Billy purchased a fleet of cars used in his business for $200,000 three years ago. On 7/1/Year 1 when his basis in the cars was $120,000 he sold them for $300,000. He incurred $5,000 of expenses in selling the cars. The terms of the sale were $50,000 paid at the sale (on 7/1) and $50,000 paid on each 12/31 and 7/1 until 12/31/Year 3.

Required:

a) Briefly discuss how Billy treats this transaction for tax purposes. Provide citation to authority.

b) Provide Billy’s:

• Realized gain in Year 1
• Recognized gain in Year 1
• Basis at 12/31/Year 2 (not a typo – Year 2)