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

Summary

This practice note discusses a partner's tax-free contributions of property to a partnership in exchange for an interest in that partnership—an important tax characteristic of pass-through entities. Code Section 721(a) provides the general rule that neither the partnership nor any of its partners shall recognize gain or loss when a partner contributes property to a partnership in exchange for an interest in that partnership. Though this tax-free treatment is straight forward, special rules and exceptions apply.