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Understanding Internal Revenue Service Audit Rules for Investment Clubs |
3/19/2025 |
Here's why we recommend that clubs do not allow members to transfer their club interests to trusts.
The Internal Revenue Service (IRS) has special rules regarding audits that apply to partnerships that are affected by the types of legal entitities that are allowed to be partners. Specifically, if any partner in the partnership is a trust, then that partnership is ineligible to opt out of the IRS partnership audit regime rules. For investment clubs that do not opt out, there can be significant downsides for future partners. For this reason, myICLUB recommends that clubs only allow individuals to be members, and to specifically exclude trusts from holding club member interests.
In our March 2025 myICLUB webinar, Russell Malley addressed the ins and outs of this IRS issue as it relates to investment clubs. Before your club allows members to transfer their ownership interests to trusts, you must watch the replay of this webinar!
The replay is available on our YouTube channel, or you can view the replay on demand right here:
The PDF handout of the presentation slides is also available for download.
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