Lawyer recently received a five capital and profits interest in ABC Partnership in exchange for professional services he provided to the partnership. If ABC had paid an outsider to provide these services, the payment would have been deductible as an ordinary and necessary business expense. ABC's balance sheet at the time of the transfer of partnership interest follow. Determine the amount and character of any gain or loss Lawyer must recognize upon receipt of the interest in ABC. ASSETS: Cash Investments 100,000 75,000 TOTAL ASSETS 175,000 LIABILITIES AND EQUITY: Nonrecourse loan payable 85,000 Partner capital 90,000 TOTAL LIABILITIES AND 175,000 EQUITY 4,500 capital gain No income is recognized 4,500 ordinary income 8,750 capital gain 8,750 ordinary income