This HW from Tax class. Please look at the attachment for detail. Thanks

Here are a problem question and its solution. I am asking you just rewrite them in 2 paragraphs in your words. First paragraph is restate the situation, second is summary of solution. Length is about 1 - 1 pages, size 12, double space. Thanks Research Problem 2. Five years ago Bridget decided to purchase a limited partnership interest in a fastfood restaurant conveniently located near the campus of Southeast State University. The general partner of the restaurant venture promised her that the investment would prove to be a winner. During the process of capitalizing the business, $2 million was borrowed from Northside Bank; however, each of the partners was required to pledge personal assets as collateral to satisfy the bank loan in the event that the restaurant defaulted. Bridget pledged shares of publicly traded stock (worth $200,000, basis of $75,000) to satisfy the bank's requirement. The restaurant did a good business until just recently, when flagrant health code violations were discovered and widely publicized by the media. As a result, business has declined to a point where the restaurant's continued existence is doubtful. In addition, the $2 million loan is now due for payment. Because the restaurant cannot pay, the bank has called for the collateral provided by the partners to be used to satisfy the debt. Bridget sells the pledged stock for $200,000 and forwards the proceeds to the bank. Bridget believes that her share of the restaurant's current and suspended passive losses can offset the $125,000 gain from the stock sale. As a result, after netting the passive losses against the gain, none of the gain is subject to tax. How do you react to Bridget's position? Solution: The tax issue underlying the problem Bridget faces is whether the gain on the disposition of the publicly traded stock constitutes portfolio income or passive income. If classified as passive, it could be offset by current and suspended passive losses from the restaurant partnership. However, if it is treated as portfolio income, the entire $125,000 gain is taxed, while the current and suspended passive losses remain unused. Sec. 469(e)(1)(A)(ii)(I) and Temp.Reg. 1.469-2T(c)(3)(i)(C) provide that portfolio income includes gain from property that is not derived from the ordinary course of a trade or business and that produces portfolio income. This definition generally includes property of the type included in an individual's stock portfolio. However, Bridget is apparently taking the position that because the sale of her stock is related to and required because of her interest in a passive activity, the gain is derived from the ordinary course of a trade or business and available to absorb passive losses. This position seems to be supported by Reg. 1.469-2(c)(2)(iii)(A) and Temp.Reg. 1.469-2T(c)(2), which state that such gain is passive if the property sold was used in the passive activity for at least 24 month sending on the date of disposition. Essentially, Bridget maintains that pledging the stock as collateral made it used by the passive activity. Consequently, a conversion from an investment asset to an asset used in a trade or business occurred. In Howard V. More [115 T.C. 125 (2000)], a taxpayer used a personal stock portfolio, which had been pledged to guarantee losses from a passive activity, to satisfy losses incurred by the passive activity. The task of the court in More was to reconcile the apparent contradiction between the specific rules of 469(e)(1)(A)(ii)(I) and Temp.Reg. 1.469-2T(c)(3)(i)(C), which provide for portfolio treatment, and the general rules of Reg. 1.469-2(c)(2)(iii)(A) and Temp.Reg. 1.469-2T(c)(2), which provide passive treatment. In this case, the court treated the disposition as producing portfolio income because the stock originally was acquired for investment and only later pledged and used to satisfy an obligation of the passive activity. In the court's view, the pledging and subsequent use of the investment assets did not convert them into assets used in a trade or business [i.e., the gain was not from \"investments made in the ordinary course of business\" as defined in Temp.Reg. 1.469-2T(c)(3)(ii)]. Although the facts in More involve an investor in the insurance industry ratherthan the restaurant industry, the court's conclusion would likely be applicable in Bridget's situation.Therefore, based on More, Bridget's position does not appear to be valid and the $125,000 gain willbe treated as portfolio income. As a consequence, all of her gain is taxable and none of the passiveloss from her restaurant investment may be deducted in the current year