Adding a New Cash Partner to an Operating Partnership

Originally published in 2002

The contribution of cash to an operating partnership should be a simple event raising only minor tax issues. Alas, that is not to be: the tax issues are many and their resolution often difficult. To be sure, the contribution of cash likely will not be a taxable event to the incoming partner, but in a number of circumstances it can be taxable to one or more of the continuing (or exiting) partners. Tax allocations for the year of the cash infusion can be complex and, in fact, even the tax year itself can be affected by the contribution. And last but not least, the incoming partner must examine the control structure of the partnership to ensure that future partnership events can be anticipated and exit strategies can be implemented.