Formation of Partnerships – Overview of Code Section 721No Gain or Loss:Generally, Code Sec. 721 requires that no gain or loss is recognized ifproperty is transferred to a partnership in exchange for partnership interest. It does notmatter whether the transfer is during partnership formation or after the partnership hadalready been formed.Mandatory non recognition:Notwithstanding the exceptions in the following slide, non-recognition treatment for qualified transactions under Code Sec. 721 is mandatory, notelective for partners. Similarly, non-recognition treatment under Code Sec. 351 ismandatory for corporate shareholders.
Inside and Outside BasisInside Basis:This is the partnership’s basis in the partnerships assets. Each partner willhave a share of the inside basis equal to his ownership interest. The inside basis isimportant to determine gain/loss upon the disposition of partnership’s assets.Outside Basis:This is the partner’s basis in the partnership interest. The outside basis isimportant to determine gain/loss upon disposition of the partner’s interest in apartnership.
You've reached the end of your free preview.
Want to read both pages?
Accounting,Taxes,Generally Accepted Accounting Principles,partner,partnership net profit