Consequences of liquidating
Your basis increases and decreases over the years for required adjustments to arrive at adjusted basis -- the amount you'll use to calculate gain or loss after the liquidation.
For example, increasing adjustments are made for additional contributions you make and to reflect your share of partnership income, whereas decreasing adjustments are required for partnership losses and profit withdrawals.
The creditors would still get the proceeds from this sale, which is why the court approves such a process – it gives creditors a guaranteed opportunity to recover at least the value of the company’s assets.
When a business operates as a partnership, the partners each report a percentage -- which is usually the same as their percentage of ownership -- of annual earnings on their personal returns.
If my company goes through liquidation, what will the end result be for me as a director of the company?As a result, the tax effects of a partnership that makes liquidating distributions only impacts the partners who receive them.To be taxed as a liquidating distribution, however, a partner's interest in the partnership must terminate.Liquidating a partnership results in a gain or loss depending on how each partner’s distribution compares to his basis.If the distribution exceeds his basis, he recognizes a gain.