Appreciated or depreciated property may be contributed to a business enterprise in exchange for an ownership interest either on the initial organization of an enterprise or at a time when new capital is being infused into an operating enterprise. The federal income tax effects of such transactions may differ, depending not only on the form of the enterprise but also on whether the enterprise is newly organized or operating. Such transactions will have an economic impact on both the investor who is contributing the appreciated or depreciated property (the contributing investor) and, more importantly, the other investors (the noncontributing investors). Consequently, whenever appreciated or depreciated property is contributed to an enterprise, consideration should be given to possible adjustments in the business bargain among the investors in order to take account of the federal income tax effects. Indeed, if adjustments are not made, either the contributing investor or the noncontributing investors may realize an economic detriment while the other realizes an economic benefit. The intensity of the detriment or benefit will be directly related to the amount of the appreciation or depreciation in the value of the contributed property.
Samuel C. Thompson Jr., Tax Policy Implications of Contributions of Appreciated and Depreciated Property to Partnerships, Subchapter C Corporations and Subchapter S Corporations in Exchange for Ownership Interests, 31 Tax L. Rev. 29 (1976).