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Recognizing Built-In Gain on Contribution to a Partnership

16 Pages Posted: 17 Nov 2011  

Calvin H. Johnson

University of Texas at Austin - School of Law

Date Written: November 17, 2011


Section 721 generally allows nonrecognition of the built-in gain on a contribution of appreciated property to a partnership. This proposal would require recognition of gain on property at the value set by the bargain and allow recognition of loss when the partnership is not related. It would allow deferred payment of tax on nonmarketable assets, computed at the time of contribution, but would require interest at an appropriate rate. Recognition of gain would end current abuses, including diversification of investments without tax in swap funds and a step-up in depreciable basis without recognition on the other side. Given the nation’s revenue needs, tax on the contribution exchange is merited.

The proposal is offered as a part of the Shelf Project, a collaboration of tax professionals to develop proposals to raise revenue without a VAT or a rate increase. Shelf Project proposals raise revenue, while making the tax system more efficient and reducing deadweight loss. Shelf Projects follow the format of a congressional tax writing committee report in explaining current law, what is wrong with it, and how to fix it.

Suggested Citation

Johnson, Calvin H., Recognizing Built-In Gain on Contribution to a Partnership (November 17, 2011). Tax Notes, pp. 905-919, November 2011; U of Texas Law, Public Law Research Paper No. 204; U of Texas Law, Law and Econ Research Paper No. 218; The Shelf Project. Available at SSRN:

Calvin Johnson (Contact Author)

University of Texas at Austin - School of Law ( email )

727 East Dean Keeton Street
Austin, TX 78705
United States
512-232-1306 (Phone)
512-232-2399 (Fax)

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