Assume a partnership which had been formed with only cash contributions from its three equal partners. Today the partnership has zero debt and no hot assets. If the three partners decide that they would rather do business through a corporate entity, there are two different ways in which it might be done:

1. The partnership contributes all of its assets to Newco in exchange for 100% of Newcos stock, then distributes all of that stock to its partners, 1/3 each, in liquidation.
2. The partners simply contribute all of their partnership interests to Newco in exchange for 100% of Newcos stock (1/3 each).

Would there be any different results to the partners in terms of their respective bases in Newco stock using technique 1 vs. 2? Why or why not? (An example or two might help.)