When noncash assets are contributed to a partnership, the entity theory usually applies and, therefore, gain or loss is recognized.

Question

Quizplus · Accepted Answer

Under the entity theory, when noncash assets are contributed to a partnership, gain or loss is generally not recognized at the time of contribution. This is because the transaction is considered a transfer of assets into the partnership in exchange for an interest in the partnership, not a sale or exchange that would trigger recognition of gain or loss for tax purposes.

When Noncash Assets Are Contributed to a Partnership, the Entity