved practice in the ratio of > members' ownership. > > > Rip West > Saint Paul, MN > > > > - Original Message ----- > From: > Tomas Alberto Fernandez > Garcia > To: club_cafe@bivio.com > Sent: Saturday, January 08, 2011 11:37 > AM > Subject: club_cafe: HELP - Allocate per > Partnership Exception > > I need help regarding the Allocate per Partnership > Exception > check box... > > if I check the box, the expense gets > allocated in relation > to each member % of the total investments of the > fund? > > if left un checked it allocates EQUALLY to every body... so > if > there are 10 members it allocates a 1/10 to each... > > is this > correct??? > > regards > > Tomas A. Fernandez Hi Linda,
It's not that the IRS doesn't approve of equal allocation. It's, simply,
their policy that if the partnership agreement does not spell out how an expense
is to be allocated, then expenses must be allocated in ratio to ownership. No
matter how often we emphasize this, very few clubs who allocate equally bother
to spell out their policy in their agreement.
Rip West
Saint Paul, MN We took our partnership agreement from a template in a book which is the same one on Better Investing. Guess we did not realize the implications of some of the items as we started out such as our agreement says we will allocate according to ration of ownership. We want to change our agreement to allocate expenses equally. If we do that now, can it be retroactive to 2010? Can we change the agreement and document in our minutes that we want it to be retroactive? Any advice on how to do this is appreciated. From: club_cafe@bivio.com [mailto:club_cafe@bivio.com] On Behalf Of Rip West Hi Linda,
It's not that the IRS doesn't approve of equal allocation. It's, simply, their policy that if the partnership agreement does not spell out how an expense is to be allocated, then expenses must be allocated in ratio to ownership. No matter how often we emphasize this, very few clubs who allocate equally bother to spell out their policy in their agreement.
Rip West
On Sun, Jan 9, 2011 at 12:48 PM, Marlene Fondrick <marlene@fondrick.net> wrote: Dear Marlene,
IRS publication 541 states that "Partners can modify the partnership agreement for a particular tax year after the close of the year but not later than the date for filing the partnership return for that year." So it appears that if you wanted to modify the agreement you were using for 2010 prior to April 15, it would be OK. However, you need to understand that making these changes at this point would impact everyones percentage of ownership during 2010. If you paid any withdrawals, the amounts members were paid would not have been calculated correctly. In general, we do not suggest that you change historical records. Investment club expenses should be minor and their impact is usually inconsequential. I would suggest you review a presentation we did about expenses at this link: http://www.bivio.com/club_cafe/files/Presentations/investment-club-expenses.pdf Before deciding to change things from the way you are currently doing them. Laurie Frederiksen |
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