Rules for liquidating

Upon the deemed contribution of the assets to the liquidating trust, the trust will have the same adjusted bases in its assets as the partners had in those assets immediately prior to the transfer to the trust.Conclusion As noted, the use of a liquidating trust may be a cost efficient method to liquidate certain assets.

Since the business assets are deemed to have been distributed to the owners and then transferred to the liquidating trust, there will be an immediate recognition of a gain or loss from liquidation of the former business by the owners.

Such agreement provides for trustee duties, compensation of trustees, and governance as well as distributions and other administrative matters.

The liquidating trust normally has a lower cost structure than the existing fund and is managed on an "as needed" basis by the trustee as opposed to a full-time basis for the fund.

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.

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However, a partner generally must recognize gain on the distribution of property (other than money) if the partner contributed appreciated property during the 7-year period before the distribution.

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