TIMMY OWNS 40% OF THE STOCK OF JABO CORPORATION. HE HAS DEPRECIABLE MACHINERY THAT COSTS 25,000 TWO YEARS AGO AND HAS BASIS OF 18,000. THIS YEAR, JABO SELLS IT TO TIMMY FOR 17,000. TIMMY USES IT IN THE BUSINESS FOR 18 MONTHS AND DEDUCTS $2,000 OF DEPRECIATION. HE THEN SELLS TO UNRELATED PARTY FOR 1.5 MILLION GAIN. TIIMY WILL RECOGNIZE HOW MUCH GAIN ON THE SALE. THE LOSS ON A SALE TO RELATED PARTIES IS DISALLOWED BUT CAN BE USED ON A FUTURE DISPOSITION TO AN UNRELATED PARTY. HOWEVER THE LOSS CANNOT OFFSET THE DEPRECIATION RECAPTURE GAIN

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