Partnership: Partnership Formation & Contributions
Quick answer
Contributing property to a partnership for an interest is generally tax-free under IRC §721. The partner's initial outside basis equals the property's adjusted basis plus any cash (§722), and the partnership takes a carryover basis (§723). Receiving an interest for services can be taxable income, and contributed liabilities shift basis among partners.
Partnership Formation & Contributions is tested on EA Exam Part 2 (Business Entities). Primary IRS reference: IRC §721.
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About this EA exam topic
Partnership formation questions test the generally tax-free contribution of property in exchange for a partnership interest, the partner’s initial basis, and the partnership’s basis in contributed property.
The EA exam tests exceptions (contribution of services, contribution of property with liabilities, and built-in gain allocations) that can change the result.
What you'll be tested on
- Tax-free contribution of property for a partnership interest
- Initial outside basis and the partnership’s carryover basis
- Treatment of contributed services
- Liabilities and built-in gain considerations
How to prepare
- Remember services for an interest can be taxable, unlike property.
- Track carryover basis into the partnership.
- Watch contributed liabilities shifting basis among partners.
Practice questions for Partnership Formation & Contributions
What this topic covers
Partnership Formation & Contributions appears in Part 2: Business Taxation within the Business Entities domain. VantageEA practice questions focus on how partnership rules are applied in realistic EA exam fact patterns.
What candidates practice
Candidates practice identifying tested facts, choosing the best multiple-choice answer, and reviewing explanations tied to IRC §721, IRC §722, IRC §723, IRS Publication 541. This topic supports timed 100-question PSI-style mock tests and shorter topic review sessions.
Related practice-question themes include partnership, formation, contribution, basis.
Topic overview
Official IRS sources
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Frequently asked questions
Is contributing property to a partnership taxable?
Usually no. It is generally tax-free, though contributing services for an interest can create income.
Which part?
Part 2 (Businesses).
Reference?
IRS Publication 541.
Continue studying
More Business Entities topics from Part 2
C Corporation: C Corp Formation (Sec 351) & Basis
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C Corporation: Corporate Income Tax & Dividends
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Partnership: Partner Basis & K-1 Allocation
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Partnership: Partnership Distributions
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S Corporation: S Corp Election & Termination
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S Corporation: S Corp Income/Loss & Distributions
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