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These rules (a) allocate the partnership’s income, losses, deductions, and credit among the partners and (b) adjust basis to reflect each partner’s allocation of those items.
As stated in Taxation of Limited Liability Companies and Partnerships, limited liability companies are taxed as partnerships by default.
A partner’s initial basis in his partnership interest depends on how the partner acquired the interest.
If the partner acquired the interest in exchange for a contribution to the partnership, his basis generally equals the amount of money and the partner’s adjusted basis in any property contributed to the partnership. If the property is subject to indebtedness at the time of the contribution, the partner’s basis is reduced by the portion of the debt that is assumed by the other partners. If the partner acquired his interest in exchange for services, his basis equals the value of services provided. If the partner purchased his partnership interest, his basis equals his cost. The partner’s initial basis is adjusted to give effect to transactions affecting the partnership.
This discussion of the tax consequences of contributions to partnerships will also apply to limited liability companies unless the limited liability company has elected to be taxed as a corporation.As with S corporations, the tax consequences of a distribution to a partner are heavily dependent on the partner’s basis in his partnership interest.