Topic:In the "old days," one partner could contribute cash, and another partner could contribute an equal value of appreciated property with no subsequent record-keeping requirements. Future depreciation deductions and gains on sale of the property could be allocated to both partners equally, thereby shifting income from one taxpayer to another. A partner in a lower tax bracket (or with expiring net operating losses) could report the share of the gain on sale of the asset with a relatively low corresponding tax burden.

Section 704(c)(1)(A) was added to the Code to ensure that the partner contributing the property pays taxes on any built-in gain. This prevents income shifting among taxpayers and loss of revenue to the U.S. Treasury. There is no corresponding provision for Scorporationsgains, losses, and depreciation expenses are allocated among the shareholders without regard to any built-in appreciation on contributed property.

Assume a new partner or shareholder owns land valued at $180,000 in which the tax basis is $120,000. How would the "incidence of taxation" differ for the entities and owners if (1) the owner (partner or shareholder) sold the property and contributed the $180,000 proceeds or if (2) the owner (partner or shareholder) contributed that same property with the entity selling it for $180,000? What theory of partnership taxation supports this difference in treatment? Further, discuss what ethical issues are present in the scenario, and provide a Biblical perspective to frame these issues.