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Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 6239
Experience:  Extensive Experience with Tax, Financial & Estate Issues
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What are the tax effects on me a beneficiary of a liquidating

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What are the tax effects on me a beneficiary of a liquidating trust, by a letter of tax information received from a liquidating trustee It shows the value of my beneficial interest in the June 2012 bankruptcy reorganization plan. Info includes federal info for income, like section 1231 loss, other income and deductions not subject to 2 percent limitation (professional fees, operating expenses, lender servicing fee, interest expense).

Stephen G :

Hi & thanks for using our service. I'll do my best to give you a complete & accurate answer. Please ask me to clarify anything that is not clear.

Stephen G :

Is it reporting this information for a liquidating trust for a y/end ending in 2012?

Customer:

Hi Stephen,

Stephen G :

Hello

Customer:

I'm a beneficiary of a liquidating trust.

Stephen G :

I see that

Customer:

The effective date of the plan was June 29, 2012, per info sent earlier.

Stephen G :

If you received a beneficiary's tax letter then that information should be reported on your tax return.

Stephen G :

Did you receive a transmittal letter either with the tax letter or before explaining what the reporting period is? What exactly is being liquidated?

Customer:

The issue is when do we start writing off the loss because this year the original funds in the bankrupt company has been declared a loss. The SEC is trying to indict the company as a ponzi scheme. I had money lost in fraud, now in liquidation, don't know what to do about it (personally, we'd be glad for them to be jail for 50 years, write off as an object lesson).

Stephen G :

Well, you asked about the liquidating trust and that information should be furnished to you by the Trustee; as far as the loss from fraud goes, that's a completely different issue; however, if you lost your entire investment and write the loss off as a theft (investment) loss on Schedule A, that's the end of it; you can't write off more than you put into the investment.

Stephen G :

It sounds like a situation similar to the Madoff fraud.

Customer:

There isn't a reporting period listed. Properties of land in development, used as collateral by developers for their loans, which they defaulted in 2008 to 2010, are being liquidated by the liquidating truste of the company who loaned our money. I also had money deposited to another fund created by the company, where it seems they took that money to pay other investors in the company before it went bankrupt.

Customer:

Yes, our blog and class action attorneys refer to it like a Madoff scheme.

Stephen G :

The reporting period is your reporting period; the tax information is listed for you to include in the period the the actual items were incurred, or sales resulting in the 1231 losses, etc.

Customer:

does my reporting period relate to the question "Have I lost the money yet or is it unlost?". This letter is the 1st info that asset has decreased in value to what I used to have. Do I have to wait until the trust finishes liquidating? We have a chance of recovering $8K in taxes because it would wipe out our income item. It should be easy and simple but the gov't code gives me no idea. The attorneys can't or won't tell me when the loss occurred.

Stephen G :

Frankly, this is way too involved for me to comment on exactly what you should do in this forum. One of the key points that you should go over with a local CPA that can analyze all the documents with you, probably after 4/15 th now, is that in a fraud case, generally it is best to take the deduction as soon as you can as the IRS looks at when did you first know or should you have known that there was a fraud involved; generally, it involves determining when there was an identifiable event that indicated a problem; you really need a CPA to analyze this situation and advise you what the best course of action would be; I can't do that here; it isn't practical; this is designed for a question & answer, not an analysis project.

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