Abstract
The United States has regulated the tax consequences of the exchange of a partnership interest for services since the 1950s. At first, the
aggregate theory was used to analyze the tax consequences. At the turn of the millennium, the U.S. government moved toward the entity
theory to regulate the exchange. The aggregate and the entity theories produce different income tax results to the partnership and its partners when a partnership interest is exchanged for services. This article examines the tax effects of exchanging a noncompensatory partnership interest for services under both theories, and postulates that the move toward the entity theory by the U.S. will produce unintended tax consequences in which a noncompensatory partnership interest is exchanged for services.
