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There are a number of inconsistencies/errors in your comments. First, member's cost basis does not equal the club's cost basis in the shares owned by the club. Member's cost basis is based on what they contributed, less what they withdrew, plus/minus their shares of every item of income/expense/gain/loss during their time in the club.

I understand that, and so this gives me another question. I do have the records for both the club basis and the individual members' basis, so it is not difficult for me to report the members' basis, and I thought that made sense, but perhaps I am mistaken. There are just 2 of us, and we have been the only members since Day 1, so it's pretty easy for me to have the complete records and track it.

The instructions for lines 19(a) and 19(b) do not apply to investment clubs because investment clubs do not treat shares of stock as marketable securities. Line 19(a) should only include the cash distributed. The stock gets reported on 19(b) and is reported at the club's cost basis.

OK, this helps as I was not reading it like that. I will split out the cash and the securities basis as you note.

On the K-1, cash is reported on line 19, code A; club stock cost basis is reported on line 19, code C.

OK. Thanks. Do the members then each just worry about their own cost basis when they finally sell the shares, and not have to report anything else? We do have all of that, and it is correctly reflected at the new brokerage for each of us, so it will be easy to report gains/losses when something is sold.


Were you using investment club accounting software in the past (bivio, Club Accounting 3, myiclub.com)? If so, you should use that software to prepare your final return as it will calculate everything for you correctly.


I never moved to using that as I have had a spreadsheet all these years that breaks everything out for each line. It's different this year because there is final distribution which includes cash and stock, so I wasn't quite sure how to handle that.

There is no statement to attach to the K-1 as the K-1 would never report the individual member's gain or loss from leaving the club.

OK, this helps.

The member gets his/her gain or loss, and FMV and personal cost basis for the shares received from his/her withdrawal report. A copy of the withdrawal report should be provided to each member along with his/her K-1. The withdrawal report is not sent to the IRS or state tax authority.

We actually each already have the withdrawal report which shows that info. We needed it to get the basis reported correctly at the receiving broker, and so I'm thinking I don't need to provide it again.

As an aside, I don't understand how there could be no cash involved as it is extremely unlikely that you could hold shares of stock with values such that you could distribute whole shares which total to the value that each withdrawing member was entitled to without balancing out with cash. That would be a first for me in over 15 years of working with investment clubs.

There is some cash involved, but my question was mostly around how to show the distribution in stock since that does not cause a taxable event until it is sold. The cash that exists was from sales, and so we already had those capital gains/losses to report, as that is where the cash came from, as you have surmised.

You have, as usual, been very helpful, and so I can finish the 1065 and K-1's now.

Thanks so much.
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