10.3 The balance sheet of equal Partnership OTR, expanded to show asset values, is as follows:

On formation, Osgood contributed Land 0, Theo contributed the marketable securities and Raeburn contributed cash which was later used to purchase New Property A and New Property B. The partnership is not an investment partnership described in section 721(b) due to its substantial land holdings. What are the tax consequences to Osgood and Theo if the partnership distributes all its marketable securities to Osgood in liquidation of his interest?

1. Theo, $0 gain; Osgood, $0 gain
2. Theo, $50,000 gain; Osgood, $0 gain
3. Theo, $50,000 gain; Osgood, $60,000 gain
4. Theo, $50,000 gain; Osgood, $100,000 gain

Assets Liabilities Tax Book FMV Tax Book Land O $ 20,000 $ 80,000 $120,000 [None] $ 0 $ 0 Marketable Securities 30,000 80,000 120,000 New Property 50,000 50,000 80,000 Capital New Property 30,000 30,000 40,000 Osgood 20,000 80,000 B Theo 30,000 80,000 Raeburn 80,000 80,000 Total Liabilities Total Assets $130,000 $240,000 $360,000 and Capital $130,000 $240,000 Assets Liabilities Tax Book FMV Tax Book Land O $ 20,000 $ 80,000 $120,000 [None] $ 0 $ 0 Marketable Securities 30,000 80,000 120,000 New Property 50,000 50,000 80,000 Capital New Property 30,000 30,000 40,000 Osgood 20,000 80,000 B Theo 30,000 80,000 Raeburn 80,000 80,000 Total Liabilities Total Assets $130,000 $240,000 $360,000 and Capital $130,000 $240,000