1st and 2nd options are Capital Gains/ ordinary income.

Last = Can/ cannot transfer

On January 2 of the current year, Fenton and Myers form the FM LLC. Their contributions to the LLC are as follows: Adjusted Basis Fair Market Value From Fenton: Cash Accounts receivable Inventory From Myers: Cash $232,500 $232,500 418,500 290,625 116,250 941,625 941,625 Within 30 days of formation, FM collects the receivables and sells the inventory for $290,625 cash. FM realized the following income in the current year from these transactions: of S from collecting cash basis accounts receivable. from sale of inventory of S This rule exists to ensure that a partner and partnership between themselves and alter the inherent character of the underlying deferred income, gain, loss, or deduction property