What amount used for a 1099-B

[TinkerBelleLuvr]

What is the name of your state (only U.S. law)? Florida

The club I work for is up for sale. I listened to the presentation today and think the Board of Governors' thought process is flawed.

The offer is for 2 million. The purchaser is offering up 2 million minus the following deduction:

Each equity member's first year with the new organization is "discounted" by $5500, so that they pay nothing for the first year. The new organization would hold back an additional $2000 to discount the membership costs for year 2 and 3. The hold back amount is almost $500K for all members.

Now, if they leave the club after the sale, they would NOT get the $7500. If a member dies or relocates, they are eligible for the monies held back. If they can't play golf anymore because they are sick, they don't get their money back.

After the bills are paid, and monies held back for after-the-sale costs, each member is looking at receiving cash of about $10K.

Now, the BOG is looking at the "discount" as a non-taxable event. I say no.

My reasoning on the "no" is the full amount needs to appear on a 1099-B because there is "constructive receipt" of $17,500. It's just that they are agreeing to spend $7500 as membership dues after the sale in the contract.

So, the question of the day:

Should the 1099-B reflect $10K or $17.5K?

If there isn't enough information, what else should I look for in the sales agreement? Is there a specific tax code I should look at?

From a personal perspective, this sale isn't good. But, from having seen the information, it's really not good for the members either.

[TinkerBelleLuvr]

As I was reading thru the IRS instructions of a 1099-B, I found this on page 2:
http://www.irs.gov/pub/irs-prior/i1099b--2008.pdf

Barter Exchanges
A barter exchange is any person or organization with members or clients that contract with each other (or with the barter exchange) to jointly trade or barter property or services. The term does not include arrangements that provide solely for the informal exchange of similar services on a noncommercial basis. Persons who do not contract a barter exchange but who trade services do not file Form 1099-B. However, they may be required to file Form 1099-MISC.

Transactional/aggregate reporting. Barter exchanges involving noncorporate members or clients must report each transaction on a separate Form 1099-B. Transactions involving corporate members or clients of a barter exchange may be reported on an aggregate basis.

Member information. In the recipient area of the Form 1099-B, enter information about the member or client that provided the property or services in the exchange.

Exceptions. Barter exchanges are not required to file Form 1099-B for:
Exchanges through a barter exchange having fewer than 100 transactions during the year.

Exempt foreign persons as defined in Regulations section 1.6045-1(g)(1).

Exchanges involving property or services with a fair market value of less than $1.00.

Would it be correct to think that the $10K would be reported on a 1099-B and the remaining $7500 would be on a 1099-MISC?

Or is my original assumption correct that $17.5K would be on a 1099-B?

[LdiJ]

Originally Posted by TinkerBelleLuvr

What is the name of your state (only U.S. law)? Florida

The club I work for is up for sale. I listened to the presentation today and think the Board of Governors' thought process is flawed.

The offer is for 2 million. The purchaser is offering up 2 million minus the following deduction:

Each equity member's first year with the new organization is "discounted" by $5500, so that they pay nothing for the first year. The new organization would hold back an additional $2000 to discount the membership costs for year 2 and 3. The hold back amount is almost $500K for all members.

Now, if they leave the club after the sale, they would NOT get the $7500. If a member dies or relocates, they are eligible for the monies held back. If they can't play golf anymore because they are sick, they don't get their money back.

After the bills are paid, and monies held back for after-the-sale costs, each member is looking at receiving cash of about $10K.

Now, the BOG is looking at the "discount" as a non-taxable event. I say no.

My reasoning on the "no" is the full amount needs to appear on a 1099-B because there is "constructive receipt" of $17,500. It's just that they are agreeing to spend $7500 as membership dues after the sale in the contract.

So, the question of the day:

Should the 1099-B reflect $10K or $17.5K?

If there isn't enough information, what else should I look for in the sales agreement? Is there a specific tax code I should look at?

From a personal perspective, this sale isn't good. But, from having seen the information, it's really not good for the members either.

I don't think that they will necessarily have constructive receipt of $17.5k.

1) If they leave the club they do not get the 7.5k at all.

2) The 5.5k won't be constructively received until the time that their membership payment would normally be due (may not be 2009, may be 2010) and the additional two discounts would be in two other future years.

I am inclined to agree with you that the entire 17.5k would eventually be taxable, IF they receive the full benefit of the discounts. I am just not inclined to agree that its going to all be constructively received in 2009.

Its more like an installment sale.

[TinkerBelleLuvr]

The $5500 would be "received" in 2009. So, after talking with a few accountants, it appears that I would 1099-B the $15,500. If the member chooses to continue their membership in 2010, then they receive $1000 " of the escrowed monies to be applied to their dues. The same again for 2011.

Now, I have NO idea how 1099-B would happen in 2010 or 2011 cuz I don't think the "old" company will exist anymore. But, I'll cross that hurdle later.

[LdiJ]

Originally Posted by TinkerBelleLuvr

The $5500 would be "received" in 2009. So, after talking with a few accountants, it appears that I would 1099-B the $15,500. If the member chooses to continue their membership in 2010, then they receive $1000 " of the escrowed monies to be applied to their dues. The same again for 2011.

Now, I have NO idea how 1099-B would happen in 2010 or 2011 cuz I don't think the "old" company will exist anymore. But, I'll cross that hurdle later.

The old company may have to exist until the escrowed monies are completely dispersed.