Sarah recently sold her partnership interest for significantly more than her outside basis in the interest. Two separate appraisals were commissioned at the time of the sale to estimate the value of the partnership's hot assets and other assets. The first appraisal estimates the value of the hot assets at approximately $750,000, while the second appraisal estimates the value of these assets at approximately $500,000. Given that the partnership's inside basis for its hot assets is $455,000, Sarah intends to use the second appraisal to determine the character of the gain from the sale of her partnership interest.

Questions to consider include the following:

1. Is it appropriate for Sarah to ignore the first appraisal when determining her tax liability from the sale of her partnership interest? 2. Which appraisal would you use and why two appraisals could be different? 3. Are there any ethical issues with purposely choosing the lower value? How much discretion does the tax law provide? 4. What are the appropriate tax rules to reference here and do the rules give any indication of materiality that applies?