Investment Clubs An investment club is formed when a group of friends, neighbors,business associates, or others pool their money to invest in stock orother securities. The club may or may not have a written agreement, acharter, or bylaws. Usually the group operates informally with members pledging to paya regular amount into the club monthly. Some clubs have a committeethat gathers information on securities, selects the most promisingsecurities, and recommends that the club invest in them. Other clubsrotate these responsibilities among all their members. Most clubsrequire all members to vote for or against all investments, sales,trades, and other transactions. Identifying number.Each club must have an employer identification number (EIN) to usewhen filing its return. The club's EIN also may have to be given tothe payer of dividends or other income from investments recorded inthe club's name. To obtain an EIN, first get FormSS-4, Application for EmployerIdentification Number, fromthe Internal Revenue Service or your nearest Social SecurityAdministration office. See chapter 5 of this publication for moreinformation about how to get this form. Investments in name of member.When an investment is recorded in the name of one club member, thismember must give his or her social security number (SSN) to the payerof investment income. (When an investment is held in the names of twoor more club members, the SSN of only one member must be given to thepayer.) This member is considered as the record owner for the actualowner, the investment club. This member is a "nominee" and mustfile an information return with the IRS. For example, the nomineemember must file Form 1099-DIV for dividend income, showing theclub as the owner of the dividend, his or her SSN, and the EIN of theclub. Tax treatment of the club.Generally, an investment club is treated as a partnership forfederal tax purposes unless it chooses otherwise. In some situations,however, it is taxed as a corporation or a trust. Clubs formed before 1997.Before 1997, the rules for determining how an investment club istreated were different from those explained in the followingdiscussions. An investment club that existed before 1997 is treatedfor later years the same way it was treated before 1997, unless itchooses to be treated a different way under the new rules. To makethat choice, the club must file Form 8832,Entity Classification Election. Club as a Partnership If your club is not taxed as a corporation or a trust, it will betreated as a partnership. Club files Form 1065.If your investment club is treated as a partnership, it must fileForm 1065. However, as a partner in the club, you must report on yourindividual return your share of the club's income, gains, losses,deductions, and credits for the club's tax year. (Its tax yeargenerally must be the same tax year as that of the partners owning amajority interest.) You must report these items whether or not youactually receive any distribution from the partnership. You should receive a copy of Schedule K-1 (Form 1065),Partner's Share of Income, Credits, Deductions, etc., fromthe partnership. The amounts shown on Schedule K-1 are yourshare of the partnership's income, deductions, and credits. Reporteach amount on the appropriate lines and schedules of your income taxreturn. The club's expenses for producing or collecting income, formanaging investment property, or for determining any tax are listedseparately on Schedule K-1. Each individual partner who itemizesdeductions on Schedule A (Form 1040) can deduct his or her share ofthose expenses. The expenses are listed on line 22 of Schedule A alongwith other miscellaneous deductions subject to the 2% limit. Seechapter 3Botschaftssuiten Vilamourafor more information on the 2% limit. For more information about reporting your income from apartnership, see the Schedule K-1 instructions. Also seePublication 541, Partnerships. Passive activity losses.Rules apply that limit losses from passive activities. Your copy ofSchedule K-1 (Form 1065) and its instructions will tell youwhere on your return to report your share of partnership items frompassive activities. If you have a passive activity loss from apartnership, you must complete Form8582 to figure the amount of theallowable loss to enter on your tax return. No social security coverage for investment club earnings.If an investment club partnership's activities are limited toinvesting in savings certificates, stock, or securities, andcollecting interest or dividends for its members' accounts, a member'sshare of income is not earnings from self-employment. You cannotvoluntarily pay the self-employment tax to increase your socialsecurity coverage and ultimate benefits. For more information on self-employment tax, see Publication 533,Self-Employment Tax. Club as a Corporation An investment club formed after 1996 is taxed as a corporation if: It is formed under a federal or state law that refers to itas a corporation, body corporate, or body politic. It is formed undera state law that refers to it as a joint-stock company or joint-stockassociation, or It chooses to be taxed as a corporation. Choosing to be taxed as a corporation.discount hotels in KatowiceTo choose to be taxed as a corporation, the club cannot be a trust(see Club as a Trust, later) or otherwise subject tospecial treatment under the tax law. The club must file Form 8832 tomake the choice. Club files Form 1120.hotels in BratislavaIf your club is taxed as a corporation, it must file Form 1120 (orForm 1120-A). In that case, you do not report any of its incomeor expenses on your individual return. All ordinary income andexpenses and capital gains and losses must be reported on the Form1120 (or Form 1120-A). Any distribution the club makes thatqualifies as a dividend must be reported on Forms 1096 and1099-DIV if total distributions to the shareholder are $10 ormore for the year. You must report any distributions that you receive from the club onyour individual return. You should receive a copy of Form1099-DIV from the club showing the distributions you received. Some corporations can choose not to be taxed and have earningstaxed to the shareholders. See S Corporations, earlier. For more information about corporations, see Publication 542,Corporations. Club as a Trust In a few cases, an investment club is taxed as a trust. In general,a trust is an arrangement through which trustees take title toproperty for the purpose of protecting or conserving it for thebeneficiaries under the ordinary rules applied in chancery or probatecourts. An arrangement is treated as a trust for tax purposes if itspurpose is to vest in trustees responsibility for protecting andconserving property for beneficiaries who cannot share in thatresponsibility and so are not associates in a joint enterprise for theconduct of business for profit. If you need more information abouttrusts, see section 301.7701-4 of the regulations. ERROR MSGClub files Form 1041.If your club is taxed as a trust, it must file Form 1041. Youshould receive a copy of Schedule K-1 (Form 1041) from thetrust. Report the amounts shown on Schedule K-1 on theappropriate lines and schedules of your income tax return.