Transfer of Basis??

[Edsel]

A father-son partnership.  Father transfers part-ownership of the entity to his son, and for the sake of simplicity, assume the amount is less than the gift tax threshold, maybe $14,000 would be a good amount for purposes of this discussion.

Transfer is apparently tax-free for tax purposes.  But how about basis?

Rules for basis include additions for non-taxable "income" and subtractions for non-deductible "expenses".  This is clear from the rules for basis.  However, does the above calculation qualify to be included in the basis for both father and son?

[Lion EA]

I've had a long day, so don't accept this as correct. I think son takes on dad's basis, just as in any gift. But, that's outside basis. And, does lower of basis or FMV come into play for outside basis? I'm too tired to think about inside basis!

[Edsel]

Thanks Lion - I believe after thinking this through that you are quite correct.  No taxable event, but basis is changed.