Question

lizabeth, David and Ethan form a new partnership (EDE) to which Elizabeth and David each contribute assets worth $50,000 and basis of $20,000, and Ethan contributes his technical services worth $50,000. The value of the services is based upon what Ethan regularly charges unrelated parties for similar services. Elizabeth, David and Ethan each receive in exchange a one-third interest in the partnership. The transferors are tax-free to all three partners. Question 5 options: 1) True. 2) False.

Answer 1

Yes, the statement given in the question is true.

The statement given in the question is true.

As the partners gave there investments in the form of assets and other partner gave technical services in the form of capital to the partnership firm.

Here the question is about the tax issues of the investment of property or assets by the partners in firm .

1. We know that the partnership does not have seperate legal entity from partners then transfer of assets is not done from one person to another and there is no change in ownership.

2. Even though those assets are in the partnership firm the ownership is still remain at the partner only .

3. If any of the partner who invested assets in firm retires from the business by taking amount and by not taking assets that he took into the bussiness in that case it leads to sale of his personel assets to partnership firm and then tax issues get attracted .

4. But in the case given in the question the partner does not take any consideration for his assets .

5. The same situation will get attracted to taxes in case, assets are given to a company in form of capital . Why because company has seperate legal entity and the ownership changes from the name of person to name of company so in this case the taxes get attracted .

6. But in the given case the ownership doesn't changes from one person to another.

7. Conclusion :- by considering all the above points we can say the assets given to the partnership in the form of capital does not attracts any tax issues and they can be said tax free due to no changes in the ownership of the assets.

These are all the points to solve the above given question.

I hope, all the above given information is helpful to you.

Thank you.