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Wallstreet Esq.
Wallstreet Esq., Tax Attorney
Category: Tax
Satisfied Customers: 585
Experience:  10 years experience
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We have an opportunity to participate in an upcoming IPO.

Customer Question

We have an opportunity to participate in an upcoming IPO. The stock will be purchased by a friend (there's a restriction on who may purchase the stock at the IPO price and our friend has the right to purchase) in her name. We will each contribute 50% of the proceeds to the stock purchase. Assuming the stock realizes a gain over time after the IPO, we want to make certain we are covered on any tax liability. Certainly, if she sells the stock, there will be a taxable event and we can agree to share the tax liability. However, how do we account for the gain/tax paid on our taxes if she pays the tax (with our proceeds)? Thanks
Submitted: 2 years ago.
Category: Tax
Expert:  Lev replied 2 years ago.
Hi and welcome to our site!In general - based on purchase restrictions - your friend will be solely responsible for the tax liability on the gain she will realize in future - as long as shares are owned by her.Shares are NOT transferable as my understanding and her tax liability may not be shifted to another person..However - based on your information - you are forming an investment club for investment purposes.Most investment clubs operate as partnerships to avoid paying taxes at a corporate level. Each member receives a Form K-1 every year indicating her share of the earnings or losses, which the partner must report on his/her individual tax return.You might want to have a separate tax ID for the partnership (investment club) - and will avoid using your own tax ID (SSN) for income reporting that doesn't belong to you..Using your personal account that is attached to your personal tax ID would always create legal issues whether that is your income or you are receiving that income as a nominee.So - the IRS woudl expect that income to be reported on your friend's individual tax return - and she might want to be prepared to explain if reporting would be different.