Liquidating a partnership

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.

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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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.The remaining assets and liabilities are transferred into the newly formed trust and the former owners of the liquidating fund become unit holders or beneficiaries of the trust.The newly formed trust is governed by a trust agreement executed between the former fund and the trustees before liquidation of the fund.

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