Problem
When a partner contributes property to a partnership in exchange for an interest in that partnership, and the property that is contributed has a built-in-gain {a built-in-gain occurs when the fair market value of the property contributed is greater than the contributing partner's basis in the property}. The contributing partner does not recognize anyr gain in connection with the contribution of the property with the built-in-gain. However, if the partnership sells the contributed property at some later time. The amount of the built-in-gain at the time of the contribution is taxed to the contributing partner.
What is the rationale for allowing the contributing partner to defer recognition of that gain until the partnership sells the contributed property? Explain your thinking and justify your response.