Rich Carreiro wrote:
- quote -

Thank you, that was helpful since this same material is not (easily?)
available at the current NAIC website.

Regarding whether or not to elect out of partnership treatment:

In a former career, I coined a phrase "pull is easier, push is better".
I think I can twist it to this situation thusly: explicitly "pushing"
the pass-through tax information to each member of the investment club
(via partnership tax return and Sched K-1) is better than each member
"pulling" the tax info ("the partners must be able to compute their own
taxable income without computing the partnership's income"), even though
"pulling" might be easier (read: cheaper).

-Mark Bole

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I did a bit more searching, using archive.org, and the best I could
come up with was:

http://web.archive.org/web/199801260...ubs/tax96.html

which contains the following:

In previous years, NAIC recommended that clubs file an exemption
to the Partnership Tax Returns. However, we were informed by the
Internal Revenue Service that clubs should file Form 1065 and
Schedule K-1 for their members. To assist club treasurers with
this filing, we are reprinting the instruction set currently
being included with NAIC's Accounting Manual, The Handbook for
Investment Club Accounting. These instructions apply to issues
generally encountered by an investment club. NAIC advises all
clubs to seek a tax advisor when dealing with any unusual items,
interpretation questions, or possible Internal Revenue Service
(IRS) tax elections.

These instructions supplement and supersede (where applicable)
the suggestions concerning filing a U.S. Partnership Return of
Income (Form 1065) previously discussed in the Accounting
Manual. It is recommended clubs file Form 1065.

Of course, it doesn't say *why* the IRS told the NAIC that.

--
Rich Carreiro rlc-news[at]rlcarr.com

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

Mark Bole <makbo[at]pacbell.net> writes:

- quote -

As one of the people who posted in those past threads, from what
I can remember, something in the IRC or Regs changed in 1997
that caused NAIC to believe that not filing a full partnership
return for the club each year could jeopardize the club's status
as a partnership. Before that, NAIC recommended that clubs organize
and be taxed as a partnership, but make the election to not have to file
a partnership return each year. After that, NAIC still recommended
clubs organize and be taxed as a partnership, but now recommended
that the return be filled out and filed each year.

I leave it to the tax pros to ponder what might have changed
in 1997 to make the NAIC change its view. An institution of
or change to "check the box" rules, maybe?

--
Rich Carreiro rlc-news[at]rlcarr.com

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

I have researched the archives of this group, the general web, and
Treas. Reg. 1.761-2.

Background:

Investment clubs (with exceptions) are treated as partnerships by
default. An election out of partnership treatment is available under
the right circumstances, Pub 541 has more info on the exclusion, Pub 550
more info on investment clubs in general.

Posts to this group from a number of years ago mention what is now the
www.betterinvesting.org (National Association of Investors Corporation,
aka NAIC) web site as an authority. Reportedly this organization has
reversed its historical position on the election for a club: from
formerly recommending the exclusion election, to now recommending a
partnership return. Today, I cannot find any of this material at the
site, at least not in the "free" portion.

Question:

I'm trying to figure the pros and cons of the partnership filing approach.

Pro: Preparing an annual Form 1065 and K-1's to the club members seems
more "official", and since most of the calculations have to be done
anyway, why not follow the path of least resistance? Might eliminate
the need for nominee 1099's to be issued as well.

Con: fees for preparing the tax forms can be high if done
professionally, although it looks like there is specialized club
software out there that would help with this. And if partnership
returns were not timely filed in prior years, the potential penalties
can be significant. (Under other "right circumstances", the election
out of partnership treatment can be considered to have been made in a
prior year).

Any other comments about the taxation of investment clubs invited.

-Mark Bole

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >