Our club received paperwork stating that the broker has withheld federal income taxes on certain dividends (backup withholding). What do we do?

The first thing you should do is check with your broker. You will probably need to supply your Federal Tax ID for one of your dividends. Until you do that, the broker will continue to withhold. You will never get the money back that the broker has withheld for the prior year, but you have a chance to do so if the broker has withheld any in the current year.

To recover the money that was withheld, here is what you have to do:
First enter the amount so withheld as a non-investment expense. Put a comment on the transaction that it is for 'Backup Withholding'.
Then click the box to allocate it equally. You allocate equally in order to make it easier to see how much of the credit goes to each member. It won't make any difference in the long run. Each member's value is going to decrease by the amount that is allocated to him or her, and each member is going to recoup this decrease by receiving a credit on his or her personal income tax return.

When you print your Federal tax return and K-1s, you are going to have to make some manual adjustments.
On the Schedule 1065: On line 15f of Schedule K, enter the entire amount of the backup withholding and signify that it is type 'O'.
On each member's K-1: Enter the equally allocated amount --that's the total divided by the number of members-- in line 15 of part III. Again, indicate that this is type 'O'.

That should do it. Your cash should now agree with your broker, and each member will recover his or her share of the withholding withheld by the broker via a credit (not a deduction) on the personal tax return.