Tax Treatment Of Charging Order
Topic Tax TopicsTaxDistribution
Despite a wealth of misinformation about the subject found on the Internet, taxable distributions in the charging order context are quite simple:
Creditor Holds A Charging Order Lien: Even though the creditor gets the economic distribution, the taxable distribution goes to the debtor/member who gets to pay it (and not the creditor).
Charging Order Lien Has Been Foreclosed: The purchaser at the judicial sale of the debtor/member's (now-former) interest becomes an assignee of the interest (albeit an involuntary assignee with no management, voting or information rights, etc.), and thus the taxable distributions go to the purchaser.
TAX TREATMENT ARTICLES
- Jay D. Adkisson and Thomas E. Rutledge, Charging Orders and Taxes: Some of the Answers May Surprise You (American Bar Association BusinessLawToday, Aug. 13, 2018).
- 2011.07.31 ... Charging Orders and K.O.'d by the K-1 ... Not