Finance Exam Prep

Ran Chen, EA, CFP®

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Enrolled Agent Exam [Part 2] 05, Partnership Formation — §721 Nonrecognition

5/2/2026 • 4 min

This podcast is made by Ran Chen, who holds an EA license, Insurance and Securities licenses (Series 6, 63, 65), and the CFP® designation. He is passionate about opening access to high-quality exam preparation resources and helping learners prepare more effectively for professional certification exams. In this episode you will learn: - That under §721, neither the partner nor the partnership generally recognizes a gain or loss on the contribution of property for a partnership interest. - How a partner's initial basis is determined by the adjusted basis of the property they contribute, not its fair market value. - How liabilities assumed by the partnership reduce a partner's outside basis by the net amount of debt relief. - The critical exception where a partner must recognize capital gain if the net liability relief exceeds their contributed property's basis. - That contributing services for a partnership interest is a taxable event resulting in ordinary income, as §721 only applies to property. For more free exam prep tools, practice questions, and AI-powered explanations, visit https://open-exam-prep.com/ or YouTube Channel: https://www.youtube.com/@Open-exam-prep

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