On December 12, 2020, Jack contributed a painting to Kyle, LLC that was valued at $100,000 (basis of $5,000) in exchange for a 50% capital and profits interest in the LLC. Josh contributed $100,000 in cash and received a 50% interest in the LLC. On December31, Jack withdrew $50,000 in cash from the LLC and then on January 17, 2021, Josh purchased Jack's entire interest in the LLC for $50,000 and the partnership distributed the painting to Josh on February 15, 2021.

What adjustments if any might the IRS make?

Explain the consequences of such an adjustment to Josh & Jack and how this could have been prevented.