Partnership ABCD is an equal partnership between partners A, B, C, and D. It has the following assets: $30,000 in cash, inventory worth $40,000 in which the partnership has a basis of $20,000, and a capital asset worth $20,000 in which the partnership has a basis of $12,000. The partnership distributes $22,500 in cash to partner A in liquidation of A’s interest in the partnership when A has a basis of $15,500. What are the tax consequences?

	A.	Partner A recognizes a capital gain of $7,000. The partnership does not adjust the basis of any of its assets.
	B.	Partner A recognizes an ordinary gain of $5,000 and a capital gain of $2,000. The partnership does not adjust the basis of any of its assets unless an election under Section 754 is in effect.
	C.	Partner A recognizes an ordinary gain of $5,000 and a capital gain of $2,000. The partnership’s overall basis in inventory is increased by $5,000.
	D.	Partner A recognizes a capital gain of $7,000. The partnership increases its basis in property by $7,000 due A’s recognition of gain.