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.
The fair value of the contribution to the liquidating trust would represent the new owner's basis in the liquidating trust.
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.
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He has over 40 years of experience in Business & Finance.
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.
Never advertise it as a going out of business sale.
Always describe it as "liquidating" the business and you will attract a higher quality buyer than when you advertise that you are going out of business.
Lewis is a retired corporate executive, entrepreneur, and investment advisor in Texas.
If you are faced with closing your business and you were unable to locate a buyer to purchase the business in its entirety, you should consider selling/liquidating your business’s assets.
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.