The Deferred Gains/Losses report

This report shows any capital gains which have been deferred as the result of securities transferred for full partner withdrawals.

Under Internal Revenue Service rules, when a partnership transfers property (which includes securities in an investing partnership) to a fully-withdrawing partner, any capital gains that would have been realized in the transfer are deferred for remaining members until such time as those remaining partners fully withdrawn from the partnership themselves.

While capital gains are not eliminated, the deferral of gains to a later date (which could be years in the future) provides a meaningful tool for portfolio management and reducing the club's exposure to highly-appreciated or over-weighted positions.

This report can be displayed with Subtotals either by Withdrawn Member or Remaining Members.

In the first case, the report will list the name and withdrawal date of a the member who was given shares, and then:

• The name of each remaining member in the club.
• The transferred securities that apply defeered gain to that remaining member.
• That remaining member's share of the Deferred Gains.
• The total of the deferred gains from that withdrawal

In the second case, the report will list each remaining member's name, and then:

• The withdrawal date for each full withdrawal that involved a transfer of shares.
• The name of the member who took the withdrawal.
• The transferred securities
• The remaining member's share of the deferred gain from each withdrawal
• That member's total deferred gain from all full withdrawals that involved shares of stock.

The figures in this column do not have a direct immediate tax consequence to the remaining members. There are no capital gains realized immediately by remaining partners as a result of the transfer of appreciated shares in a full member withdrawal. However, remaining partners at the time of the transfer will each eventually receive their own shares of capital gains that resulted from the transfer of appreciated shares. Those gains will be distributed to the remaining partners when they subsequently fully withdraw from the club, whether those withdrawals happen in six months, six years, or six decades. The benefit of deferring the realization of capital gains is that remaining members are not responsible at the time of the transfer or shares for capital gains taxes that may be triggered by the transfer (they will pay taxes due on their share of the capital gains later and not in the current tax year).