Carrie D'Lake, Reed A. Green, and Doug A. Divot share a passion for golf and decide to go into the golf club manufacturing business together. On January 2, 2017, D'Lake, Green, and Divot form the Slicenhook Partnership, a general partnership. Slicenhook's main product will be a perimeter-weighted titanium driver with a patented graphite shaft. All three partners plan to actively plan participate in the business. The partners contribute the following property to form Slicenhook: Partner Contribution Carrie D'Lake Land, FMV $460,000 Basis $460,000, Mortgage $60,000 Reed A. Green $400,000 Doug A. Divot $400,000 Carrie had recently acquired the land with the idea that she would contribute it to the newly formed partnership. The partners agree to share in profits and losses equally. Slicenhook elects a calendar-year-end and the accrual method of accounting. In addition, Slicenhook received a $1,500,000 recourse loan from BigBank at the time the contributions were made. Slicenhook uses the proceeds from the loan and the cash contributions to build a state-of-the -art manufacturing facility ($1,200,000), purchase equipment ($600,000), and produce inventory ($400,000). With the remaining cash, Slicenhook invests $45,000 in the stock of a privately owned graphite research company and retains $55,000 as working cash. Slicenhook operates on a just-in-time inventory system so it sells all inventory and collects all sales immediately. That means that at the end of the year, Slicenhook does not carry any inventory or accounts receivable balances. During 2017, Slicenhook has the following operating results: Sales $1,126,000 Cost of Goods Sold 400,000 Interest Income from tax-exempt bonds 900 Qualified dividend income from stock 1,500 Operating Expenses 126,000 Depreciation (tax) 179 on equipment $39,000 Equipment 81,000 Building 24,000 144,000 Interest expense on debt 120,000 The partnership is very successful in its first year.The success allows Slilcenhook to use excess cash from operations to purchase $15,000 of tax-exempt bonds (you can see the interest income already reflected in the operating results). The partnership also makes a principal payment on its loan from Big Bank in the amount of $300,000 and a distribution of $100,000 to each of the partners on December 31, 2017. The partnership continues its success in 2018 with the following operating results: Sales $1,200,000 COGS 420,000 Interest Income from tax-exempt bonds 900 Qualified dividend income from stock 1,500 Operating Expenses 132,000 Depreciation (tax) Equipment 147,000 Building 30,000 177,000 Interest Expense on debt 96,000 The operating expenses include a $1,800 trucking fine that one of their drivers incurred for reckless driving and speeding and meals and entertainment expense of $6,000. By the end of 2018, Reed has had a falling out with Carrie and Doug and has decided to leave the partnership. He has located a potential buyer for his partnership interest, Indie Ruff. Indie has agreed to purchase Reed's interest in Slicenhook for $730,000 in cash and the assumption of Reed's share of Slicenhook's debt. Carrie and Doug, however, are not certain that admitting Indie to the partnership is such a good idea. They want at least to consider having Slicenhook liquidate Reed's interest on January 1, 2019. As of January 1, 2019, Slicenhook has the following assets: Tax Basis FMV Cash $876,800 $876,800 Investment - tax exempts 15,000 18,000 Investment Stock 45,000 45,000 Equipment - net of dep. 333,000 600,000 Building - net of dep. 1,146,000 1,440,000 Land 460,000 510,000 Total $2,845,800 $3,489,800 Carrie and Doug propose that Slicenhook distribute the following to Reed in complete liquidation of his partnership interest: Tax Basis FMV Cash $485,000 $485,000 Investment Stock 45,000 45,000 Equipment - net of dep. 111,000 200,000 Total $641,000 $730,000 Slicenhook has not purchased or sold any equipment since its original purchase just after formation. REQUIRED: g) If Reed sells his interest in Slicenhook to Indie Ruff, what is the amount and character of his recognized gain or loss? What is Indie's basis in the partnership interest?