Sam Watson contributes the properties below to a partnership in exchange for a 25% interest.

Property	Basis	Fair Market Value
Land	$300,000	$400,000
Cash	$100,000	$100,000

Two weeks afterwards, the partnership distributes $400,000 of cash to Sam in a partially liquidating distribution designed to reduce his partnership capital interest from 25% to 5%. Select the best response for the likely proper treatment of this transaction.

Question options:

	He should not recognize gain on this transaction because the cash distribution does not reduce his basis below $0.
	This transaction appears to be a disguised sale that probably should be treated as a partial contribution and a partial sale of property to the partnership.
	None of the above