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Suggested Change to Your Club Partnership Agreement

9/14/2018

IRS rules regarding partnerships have changed. Be sure to take action before year-end 2018 to protect your investment club.

In July 2018, ICLUBcentral's Club Accounting Advisory Russell Malley and I presented a webinar for BetterInvesting members on the topic of the new IRS audit rules that went into effect for the 2018 tax year. One of our suggestions involves adding a new provision to your investment club's partnership agreement to establish the election of a Partnership Representative and define how your club functions during an IRS audit. Here is our suggested text:

26 US Code 6221-6223 Designation and Election: The Club Treasurer shall be the designated Partnership Representative (PR) for purposes of Section 6223 and shall responsible for dealing with the IRS in the event of an audit. Unless otherwise directed by the partners, the PR shall annually, in connection with filing the Club’s Form 1065 tax return, indicate the Club elects to be treated under 26 USC subsection 6221(b)(1)(a), that is, an election out of the audit rules of Section 6221. The Treasurer shall include with such election any required information to make such election effective. In the event of an IRS audit, the PR will represent the club but is not authorized to make any settlement agreement without the three-quarters majority consent of the current partners. Partners of the Club shall consist only of individuals; no trust may be a partner.

This language is incorporated in Section 22 of ICLUBcentral's recommended Partnership Agreement for investment club, which may be found here and includes a downloadable Microsoft Word file.

If you missed the webinar, you can view the complete archives here.

- DOUGLAS GERLACH