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It may take several years for such assets to be converted into cash.
Such assets may consist of securities that are illiquid or have certain restrictions or monies held in escrow where it will take several years for the conditions to be met for release of such funds.
Under Revenue Procedure 82-58, the IRS will issue a private letter ruling if 8 conditions are met.
Such conditions include, among other things, that the primary purpose of the trust is liquidation of the assets with no objective of carrying on a trade or business and the trust agreement should contain a fixed or determinable termination date. A "business trust" should be considered instead of a liquidating trust if the purpose of the trust is to carry on a trade or business.
The fair value of the contribution to the liquidating trust would represent the new owner's basis in the liquidating trust.
Tax treatment of a liquidating distribution from a partnership Similarly, in the case of a liquidating distribution from a partnership, the business assets are deemed to have been distributed to the partners and transferred to the liquidating trust.
If a trust is created outside of Chapter 11 of the Bankruptcy Code, a private letter ruling may be requested if conditions of Revenue Procedure 82-58 are met.
The basis of property received in complete liquidation of a partner's interest is the adjusted basis of the partner's interest in the partnership, reduced by any money distributed in the same transaction.
Thus, the partner's basis in the property can never be greater than the partner's basis in the partnership.
Each owner must recognize a gain or loss on the deemed distribution received in liquidation.
Such gain or loss is measured by the difference between the fair value of the liquidating distribution and the owner's adjusted basis in the corporation.