Dbsi liquidating trust

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.

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.

Download PDF When "Liquidating Trust" is mentioned, most people associate this with bankruptcy.

In a bankruptcy, a liquidating trust may be formed whereby certain assets are placed in a trust for the benefit of creditors who may have certain claims against those assets.

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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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.

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.

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.

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