Implications of liquidating


01-May-2019 09:54

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.A liquidating trust may also be an effective method for a fund manager to wind down a fund without having a significant role in the liquidation.At the end of the fund's life cycle or term, the fund manager may have certain assets that are not easily liquidated and convertible into cash for distribution to the owners of the fund.However, as with new legal entities, fund managers should consult with tax advisors before embarking on a liquidating trust to make sure that this type of entity makes sense for the situation.Garth Puchert, Audit Partner of Eisner Amper's Financial Services Group, is primarily devoted to private equity funds, registered investment companies, investment advisors, mutual funds, hedge funds and broker-dealers in securities.Over the last decade, a number of firms have been established to provide trustee services in addition to trust departments of banks.A liquidating trust is generally considered a grantor trust for tax purposes.

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The newly formed trust is governed by a trust agreement executed between the former fund and the trustees before liquidation of the fund.

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.