ABCD is a cash-basis partnership with four equal partners having the capital balances as shown below. ABCD gives E a 1/5 interest in the capital of the partnership as payment for services previously rendered by E to the ABCD partnership. The capital balances before admitting E are as follows:

Basis FMV

A $40,000 $200,000

B $40,000 $200,000

C $40,000 $200,000

D $40,000 $200,000

TOTAL $800,000

Determine the following:

1. the amount of income and its character that E must report and his outside basis;
2. A, B, C, and Ds expense and recognized gain and its character; and
3. the basis and FMV of the capital accounts of A, B, C, D, and E.