Liquidating trust and capital gain and tax
Almost no one in the family objected as allowances continued to be funded, even increased and promises continued to be made.
As long as everyone was getting his or her check, most everyone was willing to ignore the deterioration of the real human and physical assets and equity on the family balance sheet.
These lenders will seize the collateral and sell it—often at a significant discount, due to the short time frames involved.
If that does not cover the debt, they will recoup the balance from the company’s remaining liquid assets, if any. These include bondholders, the government (if it is owed taxes) and employees (if they are owed unpaid wages or other obligations).
A debtor may also seek confirmation of a liquidating plan. The Supreme Court overruled cases holding that the exemption set forth in Section 1146 of the Bankruptcy Code could apply absent any plan of reorganization., No. In considering asset sale transactions in liquidating Chapter 11 bankruptcy cases outside of a plan of reorganization, bankruptcy professionals need to determine whether or not there are capital gains, and whether or not there are enough net operating losses or other tax attributes to offset taxable income generated by the bankruptcy estate, such that there is no federal or state income tax liability owed by the bankruptcy estate.
The liquidating plan may provide for the sale of the debtor’s assets to a third party.
The liquidating plan may also provide for the transfer of substantially all of the debtor’s assets to a Liquidating Trust.
(For more insight, see our recent blog post - In any of these liquidation scenarios, the bankruptcy estate may realize substantial capital gains income after considering the debtor's adjusted basis in the property. One disadvantage of an asset sale, as opposed to a transfer of assets under a confirmed plan of reorganization, is the lack of any exemption from stamp taxes or similar taxes under Section 1146 of the Bankruptcy Code.
Usually for a simple inheritance the basis of the asset is stepped up to the fair market value on the date of death of the decedent.
I'm unsure whether this applies to assets in an irrevocable trust, or whether it's treated as a gift at the times it's placed in trust and therefore retains it's basis at that time.