Liquidating a partnership

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.

The trustee takes control of the newly formed liquidating trust.

The role of the trustee of the liquidating trust is to administer and manage the liquidating trust, sell assets, pay creditors, resolve any claims and distribute any available funds to the beneficiaries of the trust.

The objective of a liquidating trust is to help expedite the liquidation of the entity, and allow the owners to recognize gain or loss and to receive proceeds in an orderly manner.

In addition, it may be prudent for the fund manager to set aside certain cash reserves before making final distributions to the fund owners.

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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.

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 trust will be considered a liquidating trust with the primary purpose of liquidating its assets.

Should the purpose of the entity change, such as to carry on a for-profit business, then the entity will no longer be considered a liquidating trust.

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