Jamie wrote....

My club is formed as a general partnership. Our members, however, do not invest the same amounts every month, so there are some wide gaps in ownership percentages. I have recently read that in a general partnership, taxes will be divided equally among partners, which would not be fair to those who have smaller holdings in the club. Is this true?

A club's partnership agreement may define the allocation of taxable items between partners.  If so, there are specific guidelines to ensure that the distribution methodology outlined in the partnership agreement offers "substantial economic effect".   If the allocation or distributive share of each member is not defined in a club's partnership agreement, which is often the case,  IRS Publication 541 states that each members distributive share "is determined by his or her interest in the partnership".    In other words, income, interest, dividends, gains and losses, and expenses realized by a club should be allocated in proportion to each members interest in the club, not equally unless each member has equal ownership in the club.  For more information on the allocation methodologies employed by bivio's accounting software see http://www.bivio.com/hp/tax-allocation-methods.html


Also, will the partners have to pay taxes at year-end if our holdings have appreciated in value, but we have neither received dividends nor sold anything?

Club members will be taxed on their share of any income, interest, dividends, gains and losses, and expenses REALIZED by a club during the tax year.   Notice I emphasized the word "realized".   Capital gains only become realized when a security is sold.   In other words, unrealized paper profits are not taxable.

Thanks for using bivio!

Jerry Dressel
St.Louis, Missouri
Trez_Talk@bivio.com