3.1 Partnership Formation

1. General Rule

No gain or loss is recognized by the partner

2. Exceptions to Non-recognition of Gain

(1) Capital Interest acquired for services rendered: FMV
(2) Property subject to (excess) liability: NBV

3. Original Basis

1) Partner's basis of the partnership interest (outside basis)
Cash: amount contributed
Service: FMV (taxable)
Property: adjusted basis (NBV)

2) Partnership's basis of contributed property (inside basis)
Partner's adjusted basis (NBV)

4. Holding Period

1) Partner's holding period for the partnership interest
The contributed property was a -
(a) capital asset or Sec. 1231 asset: include the holding period of the property contributed
(b) ordinary income assets: begin on the date the property is contributed

2) Partnership's holding period for contributed property
It includes the period of time the property was held by the partner.