On December 31 of last year, Alex and Jackson become equal partners in the AJ Partnership with assets having a tax basis and FMV of $120,000. The partnership, which deals in securities, had no liabilities at the end of last year. In January of this year, Franklin contributes his investment securities with an FMV of $60,000 (purchased two years ago at a cost of $45,000) to become an equal partner
in the new AJF Partnership. The securities, which are inventory to the partnership, are sold on December 15 of the current year for $90,000. What amount and character of gain from the sale of these securities should be allocated to Franklin?
A) $10,000 ordinary income
B) $15,000 capital gain and $10,000 ordinary income
C) $25,000 capital gain
D) $25,000 ordinary income
D) $25,000 ordinary income
There is no special provision to preserve the capital gain character for Jackson, so the entire gain is ordinary income.
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