Which entity receives a carryover basis for assets contributed by a partner?

The partnership receives a carryover basis for assets contributed by a partner because the tax treatment of contributions to a partnership stems from the Internal Revenue Code. Specifically, under Section 721 of the IRC, when a partner contributes property to a partnership, they do not realize gain or loss at the moment of contribution. Instead, the partnership takes on the basis that the partner had in the property immediately before the contribution. This principle helps to maintain the continuity of tax attributes associated with the asset and avoids any immediate tax consequences for the partner.

In this context, the partnership effectively inherits the partner's basis in the contributed assets, which affects how those assets will be treated in terms of depreciation and when they're eventually disposed of. This is key in ensuring that tax attributes are preserved, and it aligns with the nature of partnerships where the entities operate as a passthrough for tax purposes.

The other choices, such as general partners, limited partners, or shareholders, do not receive the carryover basis directly in the same manner since they do not hold the contributed assets in the entity's name; rather, they have their individual interests in the partnership as a whole. Thus, the correct choice reflects the tax treatment applied to partnerships and highlights their unique structure in regards to asset contributions