Use the following data.

The balance sheet (with fair market values displayed) is for a three-person service partnership with three equal partners. Thornton enters into a retirement agreement with the partnership that provides for payments of $33,500 annually for 4 years and liability release of $6,000 at the end of the payout period. The partnership agreement does not provide for property payments to a partner for the partners share of goodwill.

	Value	Tax Basis
Cash	240000	240000
Unrealized Receivables	60000	0
Unstated Goodwill	60000	0
Other Property	60000	45000
Total	420000	285000
Liabilities	18000
Capital	Value	Tax Basis
Norton	134000	95000
Horton	134000	95000
Thornton	134000	95000

When will Thornton recognize capital gain under this contract?

A	Year 1
B	Year 2
C	Year 3
D	Year 4