If an investor’s units are held in a tax-exempt or qualified account, the investor should send a copy of the Grantor Letter (include all pages) to the trustee of the investor’s account.
The trustee will need this information to prepare the investor’s annual statement.
Upon liquidation of a partnership, the Internal Revenue Service views the distributions as a sale of a partnership interest; as a result, gains are generally taxed as long-term capital gains to partners.
Investors in taxable accounts must determine their cost basis in their IIT shares by subtracting all return of capital historically reported to them on Form 1099-DIV from the total gross purchase amount for their IIT shares, including any share purchases made pursuant to IIT’s distribution reinvestment plan.
Investors should consult their tax advisor regarding their individual circumstances and to determine their required tax reporting.
Only partners who receive a liquidating distribution of cash may have an immediate taxable gain or loss to report.
The value of marketable securities, such as stock investments that are traded on a public stock exchange, and decreases to your share of the partnership's debt are both treated as cash distributions.
Partners, however, can only take a loss on their returns if it's solely the result of a liquidating distribution of cash, outstanding partnership receivables or inventory items.
If the partnership distributes property -- anything other than cash and property treated as cash -- during its liquidation, it has no immediate tax effect.
Creditors are always senior to shareholders in receiving the corporation's assets upon winding up.
However, in case all debts to creditors have been fully satisfied, there is a surplus left to divide among equity-holders.
When a company has more liabilities than assets, equity is negative and no liquidating distribution is made at all.
This is usually the case in bankruptcy liquidations.
Tax-exempt or qualified accounts include Individual Retirement Accounts (IRAs) and other qualified accounts such as 401(k) plans, SEP IRAs, 403(B) accounts and profit sharing plans.