If a service oriented partnership has the following balance sheet, what are P-1's (a general partner) tax consequences of receiving a $20,000 cash payment as a retiring partner. Assume that P-1 is an original partner.
Cash A/B of 201,000 FMV 201,000
Unrealized Receivables A/B 0, FMV 9,000
Land: A/B of 10,000 FMV 15,000
Capital account for each of the 3 partners: A/B 10,000 FMV 15,000
All of the following statements are true except one, which one is FALSE?
A. The amount paid for good will is $5,000
B. P-1's outside adjusted basis is subtracted from the value of the cash and land to obtain the portion of the gain that is capital gains
C. P-1 has ordinary gain of $8,000
D. The amount of capital gains is $7,000