11.10 The balance sheet of Partnership ABC (expanded to show asset values) is as follows:

Partnership ABC is a general partnership which uses an accrual method and has made no section 754 election. Its plant is real property which it has depreciated on a straight-line basis. The partnership distributes to Bethany in liquidation of her interest the land and receivables valued at $20,000. How much ordinary income and capital gain or loss do Bethany and the partnership recognize on this distribution, applying the proposed regulations under section 751(b)?

1. Bethany, $0 income, $0 gain; ABC, $0 income
2. Bethany, $0 income, $0 gain; ABC, $4,000 income
3. Bethany, $4,000 income, $0 gain; ABC, $0 income
4. Bethany, $4,000 income, $9,000 gain; ABC, $0 income

Cash Receivables Inventory Equipment Plant Assets Liabilities Tax Book FMV Tax Book $ 75,000 $ 75,000 $ 75,000 Debt $ 72,000 $ 72,000 27,000 27,000 27,000 21,000 21,000 33,000 Capital 45,000 45,000 42,000 Albert 62,000 62,000 55,000 55,000 65,000 Bethany 62,000 62,000 35,000 35,000 55,000 Charlize 62,000 62,000 Total Liabilities $258,000 $258,000 $297,000 and Capital $268,000 $258,000 Land Total Assets