Partnership Taxation: Partner Contributions under Code Section 721(a)

Summary

This practice note discusses a partner's tax-free contribution of property to a partnership in exchange for an interest in that partnership, an important tax characteristic of pass-through entities. I.R.C. Section 721(a) provides the general rule that neither the partnership nor any of its partners recognizes gain or loss when a partner contributes property to a partnership in exchange for an interest in that partnership. Although this tax-free treatment is straightforward, special rules and exceptions apply.