Question

Daniel, an attorney, is approached by a new client, a start-up company that has yet to formally organize. The start-up company asks Daniel to prepare a partnership agreement and file the agreement with the Secretary of State’s Office. Additionally, Daniel is asked to file any other legal paperwork required for the company to operate as a limited partnership. In exchange for Daniel’s work, the start-up offers Daniel a 5% limited partnership interest. If you were advising Daniel (NOT the start-up), what should be his greatest concern?

a. Daniel would be responsible for paying taxes on receipt of the partnership interest because services contributed do not qualify under §721.

b. Daniel might receive a partnership interest in the start-up that may not be worth anything down the road.

c. Daniel can defer gain or loss recognition on the arrangement under §721

. d. None of the above

Answer 1

A. Daniel would be responsible for paying taxes on receipt of the partnership interest because services contributed do not qualify under §721.

As he providing service to the partnership not contributing property.

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